dtattrtl Iftmwtftig ^ilrmg THE GIFT OF 1J &b£t &L ,°2>6 ■ 4 2 Traveling Expenses IO >557-77 Chief Medical Examiner 16,500.00 Associate part of year 7,000.00 Associate part of year 1,041 .66 Other Examiners' fees 22,731 .81 ATTORNEYS AND COUNSELLORS, 1876. Principal counsel $12,000 . 00 Attorneys in New York 9,949 • 1 9 33 Law Firms elsewhere 13,346. 10 Outstanding Insurance, December 31, 1876. . 173,060,690.00 Total admitted assets 30,892,374 . 00 ITEMS TAKEN FROM THE REPORT OF THE EQUITABLE .LIFE AS- SURANCE SOCIETY, JANUARY I, I905. Home Office Expenses $1,177,501 . 12 Legal Expenses 204,019 . 25 Total insurance outstanding December 31, 1904 1,495,542,892.00 Total admitted assets 412,438,380.84 The remaining figures are very brief, much briefer than I -have read, and perhaps it is just to the companies to read them: 14 Introductory ITEMS TAKEX FROM THE NEW YORK LIFE INSUR- ANCE COMPANY FOR 1876. Salaries for 1876. President's Salary $25,000.00 Additional 6,250.00 $31,250.00 Vice-President's' salary 25,000.00 bonus 6,250 . 00 - 31,250.00 Three medical examiners 11,000.00 All other compensations to medical examiners 30,491 . 00 — 41,491.03 Total payment to all attorneys 21,376.75 Total Salaries to seventy-one clerks, etc., average 1,271 .50 95,364.70 Total outstanding insurance, December 31, 1876 127,748,478.00 Total all other clerks 9»796 • 08 Total admitted assets 33,163,715.26 ITEMS TAKEN FROM THE REPORT OF THE NEW YORK LIFE INSURANCE CO. OF JANUARY 1, 1905. Salaries of Officers and Home Office Employees $900,475 .90 Legal Expenses 172,698.42 Medical Examiners fees, including inspection. 966,916.07 Total outstanding insurance December 31, 1904 1,928,609,308 . 00 Total admitted assets 390,660,260 . 35 The Metropolitan Life Insurance Company, Tq Introductory Salaries for 1876: President's Salary $6,000. 00 Additional compensation 8,338 . 50 $14,338.50 Vice-President's Salary 6,000.00 Additional compensation 3.4 2 9 • 37 9.429-37 Secretary 5,000.00 Actuaries 4,000.00 Salaries to Medical Exp 2,250 .00 ( 1 ) Other Medical Examinations 11,493.00 13,743.00 Legal business 4. 1 J 3 • 9 1 Nineteen clerks at 17,916.99 Insurance outstanding December 31, 1876 24,223,764.00 Total Admitted Assets 2,145,193.00 ITEMS TAKEN FROM THE REPORT OF THE METRO- POLITAN LIFE INSURANCE COMPANY, JANUARY 1, 1905. Salaries Home Office $1,940,044.05 Legal Expenses 81,587.91 Medical Examiners fees including inspection 855,973.89 Outstanding insurance December 31, 1904, ordinary policies 342,535,052.00 Industrial policies .- 1,127,889,229.00 Total $1,470,424,281 . 00 JANUARY 1 st, 1905. Admitted Assets 128,094,315 . 24 16 Introductory It occurs to us to enter further in connection with this matter, from the record of the investigation of 1877 certain testimony given by Mr. Henry B. Hyde, late President of that Society, as bearing on one of the matters distinctively before this Com- mittee in connection with that Society. Mr. Hyde, I may say, repeatedly and unequivocally testified that the interest of the stockholders of that Society was limited to semi-annual dividends of three and one-half per cent. ; that no part of the surplus of the Society then accumulated had been so accumulated directly or indirectly, for the benefit of the stockholders, but that all surplus accumulations were for the exclusive benefit of the policy holders of the Society. He testified specifically on that subject as follows : "Q. What is the interest declared and paid to stockholders? A. Seven per cent. ''Q. Has there been any dividend paid to the original stock- holders exceeding that? A. They cannot receive, according to the charter, a higher rate than that ; that charter is explicit. "Q. Has there been any surplus set aside as property for distribution to the stockholders or reservation to the share- holders? A. Not a dollar. "Q. Has there been any addition to the original capital stock, or, in other words, to use a homely phrase, has it been watered or increased in any way? A. No, sir, there has not, in any shape or manner, past, present or contingent, been any other advantage given to stockholders other than the seven per cent." He was also specifically interrogated as to the then value of the capital stock of the Equitable Life Assurance Society : "Q. And what is the market value of that stock now? A. I think the market value of that stock is a little rising of $150 per share of $100. "O. Does it not stand as high as four or five hundred? A. 17 Testimony of Robert A. Granuiss There was an occasion, about four or five months since, when some of the stock was offered at auction; we became satisfied that parties whose motives were at least questionable, and opposed to the interest of the policy holders proposed to buy the stock, for the purpose of acquiring it to injure the company and it was bought in the interest of the company to protect the company from the assaults and machinations of persons hostile to the campany. "Q. How much stock was there sold that way? A. I think $1,000. "Q. Has there been any other stock sold or offered on the market within the past two years ? A. Yes, sir. "Q. When is the first time within the past two years? A. Perhaps once or twice a year. "O. What was the price at which it has been sold usually? A. It has been sold from $150 to $195, as near as I can re- member." . MR. HUGHES : It has seemed proper at the outset in taking up the various topics mentioned in the resolution that the Committee should be informed as to the organization and gov- ernment of the various insurance companies and of the extent to which the policy holders actually participate in their ad- ministration. We shall, therefore, at the beginning, offer evidence bearing upon that subject and later take up the other matters mentioned in the resolution, such as the investments of the companies, their expenses, and various questions relating to the practices of the companies and the conditions pertaining to the insurance business. I will ask Mr. Robert A. Granniss to take the stand. ROBERT A. GRANNISS, called as a witness, being duly sworn, testified as follows : Testimony of Robert A. Granniss BY MR. HUGHES: Q. Mr. Granniss, where do you reside? A. I reside at Morris Plains, New Jersey. O. What is your occupation? A. I am Vice-President of the Mutual Life Insurance Company. Q. How long have you been Vice-President of the Mutual Life Insurance Company? A. I have been Vice-President of the company since 1885, I think, and prior to that I was Second Vice-President subsequent to 1877. Q. Are you connected with any other companies? A. Any other life insurance companies? Q. No, any other companies. A. Only as director. Q. In what companies are you a director ? A. I am a director in the United States Mortgage & Trust Company, and also in the Lawyers Mortgage Company. Q. How long have you been a director in the United States Mortgage & Trust Company ? A. I cannot state from memory ; it is a matter of record. O. Some years ? A. Yes. Q. Likewise for some years in the Lawyers Mortgage Company? A. Well, about a year in the Lawyers Mortgage Company. MR. HUGHES : I note upon the record that the Mutual Life Insurance Company of New York was incorporated by special act known as Chapter 246 of the Laws of 1842, subsequently amended by Chapter 60 of the Laws of 1851 and Chapter 131 of the Laws of 1862. May I assume that there are no> other amend- ments to the charter? MR. BECK : None to my knowledge, Mr. Hughes. MR. HUGHES : I note upon the record the following pro- visions of the act, Chapter 246 of the Laws of 1842 : "Section 3 : 19 Testimony of Robert A. Granniss All persons who shall hereafter insure with the said corporation, and also their heirs, executors, administrators and assigns, con- tinuing to be insured in the said corporation as hereinafter pro- vided, shall thereby become members thereof during the period they shall remain insured by said corporation and no longer. "Section 4: All the corporate powers of the said company shall be exercised by a Board of Trustees and such officers and agents as they may appoint. The Board of Trustees shall consist of thirty-six persons, all of whom must be citizens of this State. They shall elect a president annually, who shall be a member of this corporation, and they shall have power to declare by by-law what number of trustee less than a majority of the whole, but not less than nine shall be a quorum for the transaction of business. "Section 6: The trustees shall at their first meeting divide themselves by lot into four classes of nine each. The term of the first class shall expire at the end of one year; the term of the second class shall expire at the end of two years ; the term of the third class shall expire at the end of three years ; the term of the fourth class shall expire at the end of four years; and so on successively each and every year. The seats of these classes shall be supplied by the members of this corporation, a plurality of votes constituting a choice, but an insurance of at least one thousand dollars in amount shall be necessary to entitle any member to a vote. This section shall not be construed to prevent a trustee going out from being eligible to re-election. The Board of Trustees may fill any vacancies of their number occasioned by death, resignation, or removal, from the State. The election of trustees shall be held on the first Monday of June in each year at such place in the City of New York as the Board of Trustees shall designate, and of which they shall give at least fourteen days' previous notice in two of the public newspapers printed in the said City. The Board of Trustees shall at the same time ap- 20 Testimony of Robert A. Granniss point three members of the said corporations inspectors to preside at such election, and if any of the said inspectors de- cline or fail to attend, the trustees may appoint others to fill such vacancies." Q. (Handing book.) Are these the By-Laws of the Mutual Life Insurance Company of New York now in force? A. They are, yes, sir, for 19P3. MR. HUGHES: From these By-Laws I will read upon the record Section 1 : "Pursuant to the charter of the company, the annual election of one class of Trustees, nine in number to hold office for four years, shall be held at the office of the Com- pany, in the City of New York, on the first Monday of June in ■each year at noon of that day. The poll shall continue open for two hours, and as much longer as may be necessary to receive the votes of the corporators who may be in attendance. At the annual election every person then insured in this Company to the amount of one thousand dollars shall be entitled, either in person or by proxy, to cast one vote for a person to fill each seat in the retiring class of the Board of Trustees, or to fill a vacancy. "2. Three Inspectors of the election shall be annually appointed "by the Board, at the quarterly meeting of the Trustees in April next previous to the election, and also three substitutes, to act in the order in which they may be named, in case any of the said inspectors fail to attend. Before opening the poll, the inspectors shall take the oath required by law and immediately after ■closing the poll, they shall openly canvass the votes received by them, and duly certify the result in writing, and deliver such ■certificate to the President. If said quarterly meting shall fail to take place, the President shall call a special meeting for the purpose aforesaid. Said special rheeting shall be held at least sixteen days previous to the holding of said election." Also Section 8: "At the regular meeting of the Board imme- 21 Testimony of Robert A. Granniss diately preceding the annual election of Trustees, the President shall lay before it the names of those whose terms of service will expire ; and information of such vacancies as may exist in that or any other class, in order that nominations may be made of such persons as may be thought best fitted to promote the interests of the Company." Q. Has that method been followed by the Company in the election of trustees ? A. It has. 0. Have nominations been made at the regular meeting of the Board preceding the annual election? A. They have. Q. Has the President suggested names of those who' should be elected to fill vacancies and 'take the places of trustees retired? A. Not that I am aware of. Q. The by-law provides that the President shall lay before the Board the names of those whose terms of service may expire in order that nominations may be made. That is done? A. That has always been done. Q. Then nominations are made? A. Then nominations are made by the Q. And the ticket is prepared? A. Exactly. Q. How long is it, according to your knowledge, since there has been a contested election in the Mutual Life Insurance Company? A. There never has been during my incumbency of office with it. Q. The nominations thus made in the Board have always re- sulted in the election of the trustee? A. Always. Q. Are inspectors of election appointed as provided for in the by-law that I have read? A. Always. Q. Are there any proceedings at the annual election other than the casting of votes and the canvassing of the votes by the inspector? A. The inspectors are duly sworn to perform their duties and then the polls are opened and votes are cast by those who are present. 22 Testimony of Robert A. Granniss Q. Are there any minutes of those proceedings? A. The only minutes consist of the certificate of election as furnished by the inspectors. Q. And where does that certificate of election appear? A. In the minutes of the Board. Q. That certificate is presented to the next meeting of the Board? A. It is. Q. The only record, then, that you have of the election or pro- ceedings of the election, or its result, is contained in the entry of the certificate in the minutes at the next meeting of the Board? A. Yes. Q. Have you the minutes of the Board of Trustees of the Mutual Life Insurance Company here? A. I have. MR. HUGHES : Will you please produce them ? (Book produced.) Q. Will you please turn in the minutes of the Board of Trustees for 1904 and 1905 to the record of the certificate of the inspector showing the result of the elections in those years? A. There is the entry for 1904. Q. You refer now to the certificate which is as follows, which I will read upon the record : "OFFICE OF THE MUTUAL LIFE INSURANCE COM- PANY OF NEW YORK, Monday, June 6th, 1904. "The undersigned, the duly appointed inspectors of election, do hereby certify that an election was held at the office of the Mutual Life Insurance Company of New York on the 6th day of June, 1904, for nine trustees of said company to hold office under the charter for the next four years. That the total number of votes cast was one hundred and fifty-eight. That of the votes 23 Testimony of Robert A. Granniss so cast the whole number voted in person was one hundred and fifty-eight; and that there were no votes by proxy; and that of the said whole number of votes cast by voters in person Dudley Olcott received one hundred and fifty-eight votes," and the other gentlemen named who were elected "received one hundred and fifty-eight votes and we therefore declare the above named," renaming them, "duly elected trustees of said company for four years. IN WITNESS WHEREOF, we have hereunto set our hands and seals, this 6th day of June, 1904. JAMES C. HENDRICKS, WALTER G. OAKLAND, G. G. HAVEN, Jr. And sworn to on the same day. Q. Is the minute for 1905 in that book? A. It is. MR. HUGHES : I will read upon the record the certificate as follows : "OFFICE OF THE MUTUAL LIFE INSURANCE COM- PANY OF NEW YORK, Monday, June 5th, 1905. "The undersigned, the duly appointed inspectors of election, do hereby certify that an election was held at the office of the Mutual Life Insurance Company of New York on the 5th day of June, 1905, for nine trustees of said company to hold office under the charter for the next four years. That the total number of votes cast was one hundred and ninety-nine; that of the votes so cast the whole number voted in person was one hundred and ninety-nine ; and that there were no votes by proxy ; that of the said whole number of votes cast by persons, the persons named below received the entire number." Followed by the signature of George H. Cumming, Walter G. Oakland and G. G. Haven, Jr., as inspectors. Q. Are you able to say whether those two certificates that I 24 Testimony of Robert A. Granniss have read fairly indicate the course of elections in the Mutual Life Insurance Company for a long period of years, to wit, that a number of votes, say two hundred have been cast in person? A. That is the fact, sir. Q. And that no votes have been cast by proxy? A. I have never known any ,votes cast by proxy except in one instance where a policyholder came from some town in the State of New York, in the northern part of the State, bearing four proxies, and he desired to cast the votes of these policy holders resident in his town, and he did so. He voted for the regular ticket. Q. How long ago was that? A. That may be five or six years ago. Q. And that is the only instance of that sort which you recall? A. That is the only instance I know of. Q. As a matter of fact, officers of the Mutual Life Insurance Company hold proxies from policy holders ? A. That is the fact. Q. To what extent are such proxies held, that is, how many are there? A. The proxies are not held by the officers as such; they are held as individuals Q. It does not run, in other words, to an officer in his official capacity, but they are held by individuals who are at the same time officers? A. That is the fact. Q. Who are the persons to whom the proxies of the policy holders come? A. Mr. McCurdy and myself. Q. Richard A. McCurdy, the President, and yourself ? A. Yes, sir. Q. Are you jointly named in these proxies ? A. We are. Q. In all proxies that are held at the office of the company? A. Yes, sir. Q. Has that been the practice for years, to have proxies sent to Mr. McCurdy and yourself in your joint names? A. Yes, sir. Q. How many such proxies have you now at the Mutual Life office? A. I don't know, sir; I cannot tell from memory. 25 Testimony of Robert A. Granniss Q. Well, have you large numbers of them? A. Yes. Q. Running into the thousands? A. Yes. Q. Stacks of them ? A. Well, that depends upon what O. A stack may be large or small ? A. Exactly. Q. Well, do you keep any record of the proxies that you and Mr. McCurdy hold? A. No. Q. Have you any book or list in which they are entered ? A. Not that I am aware o'f. Q. Has there ever been any way by which you could ascertain how many proxies you actually held save by going through the papers and counting them ? A. Not that I know of. Q. As a matter of fact, you hold upwards of 50,000 proxies, don't you? A. I don't think we hold as many as that, although I Q. What would be your best estimate of the number you hold? A. Well, certainly 20,000 ; perhaps more. O. Twenty thousand or more? A. Yes, sir. Q. And you have never had occasion to use them ? A. Never. O. But they are ready for use if needed? A. I presume so, if it becomes necessary. Q. What instructions do you give to the agents or others of the Company with regard to the taking of proxies in Mr. McCurdy's name and your name? A. No definite instructions, sir. The policy — the proxy blanks placed in the policy when it is issued by the Company and the agent states the conditions to the policy holder when he delivers the policy and accepts the premium. If the policy holder desires to execute the proxy he is at liberty to do so ; if not the blank is returned. O. Have you the form of such a policy with such a blank here ? A. I have the envelope of it, that is all, (Producing same.) Q. Well, this does not contain the proxy. MR. BECK : Well here is the policy. 26 Testimony of Robert A. Granniss MR. HUGHES : I was referring to this form which I under- stood you to say was upon the same sheet as that upon which the policy was written. THE WITNESS : Well, I didn't understand you. Q. You meant it was A. It is a separate blank put in the policy. Q. Folded in the policy ? A. And it can be taken out and dis- posed of in any other way. MR. BECK: Mr. Hughes, if you will pardon me here is the exact notice that is given to the policy holder at the time of the delivery of each policy. You may see the nature of the com- munication from the compay to each policy holder. Q. I understand, Mr. Beck, that the notice on the back of this envelope is the notice which you desire to have the policy holder read at the time he takes his policy and at the time when this proxy blank is put in his hands for execution, if he sees fit to execute it? A. Exactly. O. In other words you hold it out to the policy holder as entirely an optional course whether he shall sign this proxy? A. Entirely so. Q. And the form of the proxy which, if he is willing to sign one at the time he takes insurance, which you suggest should be signed, is the one I hand you? A. That is the form. MR. HUGHES : I offer that in evidence. MR. BECK : Mr. Hughes, which did you offer in evidence ? MR. HUGHES: I offered the proxy form. Marked Exhibit 2. 27 Testimony of Robert A. Granniss MR. HUGHES : It is suggested that it would be fair to the companies that this notice given to the policy holders be put upon the record, and certainly there is no objection to that and I offer it in evidence. Marked Exhibit 3. MR. HUGHES : The notice on the back of the envelope con- taining the policy and enclosing the proposed form of proxy; Headed IMPORTANT : You are now a policy holder in the Mutual Life Insurance Com- pany of New York. Your interests are from this moment identi- cal with those of your company. It is purely a mutual company (not a stock company). You share in its prosperity and profits in proportion to your pecuniary interest in it. Permit no agents or rival companies to induce you to change or discontinue your policy. If you contemplate increasing your insurance, it is to your interest to place it in your own company, and thereby you increase its business and directly promote your own interests. By placing the insurance in another company you fail to enhance the value of your investment in this. Always remember that this is the largest, safest and best of all the companies. You cannot better yourself as a policyholder by insuring elsewhere. It is entitled to your first consideration, since it holds the foremost place among the Life Insurance Insti- tutions of the world, and offers superior advantages in all its business features, together with unequalled financial security, Therefore, hold on to your policy. Before you give credence to anyone who may seek to undermine your faith in "the Mutual Life" or its management write for an explanation, to the Head Office or to the nearest agent of the company. 28 Testimony of Robert A. Granniss Any holder of a Policy in the Company for $1,000 and up- wards is entitled to vote either in person or by proxy for Trustee. The annual election is held at the Head Office in New York, on the first Monday in June. RICHARD A. McCURDY, President. MR. HUGHES : Now I read upon the record the form of proxy endorsed with the policy in the envelope endorsed in the manner just stated, following: "KNOW ALL MEN BY THESE PRESENTS, That I, of County of State of do hereby con- stitute and appoint Richard A. McCurdy and Robert A. Grannis, or either of them, my Attorneys and Agents, for me and in my name, place and stead, to vote as my proxies as a policy holder at any election of Trustees of the Mutual Life Insurance Company, with full power of substitution and revocation, hereby ratifying and confirming all that my said Attorneys and Agents, or their substitutes shall lawfully do or cause to be done by virtue hereof. Unless sooner revoked this proxy shall continue in force for ten years from the date hereof. IN WITNESS HEREOF, I have hereunto set my hand and seal this day of in the year Owner of Policy No Signed, sealed and delivered in presence of Q. Do you keep any record which will enable you to tell what proxies have expired? A. The proxies are gone over every year and such proxies as have expired are destroyed or returned to the 29 Testimony of Robert A. Granniss Q. Who does that? A. A clerk in the Actuary Department. Q. Who has charge of that particular work ? A. Yes, O. So that you will be advised as to what proxies are continued in force? A. Yes. O. You, of course, in that examination have in mind the ex- piration of the policy as well as the revocation of the proxy? A. Certainly. O. Do you keep any record specially of the revocation of the proxies? A. No, nothing but the letter which the agent or the policy holder writes. There probably have been — there may have been a dozen revocations with the past six months. Q. A dozen? A. But not to exceed that, I think. O. Would that be the average in your experience of the proxies that are revoked, say a dozen in six months? A. Well, larger than the average. Q. That is large? A. Yes. 0. Well, practically there are no revocations? A. Practically none. O. And unless the policy expires this proxy to Mr. McCurdy and yourself continues for ten years ordinarily? A. Yes. Q. Now, is there nothing at all in the office of the Mutual Life to which you can go as a record to see whether a particular policy holder has given a proxy to you ? A. We can refer to his proxy. Q. That you would have to sort out from this mass of papers ? A. They are arranged in numerical order. Q. Numerical order, according to the proxy numbers? A. Yes. Q. And kept in safes ? A. No. Q. In trunks ? A. In tin boxes. Q. In tin boxes in safes, and arranged numerically, and it is that numerical order alone which gives you a clew as to whether any particular policy holder has executed a proxy. A. That is it. Q. How many policy holders are there in the Mutual Life — 30 Testimony of Robert A. Granniss roughly, not of course to the last person? A. I should think something over six hundred and fifty thousand. Q. Six hundred and fifty thousand ? MR. ROGERS : May I ask a question ? By MR. ROGERS: Q. Are those policy holders of a thousand dollars and upwards ? A. Exactly. By MR. HUGHES: Q. Six hundred and fifty thousand? A. Well, no; of that six hundred and fifty thousand there would be a large number who hold policies of a less amount, paid up policies. As a rule we don't write policies for less than a thousand dollars, but when a man takes a paid up policy the amount would be less. Many of those are paid up policies for smaller amounts. Q- How many policy holders are there who are entitled to vote under the charter, that is, who are holders of policies for a thousand dollars and upwards? A. I can't state, sir, without reference to records. Q. Well, without being held to exactness, could you tell us within twenty-five or thirty thousand of the number? A. I don't think I could without misleading — perhaps Mr. McClintock can give me some idea. Q. We will accept his answer to save time, if he can give it. MR. McCLINTOCK: It is impossible to guess because so many persons will settle their policies ; but I should suppose that there must be between four and five hundred thousand persons. Q. Four or five hundred thousand persons, then we may assume who are entitled to vote for Trustees? You were speaking a 31 Testimony of Robert A. Granniss moment ago of the instructions, which as I recall it, you said were not very definite, that were given to agents with regard to taking the policies. The instructions are given in the first instance to whom? The taking of proxies I should say. A. They are given primarily to the Company's managers, local managers. Q. Now, what are those instructions? A. There are no printed instructions. Q. No, but the oral instructions? A. Well, if the policy holder desires to give his proxy it is duly accepted. That is practically it. Q. The instruction is, is it not, to get a proxy from the policy holder if he is willing to give it? A. Exactly. Q. And these instructions from the General Manager to the Local Managers are by them circulated among the agents? A. Exactly. Q. So every agent who writes a policy for the Mutual Life is instructed to get a proxy from the policy holder if the policy holder is willing to give it running to Mr. McCurdy and yourself ? A. Yes. Q. Now after this election and the presentation of the certi- ficates to the Board showing the result of the election, the Board proceeds to elect officers does it not? A. It does. Q. And who are the officers? A. The President. Q. And who else are elected ? A. Once in four years the Vice- President. Q. Do I understand the President is elected annually? A. The President is elected annually. Q. And the Vice-Presidents? A. Elected once in four years. Q. How many Vice-Presidents are there? A. There are two. Q. Two First Vice-Presidents ? A. Two First Vice-Presidents. Q. And then is there a second Vice-President ? A. There is a second Vice-President and a third Vice-President. They are ap- pointed not elected. 32 Testimony of Robert A. Grannn^ Q. Appointed by whom? A. By the Board. Their appoint- ment continues until revoked. Q. And what other executive officers are there? A. The Treasurer and General Manager. 0. And how are they chosen? A. They are appointed by the Board. Q. Are there any other Executive Officers? A. The Execu- tive Officers are set forth in the By-Laws. Q. To save the time of reading these By-Laws on the record, you have an Assistant Treasurer and a second Assistant Treas- urer? A. Yes. Q. And by whom are they chosen? A. They are appointed by the Board. Q. And the Comptroller? A. By the Board, yes. Q. Now are you able to state, and will you state the salaries of these officers — the President? A. I am not able to state the salaries of the officers, except my own. Q. Who would be able to give that information? A. The cashier. Q. What is your salary? A. My salary is fifty thousand dollars. Q. And how .long has it been fifty thousand dollars? A. Four or five years. Q. What was it prior to its change four or five years ago ? A. It was forty thousand. Q. And how long had it been forty thousand? A. I can't recall that, sir. For several years. Prior to that it was thirty. Q. I should like to have your Company for convenience pre- sent a table of the salaries of the executive officers ? A. Yes. Q. For a period, say of fifteen years, showing the changes in the salaries of the officers mentioned in the By-Laws and their present salaries, to save time in bringing out the evidence, which I can enter upon the record. 33 Testimony of Robert A. Granniss MR. HUGHES : Now I read upon the record, By-Law Eleven as to the duties of the President : "The President shall, if present, preside at all meetings of the Trustees ; he shall be ex-officio member and Chairman of all Standing Committees, and may preside at the meetings thereof, except the Auditing Committees and Committees on Expenditures, which latter Committees shall choose their own Chairman and to keep their own minutes, he shall also attend the meeting of any special committee when requested by the Chairman. The President shall also have the general direction and superintendence of the affairs and of the offi- cers of the Company, and shall establish rules and regulations for the conduct of the business of the Company and for the direction of its officers. He may from time to time devolve the performance of his duties upon any one of the Vice- Presidents under the designation of Acting President. He may suspend or remove any agent, manager or general agent at pleasure, but in all cases in which the duties of the subordinate officers, employees and agents of the Company are not specially prescribed by its By-Laws, or by a resolution of the Board, they shall obey the orders and instructions of the President.'' Q. Who is the President of the Society ? A. Mr. Richard A. McCurdy. Q. And how long has he been President? He has been Presi- dent since 1885, I think. Q. And prior to that? A. He was Vice-President. Q. For how long? A. Well, for Q. Twenty years? A. Well, yes, fully twenty years. MR. HUGHES : I will read from By-Law Fifteen the follow- ing, as to the duties of the Vice-President : 34 Testimony of Robert A. Granniss "There shall be two or more Vice-Presidents, who shall respectively have precedence in the order of their election and who shall also be Trustees of the Company and hold office during the pleasure of the Board; and whenever a vacancy shall occur it shall be filled by ballot at the next or subse- quent meeting after such vacancy is declared. The Vice-Presidents shall assist .in discharging the duties of the President, as they may be directed by him. It shall be the duty of such one as shall be designated by the Presi- dent to' keep the minutes of the Standing Committee except as otherwise provided, and they shall in the absence of the President perform his duties as assigned to them by him, and such other duties as the Board may prescribe. They shall be ex-officio members of all the Standing Committees except the Auditing Committee and The Committee on Ex- penditures. There shall be a second Vice-President, who shall keep the minutes of the Board and of the Committees on Insurance and Agencies, and shall assist the President and Vice- Presidents in the discharge of their duties as directed by the President. There shall be a third Vice-President, who shall have the supervision of the Company's office buildings, wherever located in the United States, collect the rents thereof, direct the purchases of such supplies as may be needed for the due maintenance of such buildings, have charge of the current expenses of such buildings, and when such expenditures are duly authorized shall certify that they are in accordance with such authority, before payment, and discharge such other duties as may be assigned him by the President. The President and Vice-Presidents are authorized to dele- gate such portions of their duties or ipowers as may be deemed advisable by them, to an executive officer, to. be 35 Testimony of Robert A. Granniss called the general manager. He shall be a member of the Board, and ex-officio member of all Standing Committees." Q: You are the First Vice-President. Is there another first Vice-President? A. There are two Vice-Presidents. O. Who is the other ? A. Walter R. Gillette. Q. And who is the second Vice-President? A. Isaac F. Lloyd. Q. Who is the third Vice-President? A. John A. Ponder. Q. Has a general Manager been appointed? A. Yes. Q. Who is he? A. Mr. Robert H. McCurdy. Q. Is he related to the President? A. He is the son of the President. Q. How long has Mr. Robert H. McCurdy been General Man- ager? A. I think for about two years. Q. Was he connected with the Company prior to that time? A. Yes. Q. In what capacity? A. He was superintendent of the Foreign Department. 0. And how long had he been such? A. He had been super- intendent of the Foreign Department for — I couldn't state positively, but upwards of ten years. Q. And prior to that was he connected with the Company? A. He was in one of the agencies. Q. So he has been connected with the Company for a great many years? A. Yes. O. In practice what part of the business of the Company do you attend to ? A. I do as the By-Law provides ; I perform the duties of the President in his absence, and when he is present, I have more immediate charge perhaps of the Companv's real estate matters, and a variety of affairs that are difficult to enumerate. Q. Under the direction of the President? A. Under the direc- tion of the President- 36 Testimony of Robert A. Granniss Q. What does the other Vice-President do? A. His duties are similar in character to mine. O. Well, do yoii mean that he attends specially to the real estate business ? A. No ; he has very little to do with that. He has other branches of the business. O. Well, what particular branch of the business does he attend to? A. Well, his principal duties are in charge of the matters of expenditure. Q. Keeping track of the expenses of the company? A. Keep- ing track of the expenses of the company and Q. What does the Second Vice-President do? A. The Second Wee-President has a large amount of signing, and checking and matters of that sort. O. Matters of records and minutes ? A. Yes. Q. What does the Third Vice-President do? A. The Third Vice-President has immediate charge of the office buildings. Q. Xow, the By-Law Fifteen provides that the President and Vice-President may delegate to the General Manager such por- tion of their duties or power as may be deemed advisable by them. In practice what duties are delegated by the President and Vice-President to the General Manager? A. Such duties as may be necessary to enable him to perform his duty in charge of the company's agencies. He has charge of the company's agencies throughout Europe and America, and he is an execu- tive officer, and the powers delegated by the President and the Vice-President are such as to enable him to perform his duties in charge of those agencies. Q. Who has the custody of the securities? A. The treasurer. Q. And anyone associated with him? A. An Assistant Treasurer. Q. Who is the Assistant Treasurer? A. The Treasurer is Mr. Frederick Palmer. Q. How long has he been connected with the Company? A. 37 Testimony of Robert A. Granniss He has been connected with the Company for upwards of twenty years. Q. How long has he been Treasurer ? A. He has been treas- urer I think for about fifteen years, but it is a matter of record. Q. Who is the Assistant Treasurer ? A. The Assistant Treas- urer is Mr. James Timpson. Q. Mr. James Timpson, and how long has he held that office? A. Well, he has been Assistant Treasurer about two years, Prior to that he was second Assistant Treasurer. O. Now, you have a number of committees, have you not, standing committees? A. Yes. Q. They are enumerated, I think, in By-Laws 35 ; there is a Finance Committee, a committee of Agencies, a committee on Insurance, a committee on Mortuary Claims, a committee on Expenditures, and Auditing Committee. There is no Executive Committee? A. No. Q. If the Board of Directors or Trustees is not in session the Committee having direct charge of the assets of the Company and the investments and matters relating to finances is the Finance Committee? A. Exactly. Q. Now, of whom is that Committee composed? A. That is composed of six members. Q. Who are they, please? A. Mr. George Baker, Mr. A. D. Juilliard, Mr. George G. Haven, Mr. Adrian Iselin, Jr., Mr. Charles R. Henderson, and Mr. James N. Jarvin. Q. Now, some of the officers are ex-officio members of that committee, are they not? A. Yes. Q. What officers ? A. The President, two vice-Presidents, the Treasurer and Assistant Treasurer and the Comptroller. Q. And how many of that committee are necessary to consti- tute a quorum ? A. I don't recall the exact number, sir. Q. You are a member of that Committee? A. I am a member 38 Testimony of Robert A. Granniss of that Committee, but the official members of the Committee do not vote. Q. So that no business is transacted in the absence of the members of the Board who are on the Committee who are execu- tive officers ? A. That is correct. Q. How many times a week does that finance committee meet? A. The finance committee meets regularly — the full committee meets every Wednesday at half past ten. There is a sub-commit- tee of the finance committee consisting of three members, Mr. Haven, Mr. Julliard and Mr. Iselin. They meet twice a week, on Tuesdays and Fridays. Q. Do you attend the meetings of the Committee? A. I do. Q. Who keeps the minutes of that Committee? A. Properly speaking I suppose I do. As a matter of fact the assistant — the assistant treasurer keeps them. Q. You mean you are responsible for them ? A. Yes. Q. And he does the writing. A. Yes. 0. Are those minutes here? A. Yes, sir, I believe they are here. Q. In addition to the officers, that have been named there is an Actuary, is there not? A. There is. Q. Or more than one? A. There are two associate actuaries. Q. What are their duties? A. Their duties are to assist the Actuary in the discharge of his duties. Q. And what are his duties? briefly? A. His duties are to attend to the mathematical parts, the computations of the Com- pany's business. O. Computations as to the premiums to be charged ? A. Com- putations as to the premiums to be charged. Q. Computations as to dividends to be paid? A. Yes. Q. Computations as to reserves, etc? A. Yes. Q. As to policies and forms? A. Yes. Q. Terms of insurance, in other words? A. Yes. 39 Testimony of Robert A. Granniss Q. What is the particular business of the Comptroller ? A. The Comptroller has charge of the loans on bond and mortgage, what little there may be. O. And what does the cashier do ? A. The cashier has charge of the receipts and disbursements of moneys. Q. You have been asked to produce the minutes of the Finance Committee? Are these volumes that are now produced those volumes ? They are. O. Are you personally conversant with these minutes, that is, have you prepared them? A. No; I have not prepared them but I am Q. Are you acquainted with these particular pages that I now show you? A. Yes. Q. These particular entries? A. I presume so. Q. Well, are you relying upon your supposition, or we're you really personally concerned in their preparation and do you per- sonally know ? A. For example, in this particular case I was present at this meeting (indicating in book). Q. Yes. A. You will find my name reported there as being present. Q. Who does keep these minutes ? I mean to say, who has, for example, had this bound up, had this typewriting done and seen that it is correct? A. It is done under my supervision. Q. Who is the person who actually does it. A. Mr. Finch. Q. Is he your stenographer? A. He has charge, yes — the President's stenographer generally writes this from memoranda. 0. Are these the original minutes? A. Those are the original minutes. Q. They have not been copied? I don't see any signatures here. Is it customary to have the minutes signed ? A. Never, it has never been customary. Q. In other words, take these minutes of 1901, we may take 40 Tcsthnony of Robert A. Granniss these as the original minutes of the Company? A. They are the original minutes. Q. There have been no copies made of the minutes ? A. No. Q. From simply the original book in your custody, they are the original minutes ? A. Yes. Q. I have asked you to produce a list of proxies and I take it that you have none, so that you cannot answer that part of the subpoena. I have asked you to produce also a list of the secur- ities which the Company now has, of securities which have been purchased or sold during a period of years ; have you that or is •it in course of preparation? I understand that you have pro- duced a list of securities now held and that you have in course of preparation a list of securities that have been bought and sold during the period covered by the subpoena. A. Yes, sir. AIR. HUGHES : We shall have to ask you to attend a little later, of which we shall give you notice, but that is all for the present. It has been suggested that instead of preparing a list of salaries for fifteen years, that the Company furnish to the Committee a list of salaries of the executive officers from 1877 to the present time, showing whatever changes may have oc- curred. I will ask you another question. Q. I understand that in giving the members of the Finance Committee, there were some that you omitted ? A. Yes. Q. (Showing paper) : Is that a correct list of the Finance Committee. A. I will have to read it. Q. You had better read upon the record a complete statement of them ? A. This is correct. Q. Just read it on the record? Robert A. McCurdy, Robert A. Granniss, W. R. Gillette, Robert H. McCurdy, George F. Baker, A. D. Juilliard, Adrian Iselin, Jr., George C. Haven, 4i Testimony of Robert A. Granniss James M. Jarvin, W. W. Richards, Comptroller,' James Timpson. Assistant Treasurer. .Q. I asked you whether in the intervals between the meetings of the Board of Directors, the Finance Committee had general charge of the finances of the Company, and you gave an answer which I understand is open to some misconstruction. I under- stand in the By-Laws, these Committees, one of these com- mittees, apart from the Finance Committee, is a committee on expenditures, and the fact is that the committee has in charge the making of disbursements in connection with the Company's business apart from investments? A. Yes, sir. O. Isn't Charles R. Henderson on the Finance Committee? A. Yes, his name is there. O. Did you give it? A. I did. Q. You have said, I believe that there are seven hundred and fifty thousand, approximately, of policy holders in the Mutual Life, and it has been stated that between four and five hundred thousand might be taken to be the number of those holding one thousand dollars of insurance? A. Yes, sir. Q. Have you a list of the policyholders of the Mutual Life? A. Not a list as such ; the records, of course, are perfect in the company's offices. Q. Haven't you a correct index of policyholders? A. Yes. Q. A list of policyholders? A. A list of policyholders, in a sense. It is what is called the card index system. Q. All a card index. A. Yes, sir. Q. You have no book, but that is a fluctuating list which you keep by a card index system? A. Yes, sir. Q. Is that list accessible to- policyholders? A. No, not more than any other record of' the company. Q. Is it accessible? A. It is accessible in a sense. Q. If I, as a policyholder, wanted to go there and copy it, could I do it? A. With limitations, possibly. 42 Testimony of Robert A. Granniss Q. Well, what limitations? A. I am not prepared to say just at present. Q. Has there been any request on the part of policyholders to ascertain the names of policyholders of your company? A. Not that I am aware of. O. What is the attitude of the company toward the right of policyholders to inspect whatever records you have, of policy- holders in the company? A. There has been no demand made to make an inspection that I know of ; therefore, I do not know of any attitude we would assume. O. None has been definitely assumed ? A. No, sir. Q. There is only one card index and that in the main office? A. I know there are several card indices for the several depart- ments. Q. Are they all in the main office ? A. Yes. Q. Are there indices of policyholders in other parts of the country, or in other cities than in New York? A. Only for the paiticular policyholders resident in that locality. Q. If I, as a policyholder wanted to communicate with other policyholders in the Mutual Life with reference to the exercise of any franchise, how would I find out who the policyholders were, or how could I? A. I am not prepared to say, sir. O. Do you know any way, except by advertising ? A. I should first make application to the company; I don't know what their altitude would be in the matter. O. You are not prepared to say that they would grant me opportunity to examine the list, or that they would refuse it? A. Or that they would refuse it, no, sir. Q. And apart from that, there would be no way of finding out, except by advertising? A. I don't know, sir. Q. Notices are published of the annual meetings, I believe, or of the annual elections, under the charter? A. Yes, sir. Q. Where are these notice published, in what papers ? A. They 43 Testimony of Robert A. Granniss are published in three or four New York City evening papers and in three or four New York morning papers, from twenty to four- teen clays prior to the date of election. Q. You say three or four, that is a little in excess of the charter requirements? A. Yes, sir. Q. That is a fact ; that is not a mere supposition ? A. That is a fact ; I am speaking of the fact ; we do more than the charter requires us. Q. You publish in three or four City papers? A. Yes, sir. Q. For a period of fourteen days? A. For a period of seven- teen or eighteen days. O. Daily? A. Daily. O. Have you a copy here of any such notice so that I could see the form of it? A. I think the copy will be found in the minutes of the Board. O. Now, I show you a notice published in the Tribune for the annual meeting of 1905, which according to the affidavit you have produced, was published for seventeen clays, commencing May 20, 1905. Is that the ordinary form of notice? A. That is the ordinary form of notice. O. A little over half an inch in width? It is published under the election notices in the column of the paper referred to. Q- And the notices in the other papers are of the same sort, a short notice, the ordinary width of the column, and a little over half an inch or three-quarters of an inch in depth? A. Yes, sir. Q. Did you publish any notice of this meeting or annual elec- tion in other places than the City of New York? A. We put it in the company's periodical called "The Statement," which is pub- lished once a month. Q. Outside of that publication, did you publish it anywhere, save in these papers in the City of New York? A. No, sir. Q. Did you publish it in any foreign cities where you do busi- ness? A. No. 44 Testimony of Robert A. Granniss Q. Did you send any notice by mail to the policy holders? A. Nothing except the notice that you find in the policy envelope. Q. You mean the original notice given to the policy hoMer when he takes the policy ? A. Yes, sir. Q. That practice which you have now spoken of, both with reference to the publication of notices and the mailing of notices, has been the uniform practice for many years? A. You mean in the matter of publication in the papers ? O. Both as to the publication and as to the mailing and as to the submission of this notice to the policy holder, when he gets the policy, all that is a matter of uniform practice for many years ? A. I do not think it has been the practice of sending the notice ; on the policies it has existed for many years. Q. How long has that existed? A. I cannot say positively from memory. Q. Well, approximately'; more than a year? A. I do not think more than a year. Q. More than six months ? A. Yes, I think so. Q. Well, has that notice on the reverse of the policy envelope informing policy holders of their right to vote, been put upon these envelopes say since last fall ; was that practice adopted before that time ? A. I think so, I am not positive ; the latter did not impress itself on my mind. Q. And prior to that time, aside from the publication in the newspapers to which you have referred, in the City of New York, and the publication in this paper published by the Society, there was no notice given the policy holders of the annual election ? A. No formal notice. Q. Well, no other notice? A. Through the agents. Q. You mean in conversation ? A. I mean in conversation. Q. And happening to mention it? A. Yes. Q. I mean a notice emanating from the office in an official way ? A. No, sir. 45 Testimony of Walter G. Oakman Q. This paper that you speak of as having been published by the company, contained a reference or notice of annual meeting's is that mailed to policy holders? A. It is in many different agencies; it is not mailed directly from the home office. Q. It is placed in the hands of agents to deal with as they think fit? A. Yes, sir. Q. And some of them mail it to policy holders within their respective bailiwicks, and some do not? A. Yes, sir. Q. You do not know how extensively it is mailed? A. No, except there are a large number published. WALTER G. OAKMAN, called as witness, being duly sworn, testified as follows : Q. Mr. Oakman, where do you reside? A. At Roslyn, Long Island. Q. And are you a trustee of the Mutual Life? A. I am not. Q. Are you in any way connected, with the Mutual Life, other than as an inspector of elections, from time to time? A. I have been connected with a trust company which was organized as one of the Mutual Life's associates. O. What trust company is that? A. The Guarantee Trust Company. Q. And how long have you been connected with that? A. Ten years. Q. In what capacity? A. President, until recently and now, Chairman of the Board. Q. Have you served as inspector of the elections of the Mutual Life Insurance Company? A. I have. Q. How frequently? A. Five or six years. Q. Consecutively? A. Yes. Q. I show you the certificates of election under date of June 6, 1904, that is signed by you ? A. Yes, sir. 46 Testimony of Walter G. Oakman Q. Will you state briefly just what was done at that election? A. The Board of Inspectors of Election met and opened the polls for a period of two hours, and received the votes of those who came to vote personally, recorded them and made that certificate. Q. Was there a printed ticket? A. There was a printed ticket. Q. And who had the printed tickets, the inspectors of election? A. Xo, they were exposed on the table. Q. And when these persons came in who voted, they took one of these tickets and dropped it in a box? A. They did. Q. You counted the number of persons? A. We did. Q. Who deposited such ballots? A. We did. 0. How did you know that these persons were policy holders? A. We took the names of the persons and recorded them. We did not verify the fact that they were policy holders. The ques- tion was mooted, and the answer to it was that out of five or six hundred thousand names of policy holders of the company, it would be very difficult to make and copy the list and verify those people who came in, and those who did vote were known to the officers of the company there as being policy holders, and vouched for by them. Q. So that so far as you, independently, were concerned, you had no knowledge that they were qualified to vote, but relied upon what the officers of the company advised you? A. We did. Q. And who were the officers of the company that advised you that these persons were qualified to vote? A. The Presi- dent and Vice-President and Actuary were there. Q. They were there continuously through the two hours? A. They were, practically continuously. Q. So that you always had someone there who purported to know the policyholders? A. Yes, sir. Q. Did this occur; That a man would come in, and Mr. • McCurdy, or someone else, would tell you that he was a policy- 47 Testimony of Walter G. Oakman holder, and he would vote the ticket and he would subsequently have this ticket canvassed? A. Yes, sir. Q. And that is all the relation you had to the matter? A. Yes, that is all. Q. You made no effort yourself to inquire whether these per- sons had a thousand dollars of insurance, beyond the inquiry made of the officer? A. No, none other than that. Q. Were there any books or records there which were con- sulted by these officers to enable them to tell whether or not these persons were qualified voters? A. There were not. Q. Did these persons seem to be personally known to the officers? A. They did. Q. Were they personally known to you? A. No. Q. Had you ever seen them before? A. No, except at the successive elections. Q. There were a great many or some of the persons appearing at the different elections? A. Yes. O. During the five or six years you have acted as inspector you have become acquainted with a number of people who have voted at each election? A. Yes, sir. Q. Are they persons who were employed about the Mutual Life Building? A. To a certain extent, yes. -O. To what extent would you say? A. I could not tell you. Q. What would you say according to your best judgment? A. There is not any information to go by. Their relationship and their vocations were not known to me, except as recorded in these elections ; of course, there were certain persons who were known ; for instance, the officers of the Mutual Life voted, naturally, and I knew them, but the others I did not know. 1 Q. Persons from the Guarantee Trust Company that you knew? A. Yes. Q. How many from the Guarantee Trust Company voted? A. Possibly two or three. 48 Testimony of Walter G. Oak man Q. Persons from the United States Mortgage & Trust Com- pany that you knew? A. Yes. O. And, as I understand it, Mr. McCurdy or the other officers present professed to be in a position to know whether these were policyholders ? A. They did. 0. And qualified to vote? A. Yes. O. And the votes were registered? A. They were, yes, sir. Q. Did you take the names of the voters. A. The name were taken by the inspectors, yes. O. Who wrote clown the names ? A. Mr. Hendricks, for a number of years, if I remember, and Mr. Cummings for last year. Q. You have never done that? A. I never clone that. Q. Were there any inquiries addressed to these voters as to whether they were policyholders, and how long they had been such? A. Not in every instance. O. Was there anything about their residence or occupation or anything that would identify them ? A. Their names and resi- dences were always asked and taken and noted. O. Taken down ? A. Yes. Q. So far as you know, what was done with the poll list? A. It was locked up with the ballots and sealed. O. And what was subsequently done with it? A. It was handed over to the custody of the Company. O. You don't know anything about it now? A. No. Q. Have you seen it since the time? A. I have not. Q. That you saw it at the election? A. No. 0. Did you check it or sign it or anything of that kind ? A. I signed it. Q. You had a poll list then that you signed? A. Yes, sir. Q. Each one of those years? A. Yes. Q. I should like to have the poll list produced for the last five years' sessions ? A. Yes. MR. BECK : I understand the present disposition of the Com- 49 Testimony of Walter G. Oakman mittee is not to permit counsel for the companies under investi- gation to ask any questions of the witness ; of course, what is the pleasure of the Committee must be the pleasure of the counsel. There are two or three questions I would like to ask the witness who is now on the stand, and if I cannot ask them directly, I would like to ask permission to ask them through Mr. Hughes. MR. ARMSTRONG: Mr. Beck, the Committee would be glad to afford every opportunity for cross-examination possible, but you realize, of course, it is not feasible for us to do that because we have not time enough at our disposal. Now, we prefer that you make the suggestion to our counsel, and we mean to be fair ; we are here to investigate this matter in the fairest way possible. We are not seeking to trip anyone, to catch anyone, and will be very glad to afford our counsel to bring out any points you desire. We prefer at present not to permit cross-examination of wit- nesses, solely for lack of time. MR. BECK : I appreciate, Mr. Chairman, the fairness and pur- poses of the Committee, and therefore, its disposition to show every courtesy to counsel. I only want to suggest for considera- tion, without pressing the point, the time that it will take is likely to be less in asking any question through counsel for the Committee, than would be consumed if the question were asked directly, it seems to me, and I simply suggest it very respectfully for consideration of the Committee, whether until the right of cross-examination is abused, it would not be better to let counsel fill out the inquiry where the examination of the counsel of the Committee has only developed a partial statement of what is the fact of the particular matter under investigation. Without pressing the Committee to decide that at this time, I would now like to ask the witness through Mr. Hughes two or three questions. 50 Testimony of Walter G. Oakman MR. ARMSTRONG: The witness has vanished. MR. BECK: I assumed he was still on the stand; will you have him called, Mr. Hughes? MR. HUGHES : Mr. Oakman. MR. ARMSTRONG: I think I saw him going out the door, while you were talking. MR. BECK : I would like to ask the privilege of recalling Mr. Oakman, because I do not think he has quite explained the full circumstances with reference to the annual elections. MR. ARMSTRONG: Mr. Hughes, what will be the conveni- ence of counsel about our recess? MR. HUGHES : I had supposed that we would sit until one o'clock. MR. ARMSTRONG: If the sessions of the Committee, gener- ally speaking, begin at ten o'clock and continue until one, and begin at two and continue approximately until five, will that inconvenience any of the gentlemen who are interested in our hearings ? MR. HUGHES : If you make that half past four instead of five we might get along a little faster in the long run ; it would give us a little more time to arrange for the following day. MR. ARMSTRONG: Is one to two time for lunch? MR. HUGHES : We found as a practical matter, we did not get to work until nearly half past two in the other investigation 5i Testimony of John C. McCall although we aimed to begin at two ; there are always a number of matters to be talked over. MR. ARMSTRONG: Unless there is some suggestion of in- convenience, generally speaking, we will adopt those hours, except Mr. Hughes' suggestion of four thirty as the hour of ad- journment, which will be more convenient; we will meet from ten to one, and from two until four-thirty, which will be, gener- ally speaking, the hours of the Committee. JOHN C. McCALL, called as a witness, being duly sworn, testified as follows : BY MR. HUGHES : Q. Mr. McCall, what is your age? A. I am in my thirty-first year. Q.And what is your occupation? A. I am Secretary of the New York Life Insurance Company. Q. You are a son of President John A. McCall ? A. I am his eldest son. Q. How long have you been Secretary of the New York Life ? A. Since May, 1903. Q. Were you connected with the Company prior to that time? A. I was. Q. In what capacity? A. I was connected prior to that time in the capacity of Assistant Secretary. Q. And for how long a time? A. Will you let me refer to a memorandum I have in my pocket here ? 0. Certainly. A. I came with the company in the year 1899. Q. After your graduation from college ? A. After my Gradua- tion from Harvard. Q. What was your graduating year? A. 1899. 52 Testimony of John C. McCall Q. At Harvard? A. Harvard. Q. Go on? A. I came to work for the company the day after my graduation. Q. In what capacity? A. In the capacity of Secretary of our Clubs. We have an organization of agency clubs, and I was Secre- tary of that organization. Q. At what salary? A. At that time I received a salary of twenty-five hundred dollars a. year. Q. And how long did you continue in that work? A. I con- tinued in that work for some time ; well, for quite some time, I should say about three years, maybe four years, I cannot remem- ber offhand. Q.-At the same salary? A. No, I was afterwards raised to a salary of thirty-six hundred dollars a year. O. When was that ? A. About a year afterwards. Q. 1900? A. In the year 1900, yes, and I was given that salary of thirty-six hundred dollars a year after I was made Recorder of the Company. Q. That was in 1900? A. That was in the year 1900. Q. And how long did you remain Recorder at that salary? A. I remained recorder until the year 1901. Q. And then what occurred? A. I was made Assistant Secre- tary of the Company about that time. Q. At what salary? A. At a salary of six thousand dollars a year. Q. And how long were you Assistant Secretary? A. I was Assistant Secretary from January 1, 1901, until May, 1903. Q. At the same salary? A. No, my salary was increased dur- ing that time to $10,000. Q. At what time? A. January of that year until January, 1904. Q.That is, from January, 1902, to January, 1904? A. Yes, sir. 53' Testimony of John C. McCall Q. At ten thousand dollars? A. Yes, my salary was $10,000. Q. As Assistant Secretary? A. No, as Secretary. Q. And then you were Second Secretary, were you not? A. Then I was made the Junior Secretary of the Company in the year 1903. Q. And was your salary the same? A. As Junior Secretary my salary was the same. Q. And when were you made first or senior Secretary? A. I was made first or senior Secretary upon the death of William C. Whitney. Q. He had been Secretary for a good many years ? A. He had been Secretary for the Company, I think, since the year 1892. Q. And then your salary was made what? A. My salary was made fourteen thousand dollars a year. Q. And that is your salary to-day? A. That is my present salary. Q. What are your duties as Secretary? A. I am Secretary of the New York Life Insurance Company ; I am Secretary of the Board of Trustees ; I am a member of the Office Committee. I have general supervision of the Division of Policy Issues, the Division of Policy Indices, the Division of Policy Records ; the Division of Policy Briefs ; the Division of Policy Changes ; the Division of Policy Liens ; the Division of Policy Claims ; the Division of Policy Files and Records, and I am in charge of the mailing department, and also have supervision rather in the mail- ing department and in the supply department, and also conduct the general correspondence of the Company ; I have direction and charge of opening and distributing the Company's mail. The Company's mail alone in round numbers amounts to about eight or nine thousand letters a day. These letters have to be assorted, and properly opened and sent to those-persons for whom they are intended, and these different departments that I have mentioned have about five hundred employees. I also have the supervision 54 Testimony of John C. McCall as to seeing that proper reports are filed on each day. I also see that we comply with the laws of the different states in so far as my duties lay, and also with foreign laws, and in addition to that, a great deal of my time is taken up with things that commonly fall to the lot of an executive officer ; and another one of important duties I have is the passing upon all of the risks after they have been approved by the Medical Department. The Medical ap- proval of a risk in a life insurance company is, of course, only one portion of the approval of a risk. There are other things to be considered besides the mere medical health, so all cases of twenty- five thousand dollars or over are submitted to me for final ap- proval as to the issuance of the policy. Last year I suppose I acted on forty or fifty million dollars of business in that way. 0. Do I understand that you have a veto upon the issuance of a policy over twenty-five thousand dollars? A. I have a veto on the issuance of any policy, as an executive officer of the company. Q. Yourself? A. Yes, absolutely. Q. Without reference to other officers ? A. Oh, no, I suppose an officer, or my superior in rank, has a right to overrule me. Q. But as a matter of practice, that department is left to you? A. Oh, no, all the executive officers of the Company more or less pass upon risks after they are approved medical risks, but beyond twenty-five thousand dollars up to one hundred thousand dollars, they require my signature solely ; I mean, of course, after they have been approved by the Medical Department, in compliance with the rules of the Company, but all risks over one hundred thousand dollars or over, as I told you, were in one of those pam- phlets, that I have given you, have also to be signed by another executive officer before they are approved. Q. The New York Life is a purely mutual company? A. Yes, sir. MR. HUGHES : I offer in evidence the declaration and char- 55 Testimony of John C. McCall ter of the New York Life Insurance Company, adopted July 12, 1893, containing the certificate that the New York Life Insurance Company had accepted the provisions of the Insurance Law of New York, and had adopted an amended charter in conformity therewith. ( Admitted and marked Exhibit No. 4, and is as follows : ) C. Charter 1. "DECLARATION AND CHARTER" of the NEW YORK LIFE INSURANCE COMPANY. This is to certify that the New York Life Insurance Company has duly accepted the provisions of the Act of The Legislature of the State of New York, Chapter 690 of the Laws of 1892 known as the "Insurance Law," and the amendments thereto, and in con- formity with the same has duly adopted the following amended charter : ARTICLE I. The name of the Company shall continue to be "THE NEW YORK LIFE INSURANCE COMPANY." ARTICLE II. The Company shall be located and its principal place of business shall be in the City of New York. ARTICLE III. The business of the Company shall be insurance on lives and all and every insurance pertaining to life, and receiving and execut- ing trusts, and making endowments and granting, purchasing and disposing of annuities, such kind of insurance being author- ized under sub-division one of Section 70 of "The Insurance Law." 56 Testimony of John C. McCall ARTICLE IV. Section i. All the corporate powers of the Company shall be exercised by a Board of Trustees and such officers and agents as the Board may appoint. Section 2. The Board of Trustees shall consist of twenty-four (24) elected persons, a majority of whom shall be citizens and residents of the State of New York, and the President who shall be ex-ofHcio a member of the Board. Section 3. The elected trustee shall be divided into four equal classes and as the term of each class shall expire its successors shall be elected for a term of four years, six trustees to be elected each ye'ar. Vacancies occasioned by death, resignations or other- wise shall be filled by the Board of Trustees, a majority of the votes of those present constituting a choice. Each class shall hold over until its successors are elected and this article shall not be construed so as to prevent a trustee going out from being eligi- ble as a new trustee. Section 4. The Board of Trustees shall have power to make such By-Laws, rules and regulations for the transaction of the business of the Company, not inconsistent with this charter or the laws of the State, as may be deemed expedient, and to amend or repeal such By-Laws, rules and regulations. ARTICLE V. Section 1. The annual election of members of the Board of Trustees to fill the places of the outgoing class shall be held on the second Wednesday of April in each year. Notice of the time and place of such election shall be given in two public newspapers printed in the City of New York and in the State paper daily for one week preceding such election. Section 2. At each election three inspectors shall be elected to preside at the next annual election of trustees, and at such 57 Testimony of John C. McCall election each member of the Company shall be entitled tc one vote in person or by proxy. Section 3. After such annual election the Board of Trustees shall elect a president and such other officers as may be pre- scribed by the By-Laws, who shall hold their office for one year and until others are elected in their stead. Section 4. The present members of the Board of Trustees and present officers of the Company shall continue to be such trustees and officers until the expiration of the respective terms for which they have been elected. ARTICLE YI. Section 1. The Company shall have no capital stock, but shall be a mutual company. Section 2. The officers of the Company within sixty days sub- sequent to the 1st of January in each year shall cause an estimate to be made of the profits and true state of the affairs of the com- pany, as near as may be, for the preceding year, which estimate shall be conclusive upon all persons entitled to share in any dis- tribution of surplus which shall be made in accordance with the general provisions of law either in cash, or in reduction of pre- mium, or in reversionary insurance payable with the policv on the same conditions as therein expressed. ARTICLE VII. The Company shall be authorized to make loans and invest- ments as provided by "The Insurance Law" and by the Statutes of the State of New York now in force or hereafter passed, and may also loan all premiums received and invest the same in bonds and mortgages on unencumbered real estate within the State of New York worth fifty per cent, more than the sum charged there- on, and in all stocks created by or under the laws of this State or the United States. 58 Testimony of John C. McCall ARTICLE VIII. The Company shall be entitled to all the privileges and pro- visions of existing laws which might be included in this charter and enjoyed by it if it were 'originally incorporated under "The Insurance Law" of the State. ARTICLE IX. As provided by preceding laws, and by Chapter 725 of the Laws of 1893, the Charter of the Company shall be perpetual- IN WITNESS WHEREOF the Company has caused its cor- porate seal to be affixed hereto and to be attested by its President and Secretary this 24th day of July, 1893. (L. S.) John A. McCall, President. Chas. C. Whitney, Secretary. State of New York, ) v ss. City and County of New York \ Before me duly appeared this 24th day of July, 1893, John A. McCall and Charles C. Whitney, personally known to me and they severally acknowledged the execution of the foregoing instrument as the act and deed of the New York Life Insurance Company, and being by me severally duly sworn each for himself says : That the said John A. McCall resides in the City, County and State of New York, and is President of the New York Life Insurance Company ; that the said Charles C. Whitney resides in the City of Brooklyn, County of Kings, State of New York, and is the Secretary of the said New York Life Insurance Company ; that the seal affixed to the foregoing instrument is the corporate seal of said Company, and was duly affixed thereto by the Secre- tary of said Company in pursuance of authority from the Board of Trustees by a vote of a majority of the said trustees and that the 59 Testimony of John C. McCall said President and Secretary have attested the same by their signatures in pursuance of like authority. JOHN E. MOONEY, . Notary Public, Kings Co. (L. S.) Certificate filed in N. Y. Co. STATE OF NEW YORK, ATTORNEY GENERAL'S OFFICE. Albany, July 26th, 1893. To the Superintendent of Insurance : I hereby certify that I have examined the annexed declaration and charter of the New York Life Insurance Company, and that I find the same to be made in conformity with the provisions of Chapter 690, laws of 1892, and in accordance with the require- ments of law. S. W. ROSENDALE, Attorney General. STATE OF NEW YORK, INSURANCE DEPARTMENT. Albany, July 26th, 1893. Whereas the New York Life Insurance company, located in the City of New York, a domestic insurance corporation existing and doing business at the time of the passage of Chapter 690 of the Laws of 1892, having availed itself of the provisions of Section fifty-two of said chapter, as amended by Chapter 725 of the Laws of 1893, as tne sam e may refer to the re-incorporation of existing corporations ; and said Company having filed in this department a declaration and amended charter adopted by a vote of a ma- jority of the Board of Trustees of said Company, as provided for in Section 52 referred to above and the same having been sub- 60 Testimony of John C. McCall mitted by me to the Attorney General and certified by him to be in accordance with the requirements of law : NOW THEREFORE I, James F. Pierce, Superintendent of Insurance of the State of New York, do hereby certify that the consent of said superintendent of insurance as required by the provisions of Section fifty-two, above referred to, is hereby granted and attached to the Declaration and amended Charter of the New York Life Insurance Company which has this day been filed in this Department. IN WITNESS WHEREOF I have hereunto set my hand and affixed my official seal, in duplicate, at the City of Albany, this 26th day of July, 1893. (Signed) James F Pierce, (L. S.) Superintendent of Insurance. Q. You are familiar, I suppose, with the early history of the company from reading its records ; it was originally incorporated as the Nautilus Company? A. Yes. Q. About 1845? A - l8 43 or l8 44- Q. As a marine insurance company? A. Yes, sir. Q. And then its business was extended to life insurance? A. In the year 1845. Q. And there were special amendments to its charter? A. Yes. Q. And finally its charter assumed the form which I have here pursuant to the present Insurance Law of the State? A. In the year 1893, and there have not been any amendments to that charter since that time. Q. I notice the provision that notice shall be given to the an- nual election in two public newspapers in the City and in the State of New York published daily for one week preceding such election; in practice, is such a notice published? A. It is. 61 Testimony of John C. McCall Q. In how many papers in fact is the notice of election pub- lished? A. In five papers. Q. All in the City of New York? A. Three of them in the City of New York, and two of them in Albany, in the State paper. Q. Is the notice of election published anywhere else, either in this country or elsewhere? A. Nowhere else that I know of. Q. Is this form of notice now shown you contained in an affi- davit of April 3rd, 1905, stating that it had been published in the New York Tribune from the 3rd of April, 1905 — is that the form of notice that is published in these various papers ? A. The same form of notice. Q. A notice of eight lines and about half an inch in depth, the ordinary width of a column? A. Yes. Q. Is any other notice given of the annual elections to policy holders other than the publication in these papers? A. Every policy holder is notified by a notice appearing upon the policy jacket. Q. You mean the envelope ? A. The envelope, yes, of the fact that the meeting is held at a stated time and stated place in each year, Q. That is the envelope or jacket containing the policy and de- livered to the policy holder when the policy is written. A. It is and also we send out with the premium notice statement and booklet telling the policyholders of the dates of the meetings. Q. You mean in a general statement of the operations of the company in a book form? A. Yes, sir. Q. There is stated the date of the annual meetings ? A. There is. Q. This practice of printing upon the jacket or envelope con- taining the policy a notice of dates of the annual meetings has continued for how long? A. I should say it has been in exist- ence about nine months. Q. Prior to that time no notice was given to the policy holders 62 Testimony of John C. McCall in that way ; A. No other notice excepting the"; notice ap- pearing in the newspapers, no other notice was given' on ac- count of the expense that would be attached to it. Q. At not time have you sent a special notice to policy-holders by mail? A. We have not sent any such notice; if we had sent a notice to policyholders by mail in the last ten years it would have cost us, in postage alone, about one hundred and five thousand dollars. Q. Never mind about that; I am merely asking whether that has been done or not? A. No, sir. Q. Never? A. No, sir. Q. Are any minutes kept of elections? A. There are. Q. Or of the meetings at which the election takes place? A. Yes, there are. Q. Who keeps those minutes? A. Do you mean in whose custody they are? • Q. No, who writes them up? Who is the secretary or person responsible for their accuracy ? A. They are one of the members of the inspectors of elections. Q. Will you produce the minutes, please? A. I think I have them right here; I have them here for ten years back. Q. These sheets that you now hand me are the certificates for ten years back signed respectively by the inspectors of elec- tion, showing who were elected, and the number of votes cast at the annual election in those years? A. Yes, sir, they are. Q. And these are the original certificates? A. They are the originals. Q. And they constitute the only record that you have of the proceedings of the election? A. No, sir; we keep records of the numbers of the policies that are voted by means of the proxies, and we also keep records of names of the people who appear in person to vote. Q. You have poll lists, then? A. Yes, sir, we have. (-3 Testimony of John C. McCall Q. Including the identity and qualifications of the voters? A. We have. Q. I should like to have those minutes this afternoon unless you have them here. A. I have not got them here, no. MR. HUGHES: I offer those certificates in evidence, consist- ing of eleven sheets. (Admitted and marked Exhibit No. 5, and said eleven sheets are as follows:) The undersigned, inspectors of an election held this 12th day of April, 1905, at the Home Office of the New York Life Insurance Company, for Trustees of the Fourth Class, and for inspectors of the next election, DO HEREBY CERTIFY that at said elec- tion 2328 votes were cast, and the following were elected: TRUSTEES OF THE FOURTH CLASS: James A. Blair John S. Kennedy Augustus G. Paine George W. Perkins Edmund D. Randolph H. Walters INSPECTORS OF THE NEXT ELECTION: William C. Arnold John N. Golding Albert McClave William C. Arnold John N. Golding Albert McClave New York, April 12th, 1905. The undersigned, inspectors of an election held this 13th day of April, 1904, at the Home Office of the New York Life Insur- 64 Testimony of John C. McCall ance Company, for Trustees of the Third Class, and for inspectors of the next election, DO HEREBY CERTIFY that at said election 803 votes were cast and the following were duly elected : TRUSTEES OF THE THIRD CLASS: Thomas A. Buckner Thomas P. Fowler Henry C. Mortimer Wm. B. Plunkett Hiram R. Steele Clarence H. Mackay INSPECTORS OF THE NEXT ELECTION l William C. Arnold John N. Golding Albert McClave William C. Arnold John N. Golding Albert McClave New York, 13 th April, 1904. The undersigned, Inspectors of an election held this 8th day of April, 1903, at the Home Office of the New York Life Insur- ance Company, for Trustees of the Second Class, and for inspec- tors of the next election, DO HEREBY CERTIFY that at said election 663 votes vere cast, and the following were duly elected: TRUSTEES OF THE SECOND CLASS: Charles S. Fairchild Oscar S. Straus Robert J. Lowry William C. Ingersoll James Stillman Norman B. Ream 65 Testimony of John C. McCall INSPECTORS OF THE NEXT ELECTION William C. Arnold John N. Golding Albert McClave William C. Arnold John N. Golding Ballard McClave New York, 8th April, 1903. The undersigned, inspectors of an election held this 9th day of April, 1902, at the Home Office of the New York Life Insur- ance Company, for Trustees of the First Class, and for inspectors of the next election, DO HEREBY CERTIFY that at said elec- tion 319 votes were cast, and that the following were duly elected : TRUSTEES OF THE FIRST CLASS: John Claflin W. B. Hornblower Woodbury Langdon George A. Morrison D. P. Kingsley Alexander F. Orr • INSPECTORS OF THE NEXT ELECTION: William C. Arnold John N. Golding \ Albert McClave William C. Arnold John N. Golding New York, 9th April, 1902. Albert McClave The undersigned, inspectors of an election held this 10th day of April, 1901, at the Home Office of the New York Life Insur- ance Company, for Trustees of the Fourth Class and for inspec- 66 Testimony of John C. McCall. tors of the next Election of said Company DO HEREBY CER- TIFY that at said election 233 votes were cast and that the fol- lowing were duly elected: TRUSTEES OF THE FOURTH CLASS. Henry Tuck Edmund D. Randolph A. G. Paine George W. Perkins Thomas B. Reed James A. Blair INSPECTORS OF THE NEXT ELECTION. William C. Arnold' John N. Golding Albert McClave William C. Arnold Albert McClave New York, April 10th, 1901. John N. Golding The undersigned, Inspectors of an Election held this nth day of April, 1900, at the Home Office of the New York Life Insur- ance Company, for Trustees of the third class, DO HEREBY CERTIFY that at said election 130 votes were cast, and that the following were duly elected: TRUSTEES OF THE THIRD CLASS. Walter H. Lewis H. C. Mortimer William R. Grace Hiram B. Steele Thomas P Fowler William P. Plunkett 67 Testimony of John C. McCall. INSPECTORS OF THE NEXT ELECTION. William C. Arnold John N. Golding Albert McClave William C. Arnold Albert McClave John N. Golding New York, nth April, 1900. The undersigned, Inspectors of an Election held this 12th day of April, 1899, at the Home Office of the New York Life Insur- ance Company, for Trustees of the second class, and for inspect- ors of the next election of said Company, DO HEREBY CERTI- FY that at said election 117 votes were cast, and that the follow- ing wer duly elected: TRUSTEES OF THE SECOND CLASS. William L. Strong William F. Buckley Charles S. Fairchild Oscar S. Straus Robert J. Lowry William E. Ingersoll INSPECTORS OF THE NEXT ELECTION. William C. Arnold John.N. Golding Albert McClave William C. Arnold New York, 12th April, 1899. The undersigned, Inspectors of an Election held the 13th day of April, 1898, at the Home Office of the NEW YORK LIFE INSURANCE COMPANY, for six trustees of the First Class, and 68 Testimony of John C. McCall for three inspectors of the next election of said Company, DO HEREBY CERTIFY that at said election 126 votes were cast, and that the following were duly elected: TRUSTEES OF THE FIRST CLASS, John Cha'lin E. N. Gibbs W. B. Hornblower Woodbury Langdon G. A. Morrison D. B. Kingsley INSPECTORS OF THE NEXT ELECTION. William C. Arnold John N. Golding Albert McClave Albert McClave William C. Arnold John N. Golding New York, 13th April, 1898. The undersigned, Inspectors of an election held this 14th day of April, 1897, for six trustees of the Fourth Class, and for three inspectors of the next election of the NEW YORK LIFE IN- SURANCE COMPANY, DO HEREBY CERTIFY that at the said election 683 votes were cast as follows: FOR TRUSTEES OF THE FOURTH CLASS. W. H. Appleton 685 votes Henry Tuck 685 Edmund D. Randolph 685 A. G. Paine 685 George W. Perkins 685 John J. Valentine 685 69 Testimony of John C. McCall FOR INSPECTORS OF ELECTION: William C. Arnold 685 votes John N. Golding 685 " Albert McClave 685 " And we do therefore hereby certify that W. H. Appleton, Henry Tuck, Edmund D. Randolph, A. G. Paine, George W. Perkins and John J. Valentine are elected trustees of the Fourth Class, and "William P. Arnold, John N. Golding and Albert McClave, In- spectors of the next election of the New York Life Insurance Company. William C. Arnold, John N. Golding, Albert McClave. New York, 14th April, 1897. The undersigned, Inspectors of an Election, held this 8th day of April, 1896, for six trustees of the Third Class, and for one trustee of the Second Class to fill vacancy, and for three inspec- tors^ the next election of the New York Life Insurance Company DO HEREBY CERTIFY that at said election 146 votes were cast as follows: FOR TRUSTEES OF THE THIRD CLASS: C. C. Baldwin 146 votes Walter H. Lewis 146 H. C. Mortimer i 4 6 William R. Grace 146 Hiram R. Steele 146 Thomas P. Fowler 146 FOR TRUSTEES OF THE SECOND CLASS: (To fill vacancy) John H. Inman 146 votes 70 Testimony of John C. McCall. FOR INSPECTORS OF THE NEXT ELECTION: William C. Arnold 146 votes John N. Golding 146 " Albert McClave 146 " We do hereby certify C. C. Baldwin, Walter E. Lewis, H. C. Mortimer, William R. Grace, Hiram B. Steele, and Thomas P Fowler are elected trustees of the Third Class, John H. Inman, trustee of the Second Class, and William C. Arnold, John N. Golding, and Albert McClave, inspectors of the next election of the New York Life Insurance Company. William C. Arnold John N. Golding Albert McClave New York, 8th April, 1896. The undersigned, Inspectors of an Election, held this 10th day of April, 1895, for six trustees of the Second Class and for three inspectors of the next election of the New York Life In- surance Company, do hereby certify that at said election 215 votes were cast, as follows: FOR TRUSTEES OF THE SECOND CLASS: William A. Booth 215 votes William L- Strong 215 William F. Buckley 215 Charles S. Fairchild 215 Oscar S. Straus 215 David A. Wells 215 FOR INSPECTORS OF THE NEXT ELECTION: William C. Arnold 215 votes John N. Golding 215 " George H. Henry 215 7i Testimony of John C. McCall We do hereby certify that William A. Booth, William L. Strong, William F. Buckley, Charles S. Fairchild, Oscar S. Straus and David A. Wells are elected Trustees of the Second Class, and William C. Arnold, John N. Golding and George H. Henry, Inspectors of the next Election of the New York Life In- surance Company. William C. Arnold, John N. Golding. New York, April 10, 1895. MR. HUGHES: I will state briefly and chronologically the contents of these pages. Q. In every case all of the trustees voted for received all the votes cast? A. They did. Q. So that it appears that in 1895 six trustees were elected, each trustee receiving 215 votes, being all the votes cast at that election? A. Yes, sir. Q. In 1896 six trustees were elected, receiving 146 votes, being all the votes cast at that election. In 1897 six trustees were elected, receiving 685 votes, being all the votes cast at that election. In 1898 six trustees were elected, receiving 126 votes, being all the votes cast at that election. In 1899 six trustees were elected, receiving 117 votes, being all the votes cast at that election. In 1900 six trustees were elected receiving 130 votes, being all the votes cast at that election. In 1891, six trustees were elected receiving 233 votes, being all the votes that were cast at that election. In 1902, six trustees were elected, re- ceiving 319 votes, being all the votes cast at that election. In 1903, six trustees were elected receiving 663 votes, being all the votes cast at that election. In 1904, six trustees were elected, receiving 803 votes, being all the votes cast at that election. In 1905, six trustees were elected, receiving 2328 votes, being all the votes cast at that election? A. Yes, sir. 72 Testimony of John C. McCall Q. Are you able to state how many policyholders there are in the New York Life? A. I should say we have in the rough about one million policies representing probably eight hundred thousand policyholders, on the basis that some of our policy- holders have more than one policy. Q. And as I understand it there is no restriction upon the right of the policyholder to vote with reference to the amount of insurance held? A. None at all. Q. So that all the policyholders whose policies are in force are respective^ entitled to cast one ballot? A. Every member of the company is entitled to cast one ballot. Q. How many proxies are held at the office of the New York Life? A. I should say about 25,000. Q. You mean those are the proxies for policyholders that are in force? A. I do. Q. And are the total that are held? A. No, those are the proxies that are in force. Q. To whom do those proxies run? A. Those proxies run to the President and the Vice-President. Q. In his name? A. To John A. McCall, George W. Perkins, Darwin P. Kingsley and to Thomas A. Buckner. There are other proxies running in different names, but the names of the people who have been on them at that time have died. Their places have been filled by the other names that have been placed upon the other. Q. For the last ten years for example, the proxies executed for the last ten years of policyholders, held at the office of the New York Life Insurance Company, run to John A. McCall, George W. Perkins, and Messrs. Buckner and Kingsley? A. Practically, yes, sir. Q. Have you a record of those proxies? A. We have. Q. When did you make it up? A. I made it up when we got your subpoena that you wished it. 73 Testimony of John C. McCall Q. Well had you one before? A. We keep — of course we keep all our proxies — in a tin box the proxies are kept and they are filed in the consecutive order of the number of the policy, of the policyholder giving the proxy. Q. But until you made up a list in answer to the Committee's subpoena you had no record of the proxies other than the record which is furnished by the numbers upon them, indicating the policyholders? A. Other than the proxy itself. Q. Other than the proxy itself? A. That is right. Q. What means were taken to ascertain which of the proxies continued in force and which had expired or been revoked? A. It was just a rough estimate that was arrived at. Q. How could you arrive at such a thing roughly? A. By counting in accordance with the experience of the company as to the expiration of the policies or maturity and the death claims Q. You mean that you have in the New York Life an ex- perienced table of mortality and proxies ? A. Oh, no (laughter)no . Q. I asked you A. I mean that I know that we have a certain number of policies written in the New York Life, say for instance 800,000 policies being in force, that a certain number of those policies will expire this year for one reason and another they will lapse, they will terminate by expiry, they will termi- nate by maturity, they will terminate by death. Now this mathematical formula is arrived at; you can tell that you will have about the same number of expirations in accordance with the increase in the insurance force. By applying that sort of a formula to these policies we have in force, to these proxies we have in force, which are practially the same thing, we have ar- rived at a rough estimate. Q. In other words if you have 25,000 proxies representing 25,000 policies, that a certain number of these 25,000 policies according to your experience would expire or lapse or be disposed of in a year, you would assume that a corresponding proportion 74 Testimony of John C. McCall of the 25,000 proxies would expire? A. You have got to assume a little more than that because proxies themselves expire by the terms of the proxies. For instance, proxies are given us for ten years and at the end of ten years these proxies are up. Q. To a given date? A. So you have to add those to the rest. Q. Now is this a calculation or estimate which you make in you mind or is it something of which you have a record? A. We have no record; just have it in mind. Q. So that you roughly have it that if you have had 25,000 proxies say in 1903 you ought to have a certain number of those good to-day ? A. Well it is arrived at a little different than that. We have here a record showing the proxies that have been taken within say the last ten years; we have a rough estimate, say 80,000 of those proxies; of those 80,000 proxies we take as a rough estimate as I have told you about 25,000 of those proxies are in force Q. And that is the basis of your statement awhile ago that you had 25,000? A. That is the basis of the calculation. Q. As a matter of fact you have got 80,000 papers there? A. Oh, got more than that; got 111,000. Q. 111,000 papers? A. Yes, they are all here on record. Q. And that is papers that were once proxies? A. Any time during the history of the company. Q. And you have accumulated those, and you know according to your experience, with your knowledge of the term limits of policies and of the average duration of policies you have come to the conclusion that about 25,000 are in force. A. Yes, sir. Q. Well, have you in response to the subpoena made up a statement of what are in force so that you know now ? A. No, sir; I didn't know that the subpoena called for it. Q. Now you are quite right; it did not call for that so de- finitely. Now are these lists that you have? A. Yes, sir. 75 Testimony of John C. McCall Q. These are the list of the proxies? A. These are the lists of the proxies, of every proxy that the company ever had. Q. And the date of execution of the proxy ? A. And the name of the person executing it and the number of his policy. Q. Now will you let me see the form of the proxies that is now on that has been used the last few years? A. The last ten years. Q. Yes. A. (producing papers) There they are. The form in each case is the same with the exception that the name has been changed. Q. In other words, in 1895 the proxies ran to John A. McCall, William L. Strong, Archibald H. Welch and George W. Perkins? A. That is right. Q. And then in 1896 Henry Tuck was substituted for William L. Strong? A. Mr. Strong died. Q. And later Mr. Kingsley was substituted after Mr. Welch — Welch's death? A. After Mr. Welch's death. Q. And then Mr. Tuck's death Mr. Buckner was substituted? A. Yes, sir. Q. John A. McCall has been upon the proxies for ten years or longer? A. Yes, sir, longer. Q. Since he became President of the company? A. Practi- cally. Q. And Mr. Perkins had been in the proxies for ten years? A. Yes, sir. Q. And Mr. Kingsley since 1896? and Mr. Buckner since 1902 ? A. Yes, sir. Q. Now the substance of the proxies is the same I believe? A. I think so, yes, sir. Q. Well, let us see — have you selected these forms of proxies as fairly representative of the different proxies that you have? A. They are the only proxies; they represent every form of proxy that we have had for these ten years. 76 Testimony of John C. McCqll MR. HUGHES: I offer them in evidence. (Four proxies marked Exhibit 6, H. C. L., Septembr 6, 1905). Q. The first form of proxy is dated March 26th, 1905, and runs to John A. McCall, William L. Strong, Archibald H. Welch and George W. Perkins for ten years, unless sooner revoked. The second form runs to John A. McCall, Henry Tuck, Archi- bald H. Welch and George W. Perkins for ten years, unless sooner revoked. The third runs — dated June 12th, 1902, to John A. McCall, Henry Tuck, George W. Perkins and D. P. Kingsley, for ten years, unless sooner revoked. The last form, which is the form I undertand now in use, I will read upon the record: "Know all men by these present that I of County of State of do hereby constitute and appoint John A. Mc- Call, George W. Perkins, D. P. Kingsley and Thomas A. Buckner, or either of them, my attorneys and agents, for me, and in my name, place and stead, to vote as my proxies as a policy holder, at any election of trustees of the New York Life Insurance Com- pany of New York, with full power of substitution and revoca- tion, hereby ratifying and confirming all that my said attorneys and agents or their substitute shall lawfully do or cause to be done by virtue hereof. Unless sooner revoked, this proxy shall continue in force for ten years from date hereof, and I hereby revoke all former proxies. In witness whereof, I have hereunto set my hand and seal this day of in the year Owner of policy Signed, sealed and delivered in the presence of 77 Testimony of John C. McCall Q. I understand that what you have already said implies that you kept no record of revocations or proxies? A. Well, we would not have a chance to keep a very full record since that time. Q. There are very few revocations? A. Very few. Q. How many in your experience? A. Three. Q. Three? A. Yes, sir. Q. Covering how many years? A. Four years. Q. Were you present at the election — at any of the elections mentioned in these certificates? A. I was present — I have been present at all the elections since 1899. Q. Well, now we find in 1899 that there were 117 votes cast at that election; how were those votes cast, in person or by proxy? A. Some of them were cast in person and some by proxy. Q. How many in person? A. There were 17 in person. Q. How many by proxy? A. One hundred. Q. Were the proxies at the office — some of these proxies were at the office, running to McCall and the others named? A. Yes > sir. Q. All of them? A. Those were the proxies. Q. Those were the proxies that were voted by John A. McCall as the President, George W. Perkins as 1st Vice-President? A. There are three Vice-Presidents of the Company. Q. And D. P. Kingsley and Thomas A. Buckner are A. The Vice-Presidents of the Company. The Vice-Presidents. Q. Is Mr. Perkins related to Mr. McCall? A. Not in any way. Q. Or Mr. Kingsley? A. Mr. Kingsley is Mr. McCall's son- in-law. Q. Is Mr. Kingsley related to Mr. Perkins? A. Not in any way. Q. Is Mr. Buckner related to any of the other parties? A. Not in any way. 78 Testimony of John C. McCall Q. Now in the election of 1900 there were 130 votes cast. How many were cast in person? A. Thirty. Q. How many on proxy ? A. One hundred. Q. Same proxies? A. No, they would be different proxies. Q. Well, how would the proxies be selected when the 100 votes were cast? A. They were selected indiscriminately. Q. Simply take them out of one of the tin boxes and vote them? A. We took out 100 proxies, carefully made from the records to see that these policies were in force, the policies repre- sented by these proxies. Q. You would select an arbitrary number? A. Yes, sir. Q. It might be 100 and it might be 200? A. It might be 100 or might be 200 and might be 300; any number Q. In 1901 there were 237 votes cast; how many of those were in person? A. Thirteen. Q. And there the proxies were selected in the same manner? A. Yes, sir, 200. Q. Then in 1902 314 votes; how many of those in person? A. Fifteen. Q. And how many by proxy? A. 300. Q. Selected in the same manner? A. Selected in the same manner. Q. Why did you take 300 instead of 100? A.I couldn't tell you that, because I didn't take them ; as I say, there never was any positive rule about it. Q. No instructions regarding it or any reason why that was done? A. No, sir. Q. Now the next year, 1903; 663 votes; how many in person? A. Twenty -nine. Q. How many by proxy? A. 634. Q. Same sorts of proxies? A. Same sorts. Q. And selected in the same way? A. And selected in the same way. 79 Testimony of John C. McCall Q. Have you any reason why 600 were selected instead of one hundred? A. No, sir. Q. 1904, 803 selected? A. Yes, sir. Q. Do you mean to say that you examined, went through the records to see whether these 803 were qualified voters? A. Absolutely certified to before they are voted. Q. And how many of those were in person? A. Nine. Q. And the rest of the same sorts of proxies? A. Yes, sir. Q. Selected in the same manner? A. Yes, sir. Q. You don't know why as many as 800 were chosen? A. No, sir. Q. Now at the last election in 1905 there were 2, 3 28 votes cast; how many of these were cast in person? A. Thirty. Q. And how many by proxies? A. 2,292. Q. Same proxies, sorts of proxies? A. Same way. Q. Same method adopted? A. Same method. Q. Why were so many selected? A. No special reason for it only Q. Was it desired to make a larger vote, the voting — A. No, sir, the only reason merely was up to that time the matters in regard to this selection were not in my charge ; so when the clerk who had charge of these proxies in whose keeping they were, came in regard to the number of proxies, approximately, how many he ought to get out for that election I mentioned this number. Q. 2,000 or 2,200? A. I said twenty-two to three hundred. Q. Why didn't you say 20,000? A. Because if we did that it would take a big force to go through our records to see whether those proxies wert in fo r «e or not. Q. Well, by the same token, why didn't you say a hundred to save time and trouble? A. I couldn't tell you now why I said twenty-two hundred or twenty-three hundred ; I might just as well have said a hundred. 80 Testimony of John C. McCall Q. It wasn't a special desire to make it appear that a larger number of proxies had voted at that time? A. Absolutely no. If there had been there would not have been any reason why we could not have had 25,000. Recess until 2 P. M. 81 Testimony of George M. Cummings AFTER RECESS. MR. HUGHES : I am requested to go on with the Mutual Life, for the convenience of the inspectors who were absent when I called them. THE CHAIRMAN: Very well. MR. HUGHES: Mr. Cummings, take the stand. GEORGE M. CUMMINGS, called as a witness, being duly sworn, testified as follows: BY MR. HUGHES: Q. Mr. Cummings, you are a resident of the city of New York? A. The State of New York. Q. What is your occupation? A. President of the United States Mortgage & Trust Company. Cj. How long have you been such president? A. Six months. Q. Were you previous to that connected with the United States Mortgage & Trust Company? A. Yes, Vice-President. Q. How long had you been Vice-President ? A. About a year and a half. Q. Before that what was your occupation? A. I was con- nected with a railroad. Q. Are you an officer or trustee of the Mutual Life Insurance Company? A. I am not. Q. Have you ever been? A. I have not. 82 Testimony of George M. Cummings Q. I understand that at the last annual election of trustees in the Mutual Life Insurance Company you acted as an inspector of election? A. I did. Q. Had you ever acted as such inspector previously? A Never. Q. Will you state what you did at this election in discharge o your duties as inspector? A. There were three inspectors and I was the chairman. As the hour approached for the opening of the polls we asked the officers of the company to produce the evidence of the publication of legal notice. That evidence was produced and was satisfactory to the inspectors, and thereupon when the adver- tised hour arrived the polls were declared open. The election then proceeded in the regular course. The election was by ballot. Q. The polls were open for two hours? A. I think from 12 to 2, if I remember rightly. Q. The officers of the company were in attendance at that time ? A. Some of them, I think. Q. Who? A. Mr. McCurdy came into the room just before the polls closed. Q. The President? A. The President of the company, Mr. Richard A. McCurdy, and I think Mr. Granniss was there part o the time, and I don't remember any other names. Q. What did you do when persons presented themselves to vote to ascertain their qualifications? A. Whenever an elector pre- sented himself, claiming the right to vote, the inspector merely ask him whether he held a policy of the Mutual Life Insurance Com- pany which had not expired and was in full force and effect; and the inspectors accepted his statement, in the absence of challenge. In a number of cases the electors brought their policies and receipts with them; but the inspectors in all cases I think accepted the statement of the voter subject to challenge. Q. Did you ask him what his policy was, the amount of it and when it was taken out? A. Yes, and whether it was still in force. 83 Testimony of George M. Cwmmings Q. What had you to refer to, to assure yourself that his state- ment was accurate. A. We had nothing. We did .not call up the company to have its records there ; the records were in the same building, of course, and accessible, but Q. But you did not consult them? A. No votes were chal- lenged; that is the usual practice in all cases, is it not? Q. No votes were challenged, therefore you accepted the state- ment of theperson who wanted to vote, in all cases? A. In all cases, yes. Q. Did you request the President or other officer who was present to state whether the person seeking to vote was qualified ? A. I think not; possibly in one or two cases, but I think not at all . I think in all cases we accepted the statement of the intending voter, subject always to challenge, of course. The name was an- nounced and the fact stated that he claimed to be a policy-holder, and challenges were invited. Q. I have been requested to ask whether any officer of the Mutual Life vouched for any policy-holder? A. I think not. Q. And whether any person who tendered a vote was prevented from voting? A. In no case; no one was challenged, I might say. Q. Or whether any attempt was made by any officer to influ- ence any voter? A. In no case, to my knowledge. Q. Or whether the officers in any manner interfered with the election or attempted to influence its results? A. Not in the slightest. Q. Now, the persons who were elected had their names upon a ticket which was voted? A. Yes, there was a ballot printed. Q. All voters who voted cast that ballot? A. Yes. Q. Were you acquainted with any of the persons who offered their votes? A. Oh, yes. Q. How had you become acquainted with them? A. In the course of business. 84 Testimony of George M. Cummings Q. In the course of business? A. Well- Q. That is, who were they, the persons? A. Whom I knew. Q. Whom you had known? A. A very considerable number. Q. How many of the voters have you known? A. That I could not say. Q. Well, a large number? A. A considerable number, I should say, yes. Q. Were those persons persons who were connected with the Mutual Life Insurance Company? A. In some instances, yes. Q. Or with the United States Mortgage & Trust Company? A. Also in some instances, I think. Q. How many were there from the United States Mortgage & Trust Company? A. Oh, two or three, at the most, perhaps; perhaps not so many, I should think; that is merely offhand; I have not looked over the list. Q. How many did you recognize as being connected with the Mutual Life Insurance Company? A. Whom I knew to be con- nected with the Mutual Life; I should say perhaps a dozen, per- haps fifteen or twenty; not a very large number. Q. I have here a list of voters with the addresses, which has been furnished me by the company. Is that in your handwriting ? A. That is my handwriting, yes. Q. Made at that time? A. Made at the time. Q. You took down the name and address as each person pre- sented himself? A. I did; that is my signature. MR. HUGHES: I will ask to have that marked for identifica- tion. The paper was marked Exhibit 7 for identification. MR. HUGHES: I will request the company to indicate in some satisfactory manner the persons upon this list who are employees and connected with either the Mutual Life Insurance Company, 85 Testimony of John C. McCall the Guaranty Trust Company, or the United States Mortgage & Trust Company, and present that evidence so we will know the number of voters who were related to the Mutual Life Insurance Company in any way other than the fact that they had policies, and also those who were unrelated to the company except as policy-holders. Will that be possible? MR. BECK: Certainly. . Q. I would like to have the exact figures, but I understand that the majority of the voters were officers or employees of the Mutual Life Insurance Company? A. That I don't know. MR. HUGHES: That may be assumed to be the fact? MR. BECK: Yes, sir. MR. HUGHES: That is all for the present, Mr. Cummings. We shall have occasion later to examine you on other matters, and I understand you will be in readiness. THE WITNESS: I am at your service at any time. MR. HUGHES : Now will Mr. McCall resume the stand, please. JOHN C. McCALL, resumed: BY MR. HUGHES: Q. Have you now with you the polling list? A. Yes, sir, I have, for the last five years. Q. Will you let me see it, please? A. Yes (handing paper). 86 Testimony of John C. McCall Q. And these various lists were made up at the time, were they? A. "What do you mean by "made up at the time?" Q. At the times of the respective elections to which they refer? A. Yes. Q. These are the original lists? A. Yes, sir. Q. And they show the policies, the names of the policyholders and the number which were voted by the proxies which you have stated? A. Yes, sir. Q. You have mentioned that there were a certain number who appeared personally? A. Yes, sir. Q. As policyholders and voted? A. Yes, sir. Q. Were you acquainted with those at the last election who so appeared? A. I was acquainted with quite a number, yes, sir. Q. How many did you say there were at the last election ? A. I think thirty. Q. Were those thirty in any way connected with the New York Life? A. I should say the majority of them were. Q. Substantially all of them ? A. Yes, practically all of them. Q. That is, employees of the New York Life? A. Employees of the New York Life. Q. And that was so in prior years, that the persons who ap- peared in person were employees of the New York Life? A. Practically so, sir; the names of all of them are on that list Q. Well, it is unimportant to have their names; the fact is that the votes were cast by employees of the New York Life or by those for whom the officers of the New York Life acted as proxies ? A. That is right. Q. What instructions, if any, have been given to agents with reference to the acquisition of proxies in the form that has been stated ? A. We have never given an instruction to an agent re- garding the procuring of a proxy. Q. Have you ever given anything which you would not char- acterize as an instruction, but which related to that subject? 87 Testimony of John C. McCall A. We have never asked in any way, shape, or manner of means agent to procure for us a proxy of any kind. Q. How do these proxies to the number of 1 10,000, in the form you have stated, come to your office? A. They came to iis through a letter which we sent to the policyholders. I have the form here if you will permit me to read it. Q. Allow me to see it. A. Yes (handing paper). Q. This form that you show me bears the date 1905 ? A. Yes. Q. Were there earlier forms? A. Yes, sir, there were. They are practically the same thing, except with the change of the names, as is indicated by the change of the name in the new proxy. Q. When were these letters sent to the policyholders ? A. These letters are sent to the policyholders at the rate of about 8,000 a year. Q. Is it not the practice to obtain the proxy from the policy- holder when he gets his policy? A. Never. Q. Is it not a fact that a great many proxies have been executed by the policyholders when they have taken their policies ? A. never. Q. What is your ground for such an absolute statement? A. On account of the facts ; I am personally acquainted with them. Our agents would not have any proxies; they have never been furnished with any proxy forms. Q. What is the first time you communicated with a policy- holder for the purpose of procuring his proxy? A. Roughly stated, after it has been in force for a year. Q. Then until it has been in force for a year you never ask him for a proxy? A. When I say in force for a year, I mean that the first premium has been paid. Q. As soon as you get the fact that the policy has been written and has gone into force by the payment of the first premium, then you write to him? A. No. Q. Asking for a proxy? A. No, sir. Q. How soon after? A. Well, I can tell you, last year we had probably 1 18,000 new policies that were issued in that year. We Testimony of John C. McCall only wrote out last year for about 9,000 proxies. Of those 9,000 I should be very much surprised if more than 1 ,000 were written to men whose policies had been in force only one year. Q. You keep track of about the number of proxies that are m in force? A. We keep track in a general way; we know how many go off each year. Q. And you calculate to supply the places of those who go off each year? A. To replenish them, yes, sir. Q. So you do not aim to get proxies more than to keep a sufficient number on hand? A. Well, there is not any definite number we keep on hand. Q. No, but generally, if you know a certain number of proxies would in the natural course of events expire, you would take some steps to replenish that number or perhaps get a larger number? A. You might say that generally, yes, sir. Q. Yes, that is the general practice. So you select a number of names of policyholders whose policies have come in and write to them suggesting that a proxy be executed if agreeable to them? A. In accordance with that letter. Q. In accordance with that letter? A. Yes. MR. HUGHES: I offer it in evidence. Paper admitted and marked Exhibit No. 8. THE WITNESS : That letter informs the man that he has the right MR. HUGHES: Yes, I will read it: My Dear Sir: — I hand you herewith a copy of the Sixtieth Annual Report of this Company. As a policyholder you have a direct interest in 89 Testimony of John C. McCall the exhibit made, and it will pay you to look the Statement through carefully. You are entitled, as you probably know, to vote for Trustees who are elected annually at the Home Office on the second Wednesday of April in each year. At the regular meeting of the Board of Trustees succeeding this election, the Trustees elect the officers of the company for the ensuing year. If you are in New York at the time stated, we shall be pleased to have you cast your vote in person; but if it should be incon- venient for you to vote in that manner, your vote can be rendered by means of the enclosed proxy (which is revocable at your pleas- ure), if duly signed, witnessed, and returned in the enclosed en- velope. The following gentlemen are named in this proxy: Mr. John A. McCall, formerly Superintendent of the Insurance Department of this State, and President of the New York Life Insurance Com- pany since 1892. Mr. George W. Perkins, Vice-President, Trustee, and Chairman of the Finance Committee. Hon. Darwin P. Kingsley, Vice-President, Trustee, Chairman of the Executive Committee, Secretary of the Finance Committee, and formerly Superintendent of the Insurance Department of Colorado. Mr. Thomas A. Buckner, Vice-President, Trustee and Chairman of the Agency Committee. All of these gentlemen have been connected with the Company for many years, and have no interest paramount to the growth and success of the New York Life Insurance Company. Yours truly, JOHN C. McCALL, Secretary. Q. Are you able to state how many persons in the last year have given proxies in pursuance to such a request in the form that has been shown? A. I should say about 3,500. 90 Testimony of John C. McCall Q. About 3,500? A. Yes, sir. Q. How many in the year before that? A. It keeps up about the same number. Q. Averaging about 3,500? A. Yes, sir. Q. Out of how many requests? A. Out of, say, ranging from 6,000 to 8,000 requests. Q. 6,000 to 8,000? A. Yes, sir. Q. How many votes have been cast by proxy running to any other person than the gentlemen who are officers of the company, as has been shown? A. Do you mean cast in what time? Q. In elections, say, in the last five years? A. Votes cast for anybody not named in the proxies. Q. No, votes cast by other persons than the officers acting as proxies for the policyholders, that is, votes cast under proxies other than those you have presented? A. None. Q. None? A. No. Q. How many policyholders have voted in person at the elec- tions during the last five years other than employees of the New York Life? A. I could not tell you; a very small number. Q. Do you mean by a small number more than a dozen? A. Oh, there would be more than that. I think there were more than a dozen at the last election, but there would not be more than fifty or sixty at the most. Q. During the last five years? A. Yes. Q. Did you make the selection of the policyholders to whom these letters were sent, requesting proxies upon any principle? A. No, sir. Q. Arbitrarily? A. Arbitrarily. Q. Taking them at random? A. Yes, sir. Q. And who did that, who was it that selected the names? A. Mr. Henry Martin. Q. Who is he? A. A clerk who has been in the employ of the New York Life Insurance Company for a great many years. 9i Testimony of John C. McCall Q. In what department? A. He is connected with the Classification Committee. Q. Is that under your supervision? A. No. Q. Under the supervision of what officers? A. It would be under the supervision, probably, of the actuary or second Vice- President; of course, the work he did in that committee was outside of his duties as classification clerk. Q. You sent this letter, I believe? A. Yes. Q. Your name is signed to it? A. Yes. Q. When the proxies come in, who takes charge of them? A. Mr. Martin. Q. He has general charge of them, I mean; he is custodian of them? A. Yes, sir. Q. Recently a by-law has been proposed by your company or by the President for the purpose of changing the practice with regard to votes at annual elections, has there not? A. No, sir; the by-laws are proposed by the Executive Committee. Q. I thought I had seen in some literature of your company that it was Mr. McCall's suggestion? A. It may have been his suggestion, but the by-law was proposed by the Executive Com- mittee in accordance with the by-laws. Q. Is this the by-law which has been proposed? (handing paper). A It is. Q. When was it proposed by the Executive Committee? A. It was proposed by the Executive Committee at a special meeting of the committee held on the 24th of May, I think. Q. What action was taken at that time? A. On the 24th of May there was a special meeting of the Board of Trustees as well as of the Executive Committee, to commemorate fittingly the sixtieth anniversary of the company. At that time this pro- posed by-law was considered and submitted at that special meeting to the Board of Trustees. However, our by-laws pro- vide that if there is any change in the by-laws it must be sub- 92 Testimony of John C. McCall mitted at a regular meeting ; therefore it was not submitted as a regular amendment to the by-law until June of that year. Then in accordance with the by-laws it had to hold over for a month before it could be finally acted upon. In July, then, it was up for action, but there was an amendment desired in the by-laws ; that amendment was proposed by the Executive Committee; and also in accordance with our by-laws, it has to be held over until August to be acted upon finally. Last August when it came up for final action we did not have any quorum ; therefore it has to lay over until the meeting a week from to-day. Q. So it is a proposed by-law awaiting adoption at the next meeting of the Board? A. Yes. MR. HUGHES: I offer this proposed by-law in evidence, and will read the same: "33. Any person of legal age, except an officer, employee or agent of the company, may at the annual election of members of the Board of Trustees, act as proxy for any member or mem- bers of the Company. The Board of Trustees shall elect from the policy-holders a Committee of three, who may act as proxies for members, and shall hold office until their successors are elected by the Board. This Committee shall not include any officer, employee or agent of the Company. Every proxy must be executed in writing, and shall be re- vocable at the pleasure of the person executing it. Every such proxy shall be invalid after the expiration of eleven months from the date of its execution, unless the member executing it shall have specified therein the number of years for which it is to continue." Admitted in evidence and marked Exhibit No. 9. Q. What was the purpose of adopting that by-law? A. The purpose of adopting that by-law was because the company thought that it was a genuine criticism that had been made in 93 Testimony of John C. McCall regard to the officers of the company holding proxies, and it was their desire to eliminate any chance for criticism along that line. Q. The purpose was to substitute a committee appointed by the officers, for the officers themselves? A. No, sir. Q. What was it for? A. A committee appointed by the Board of Trustees for the policyholders. Q. Well, that the trustees should appoint a committee? A Yes, sir. Q. Instead of having proxies run directly to the members of the Board? A. No, sir, instead of having proxies run directly to the officers of the company. Q. Who are the members of the Board? A. Yes, sir. Q. This Committee, I suppose, is to represent the administra- tion? A. I should say not. I should say it was to represent the policyholders, which is the duty of the Board of Trustees. Q. Well, I used that expression because I had taken it from some of your literature. I read from a circular of the New York Life recently issued, as follows: "No limitations are placed on the policyholders. He may select absolutely whomever he pleases to act for and represent him at annual elections in case he came to vote in person. Many policyholders will doubtless PREFER that someone in high position with the Company shall act for them. For such policyholders a Committee will be ap- pointed by the Trustees from their own number to represent the administration." To this committee policyholders may send their proxies if they choose — note that the privilege is EN- TIRELY OPTIONAL with the policyholder— but there must be no officer, no employee, no agent of the New York Life, on such Committee." A. Yes, sir. Q. Now, practically, it is the fact that this committee shall represent, as there stated, the Board of Administration, while it s entirely optional with any policyholder to send his proxies to that committee or not as he chooses. A. I would not say, Mr. 94 Testimony of John C. McCall Hughes, that that was intended to represent the administration. I presume you mean, by administration, the officers of the company. Q. The managers? A. Yes, sir. Q. Is there any plan in force in your company of suggesting names at the meeting of the Board to fill vacancies in the Board of Trustees at the next election? A. There are no nominations at all. Anybody Q. How are the names of persons to fill the places of retiring members selected? A. They are not selected; the same names are put in. Q. What same names? A. The same names of those people who are retiring. Q. Suppose a man has died and you want to fill his place? A. Our by-laws provide that the Executive Committee shall choose or nominate a person to succeed the person, and that is subject to the action of the Board of Trustees. Q. So that whenever for any reason a new man is to be intro- duced into the Board of Trustees, the nomination of such man is made by the Executive Committee? A. That is in case that man — yes, I should say that was so. Q. Have you a printed ballot? A. We have two ballots ; one contains the names of the retiring officers or members of the Board of Trustees; the other is a blank ballot on which any policyholder can vote or write the name of any person that he chooses as a member of the Board of Trustees. Q. What proportion of the votes cast are cast by means of the printed ballot? A. I should say we never had any vote cast except by means of the Q. This blank ballot that is provided in practice is never used? A. No, sir, it never has been. Q. After the election the Trustees meet and elect the officers? A. Yes Q. What officers are elected by the Board in this way? A. The 95 Testimony of John C. McCall President, three Vice-Presidents, three Second Vice-Presidents, Treasurer and two Secretaries, who are the Executive Officers of the Company. Q. Will you kindly hand me a copy of the By-Laws? A. Yes, sir. These are 1905, but I think I had better give you thei904. Q. I find I have my own copy. Before I pass to this subject of the officers and their duties, let me ask you whether you keep a list of the policyholders ? A. We keep three or four, three lists, I should say Q. In what form? A. Well, in the first place, we have the list containng the names of anybody who has applied to us for insur- ance; no matter whether they take insurance or not. In the second place, we keep a list of all policyholders, giving the va- rious changes that have been made, whether a loan has been made on the policy, whether a change in the beneficiary or any change affecting the policy. In addition, we keep another list of policyholders by number, stating whether the premium thereon has been paid and keeping a check on that, showing whether the premium has been paid. Q. Are these lists arranged alphabetically or numerically in books? A. They are kept by the card system entirely. Q. Are they all at the main office of the company? A. They are all at the main office of the company ; I think we have records of practically the same characters in our branch offices. Q. Have you lists in your branch offices of all policyholders? A. We have lists of the policyholders of that branch. Q. In that branch? A. Covering the territory embraced in that branch. Q. I understand you have no general lists except at the main office? A. No. Q. Are they accessible to policyholders? A. I don't know of any policyholder who has asked to see them. If a policyholder asked to see them and explained his purpose, I can see no reason why he should not see them 96 Testimony of John C. McCall Q. Has any attitude been taken by the company in regard to the publicity of this list of policyholders? A. We never had any occa- sion. Q. Never considered that action at all? A. Never considered that action at all. Q. Has there ever been a contested election in the New York Life since you have known anything about it? A. None that I have ever heard of. Q. Is the annual statement referred to in this letter, Exhibit 8, sent to all the policyholders ? A. No, sir. Q. This request for a proxy, or Exhibit 8, or the suggestion, if you chose to call it such ? A. No, sir. Q. As to the execution of a proxy, starts with the statement "1 hand you herewith copy of the Sixtieth Annual Report of this Com- pany?" A. Yes, sir. Q. Do you select at random those to whom you send the annual report ? A. Any policyholder is entitled to it Q. Do you select at random the persons to whom you send an annual report of the Company? A. I don't know whether you would state it that way or not. We send it to the people who get that letter. Q. These are the only people who get that report? A. Oh, no. Q. I mean who get it by having it formally sent to them? A. Formally sent to them by the Home Office ? Q. Yes. A. Yes, but I suppose we must scatter three or four hundred thousand of them. Q. But you put those in the hands of your branch offices to mak* such distribution of them as they see fit? A. Yes, and they are supposed to see their policyholders. Q„ But so far as sending them out from the Home Office is con- cerned, they are only sent when a letter of this sort is sent, and to the person to whom it is sent ? A. Yes. 97 > : X Testimony of John C. McCall Q. Now, returning to the officers, I read By-Law 4, as to the President : "The President shall have a general supervision and direction of the business of the Company and shall be ex-ofncio a member of all Committees. He shall : (a) At the stated annual meeting of the Company in May of each year appoint, subject to the approval of the Board of Trustees, one or more actuaries, one or more Comptrollers, one or more Auditors, one or more General Solicitors, one or more Superintend- ents of Agencies, one or more Medical Directors, who shall hold their offices for one year and until others are appointed in their stead, unless sooner removed by the President, with the concurrence of the Board of Trustees. (b) At the stated annual meeting in the month of May of each year, appoint the Standing Committees provided for by By-Law 18, subject to the approval of the Board of Trustees. (c) With the consent of the Finance Committee, transfer securi- ties, satisfy mortgages, make and call in investments. '(d) With the consent of the Agency Committee, fix the compen- sation of agents of the Company. (e) Execute all deeds and papers requiring the seal of the Com- pany which shall be under his charge. (f) Appoint, remove and fix the compensation of each and every person employed by the Company, except as otherwise provided in these By-Laws. (g) Designate, with the approval of the Executive Committee, the persons (and their duties) who shall, from time to time, have charge of the officers of the Company at various points throughout the world where contracts are made in conformity with these By- Laws and as provided in By-Law 26.", Q. The President of the Company is Mr. John A. McCall? What is his salary ? A. One hundred thousand dollars. Q. How long has it been one hundred thousand dollars? A. I 98 Testimony of John C. McCall could not tell you. He would be very glad to give you that informa- tion I am sure. Q. Who is the Vice-President? A. Mr. George W. Perkins, Mr. Darwin P. Kingsley and Mr. Thomas A. Buckner. O. What are their salaries? A. $25,000, $40,000, and $35,000, respectively. Q. Who are the second Vice-Presidents? A. William E. Inger- soll, Edward R. Perkins and Rufus W. Weeks. Q. What are their salaries? A. $30,000, $21,000 and $18,000, I think. I am not sure. O. Who is the Treasurer? A. Edmund D. Randolph. O. What is his salary? A. $30,000 a year. O. Who are the secretaries ? A. I am the senior secretary. My salary is $14,000. The junior secretary is Mr. Seymour M. Ballard. His salary is $10,000. All of these are a matter of record. I have a bulletin here. Q. Have you a statement of the salaries here ? A. Of the persons you have mentioned? Q. Of these officers and the other officers ? A. No, sir, only the executive officers. Q. Who are the actuaries? A. May I refer to a paper? Q. Certainly. The acutaries of the Company are Mr. Henry, Mr. Davison and Mr. Grow. Q. What are their salaries? A. I could not tell you. They are easily to be obtained. Q. How many Comptrollers have you? A. I think three. Let me get my memorandum and I will tell you. Q. I would like to have you present a statement of the salaries paid to the officers of the New York Life Insurance Company from 1877 to date, showing the changes from time to time in the amount of salaries paid ? A. I should be very glad to furnish it to you. Q. Now, you have a number of Standing Committees? A. Yes, sir. 99 Testimony of John C. McCall Q. There are how many? A. There are six Standing Commit- tees of the Board of Trustees. Q. What are they ? A. There is the Finance Committee, Execu- tive Committee, Agency Committee, the Loss Committee, the Audit- ing Committee and the Office Committee. Q. Who are on the Finance Committee? A. If you will let me get my minutes of the Board of Trustees I can tell you. The Fin- ance Committee is composed of George W. Perkins, Mr. Claflin, Mr. Randolph, Mr. Langdon, Mr. Marsden, Mr. Kennedy and Mr. Orr. Q. What constitues a quorum of that Committee? A. I think a majority of all the committee constitutes a quorum. Q. That Committee has general charge of the fund of the Com- pany and over investments and loans? A. Yes, sir. Q. Have you a financial office? A. We have. Q. Where is that office? A. In the Hanover National Bank Building. Q. How extensive an office is it? A. Quite an extensive office. Q. Who is in charge of it? A. The gentlemen in charge of it are Mr. Perkins, Mr. Randolph, the Treasurer, and Mr. Kingsley, the Vice-President. Q. Is that Mr. Perkins' main office, that is, is that the place in which he spends most of his time, that is except in the discharge of his duties as Vice-President? A. I should say so, yes, although he spends a great deal of time at the Main Office, where he has an office. Q. Where are the meetings of that committee held? A. At the Hanover Bank Building. Q. How large a staff have you at the Financial Office? A. T could not tell you that. Q. Is an extensive staff? A. Yes, sir. Q. What other officers of the Company besides Mr. Perkins have their office there ? A. Mr. Kingsley and Mr. Randolph. ioo Testimony of John C. McCall Q. Where are the securities kept, there or at your main office? A. At the main office of the Company. Q. Who has direct charge of them? A. They are directly in charge of the Finance Committee. Q. Yes, but there is some person whom I suppose has access to the vaults ? A. Nobody — it requires two people. Q. Who are the two people? A. If you will call Mr. Randolph he will give you that information, or Mr. Perkins. Q. You don't know particularly about that? A. No. Q. What is the Executive Committee? A. The By-Laws will explain that. Q. Without reading in this long By-Law, tell me briefly ? A. The Executive Committee is a committee composed of the policyholders of the Company. Q. Well, what do they do? A. They meet on the call of the President and they consider such affairs of the Company as may be presented to them for consideration. Q. In practice, what is their function? A. They meet in regard to the nomination of the Board of Trustees, in case of the death of a member of the Board of Trustees before his term of office has expired. Q. Do they do anything else? A. Yes, sir, they have charge — they report to the Board of Trustees regarding the conduct of the various offices which the company has throughout the world. Q. Have they anything to do with investments or loans or financial operations of the company ? A. No, none at all. Q. Who are the members of the Executive Committee? A. Mr. Kingsley, Mr. Fowler Q. You had better read their full names ; of course, we are fam- iliar with these gentlemen, but for the sake of the record read their full names? A. I have not got them here, but will try to give them from memory. Mr. Darwin D. Kingsley, Mr. Fowler, Mr. Augustus 301 Testimony of John C. McCall Payne, Mr. Stillman, Mr. Norman B. Ream, Mr. Clarence Mackay and Mr. Henry Walters. Q. Who is on your Agency Committee? A. Mr. Thomas A. Buckner, Mr. Augustus Payne, Mr. George W. Perkins, Mr. William B. Hornblower, Mr. Henry B. Mortimer, Mr. Woodbury Langdon and Mr. George A. Morrison. Q. You also have an auditing committee which is composed, according to the by-laws, of a second Vice-President, a Secretary, a Comptroller, a General Solicitor, an Auditor and two members of the Board of Trustees? A. Yes, sir. Q. Does that Auditing Committee have charge of -the various accounts of the Company, that is, supervision of them to ensure their accuracy? A. Their duties are fully explained in the By-Laws. Q. That is substantially it ? A. Yes, sir. Q. Who are on that Committee? A. Mr. Henry Mortimer, Mr. Hirman B. Steele, second Vice-President, E. R. Perkins, Secretary Ballard, Mr. Anderson and Mr. Howell, and the Auditor, John C. Whitney. Q. Then you have a Loss Committee and Office Committee? A. Yes. Q. What is the Office Committee? A. The Office Committee is composed of the officers of the Company. Q. For what purpose? A. Their duties are defined in the assign- ment of duties which I gave to Mr. Fleming this morning. Q. Briefly what is it? A. They pass upon the general policy of the Company. I should say they take care of all the other matters which are not mentioned, that the other Committee should take care of. They meet once a month. And then there is also a sub-office com- mittee which meets once a week. All of the questions in regard to the company's general practice, in regard to the general policy that the company may pursue, are passed upon by the Office Committee. 0. Who keeps the minutes of the Finance Committee? A. I 102 Testimony of John C. McCall think the Treasurer, Edmund D. Randolph, with the Secretary of the Finance Committee, Mr. Kingsley. Q. Where are these minutes kept? At the financial office ? A. At the financial office downtown; yes, sir. Q. Are you connected with any other company than the New York Life? A. Not in any way, shape, or manner. Q. Do the Directors of the New York Life receive fees for at- tending meetings of the committee? A. They do. Q. What amounts? A. I think there is a customary fee of twenty dollars for the meeting of the Board of Directors Q. Do members of the Committee receive fees for attending meetings of the committee? A. Yes, sir. Q. What amounts? A. I could not tell; I am not a member of any of the committees. Q. That is, members of all the committees? A. All members of all committees with the exception of the officers. The officers do not receive fees. Q. The officers do not get fees as Directors, nor for attending Committee meetings? A. Not under any circumstances. Q. How long has that been the practice? A. Always as far as I am aware. Q. I have asked you to produce the list of securities owned by your company now, certain data with reference to them, and se- curities that have been bought and sold during the last ten years . I understand that the list is in course of preparation ? A.I think that everything has been collected with the exception that they are in manuscript, and we prefer for convenience to have it printed . Q. You will have them in a day or two ? A. Mr. Randolph can tell sooner than I. Q. I so understand, but desired to make a record of it. MR. HUGHES: Is there anything the Committee desires ti> ask? 103 Testimony of Edward E. Rhodes That is all for the present, Mr. McCall. There is a representative here from the Mutual Benefit of New Jersey; I have forgotten his name — if he will come forward. EDWARD E. RHODES, called as a witness and being duly- sworn, testified as follows: BY MR. HUGHES: Q. Mr. Rhodes, where do you reside? A. In Newark, New Jersey. Q. And you are connected with the Mutual Benefit Life Insur- ance Company? A. I am its mathematician. Q. That is a mutual company organized under the laws of the State of New Jersey ? A. It is. Q. And doing business in the State of New York ? A. Yes, sir. Q. It is a purely mutual company, is it? A. It is, sir. Q. I would be glad to have you state to the Committee just what method you adopt with reference to the method of election of directors or trustees of your company? A. The Board of Di- rectors is composed of twelve policyholders, three of whom are selected each year for a term of four years. Does that answer your question fully? Q. With reference to this election, are nominations made? A. Nominations are made by the Board of Directors. Q. Have you had any contested elections in your experience? A. No, sir. Q. And how extensive has been your experience? How long have you been connected with the company? A. Twenty years. Q. The nominations, made by the Board of Directors, have al- ways resulted in the election of the persons nominated ? A. Yes, sir. Q. What notice do you give to the election of directors? A. Publication in the local papers for a period of two weeks. Q. Now you refer to the Newark papers? A. Yes, sir 104 Testimony of Edward E. Rhodes Q. Do you publish in the State of New York? A. No, sir. Q. Do you send any notices by mail or otherwise to policy- holders? A. No, sir. Q. The votes that are cast at the elections are votes in person or by proxy. A. Both. Q. Have you any limitation upon the right of a policyholder to vote, based upon the amount of insurance that he holds ? A. All policyholders, no matter what amount of insurance they hold, are entitled to one vote, if their insurance does not exceed two thou- sand dollars; if their insurance is in amount between two thou- sand dollars and five thousand dollars, they are entitled to two votes; if over five thousand dollars to three votes. Q. That is provided for by section three of the By-Laws? A. Yes, sir. Q. Now, in practice how many vote at an annual election? A. It will — the number of votes will range usually between two thousand and three thousand. Q. How many of those votes are cast in person by the policy- holders ? A. Not more than one hundred. Q. And who are the persons that thus cast their votes? A. Largely officers and employees who are about the building. Q. When you say largely, in fact mostly? A. Yes, very few exceptions. Q. And the other votes that are cast are cast by proxy? A. Yes, sir. Q. To whom do the proxies run? A. To the President, or, in his absence, one of the Vice Presidents. Q. What is the name of the President? A. Mr. Frederick Frey- linghousen. Q. And how long has he been President? A. Since 1902 . Q. And who is Vice President? A. There are two Vice Presi- dents, Mr. Edward L. Dobbins and Mr. Le Gage Pratt. I may say, i°S Testimony of Edward E. Rhodes sir, that the proxies are not made in their names, but in their names officially. Q. But they run to them as officers? A. As officers. Q . Have you a form of proxy that is in use ? You now produce one? A. Yes, sir. Q. Are all the proxies that have been voted within the last few years at the elections of the Mutual Benefit Life Insurance Com- pany in this form? A. Substantially. Q. To what extent have proxies been voted running to persons other than the officers of your company ? A. I recall of none. MR. HUGHES: I offer this proxy in evidence. (Marked Ex- hibit 10.) MR. HUGHES: I will read it upon the record: " KNOW ALL MEN BY THESE PRESENTS THAT I, do hereby constitute and appoint the President of the Mutual Benefit Life Insurance Company of New Jersey, or in his absence, one of 'the Vice Presidents of said Company, my attorney and agent to vote for me and in my name, place and stead, as my proxy at any election of directors of said company for such person or persons as the Board of Directors shall nominate, according to the number of votes I should be entitled to cast if then personally present. "This appointment may be revoked by me in writing at any time. " In witness whereof I have hereunto set my hand and seal; this day of , one thousand nine hundred and ." (Blanks for signature and witness.) Q. You have no provision of law in New Jersey limiting the duration of proxies? A. To three years. 106 Testimony of Edward E. Rhodes Q. Three years? A. Statutory provision. Q . So that this proxy falls of its own weight in three years ? A . It is so stated on the margin. MR. HUGHES: The proxy referred to has this statement on the margin : "Under the provisions of the New Jersey statutes this appoint- ment terminates at the end of three years unless sooner revoked." Q. That revocation by statute governs without any reference to the wish of the policyholders ? A. Yes, sir. Q. Is there any restriction in the New Jersey statutes as to the reappointment of the same proxy? A. No, sir. Q. How many policyholders are there in your company? A. About one hundred and seventy- five thousand policies in force. Some policyholders have more than one policy. Q. Are you able to state how many policyholders at the elec- tions voted three votes under this provision of the By-Law giving policyholders having over five' thousand dollars of insurance three votes? A. Not definitely. I can only say that the average amount of our policies is something like — something less than twenty-five hundred dollars. Q. Do you have lists of your policyholders? A. We have a number of such lists. Q. At your main office? A. Yes, sir. Q. Have you lists accessible to policyholders? A. Ordinarily they would not be accessible. Q. What do you mean by that? A. We have never had a re- quest for a copy of the list? Whether we would grant such a re- quest or not would depend upon the purpose to which it was to be put. Q. What do you mean by that? A. I mean to say this, that a 107 Testimony of Edward E. Rhodes list of policyholders in the hands of outside parties might be used improperly. Q. How? A. By agents of the companies, for example. Q. The officers of your Company are how many? A. The ex- ecutive officers comprise a President, two Vice-Presidents, a Sec- retary, Treasurer, a Mathematician, Auditor, Actuary. Q. What are the salaries paid these officers? A. The President received twenty-five thousand dollars per annum; one Vice- President fourteen thousand dollars, the other twelve thousand; the Secretary eight thousand, the Treasurer nine thousand. The salary of the mathematician is not fixed. I have recently suc- ceeded to that office. The actuary received five thousand. Q. Has the President general supervision of the business ? A. He has, sir. Q. Have you a committee having charge of investments? A. Yes, sir. Q. What are the gross assets of your Company ? A. About one hundred million. Q. How much net business did you write last year? A. About a little over fifty-five millions. Q. Actually taken out? A. Yes, sir. Q. What were your receipts from all sources last year? A. Something — somewhere in the neighborhood of fifteen millions. Q. What were your gross expenses? A. They were in the neighborhood of two millions. Q. How much did you pay policyholders, either on death claims or by distribution of dividends? A. In the neighborhood of nine or ten millions; I don't recall the exact. Q. Your ratio of expenses, total gross expenses, to the amount paid policyholders, either in death claims or by dividends, is about twenty-five per cent? A. No, sir. Do you include death claims in expenses. Q. No; I am taking your expenses apart from payments to pol- 108 Testimony of Edward E. Rhodes icyholders and asking what was the ratio between those and the amounts paid policyholders in any way, either upon losses or by way of dividends? A. Our total expenses of management, in- cluding taxes — I presume that is what you mean Q. Yes? A. Was in the neighborhood of fifteen per cent, of our total income. Q. And what percentage of you total expenses was the — or what ratio was there of the amount paid policyholders to the amount of your expenses? A. Well, it was, I should say, in the ratio of one to five. Q. I omitted to ask you how many proxies for policyholders are held at the office of your Company ? A. We have now at the present time about eighteen hundred proxies. Q. When you say the present time, do you single that out as meaning that at other times there are a larger number or a smaller number? A. I mean to say this, that the last time that our proxies were examined, we found that we had about eighteen hundred which would be available for use. Q. Do you keep a record of proxies? A. No, sir. Q. Any list of proxies? A. No, sir. Q. How often do you examine them to see how many are in force? A. Immediately before each election. Q. What steps do you take to get those proxies that come to the officers? A. We place blank proxy forms in the hands of the agents, the principal agents, and they send us such proxies as are signed. We take no definite steps to procure proxies. Q . You place these forms in the hands of the agents with the understanding that proxies will be obtained? A. There is no understanding, sir. The Company makes no effort to pro- cure proxies beyond enough to safeguard the Company from falling into the hands of irreponsible parties. Q. Well, when you say safeguard the Company, you mean to insure the election of those nominated by the B oard ? A . Yes , sir. 109 T< :timony of Edward E. Rhodes Q. Does the president have general supervision of the business of the Company? A. He does. Q. And general direction of its affairs? A. Yes, sir. Q. Have you a committee which is specially charged with the matter of investments? A. Yes, sir.. Q. What is the name of that Committee? A. The Finance Committee. Q. Are the officers members of that Committee? A. Two officers are members of the Committee. Q. Which two? A. The President and one of the Vice-Presi- dents. Q. And then I see by the By-Laws there are four directors in addition? A. Yes, sir. Q. How often does that Committee meet? A. Once a week. Q. Does it take direct charge of the matter of investments? A. Yes, sir. Q. Who keeps the minutes? A. There are — the minutes are usually kept by the Treasurer. There is no set person who takes charge of them. Q. What precisely is your office, Mr. Rhodes? A. Mathema- tician, It corresponds with the office of actuary of other com- panies. Q. Yes, your are, as we would understand it in New York terminology, the actuary of the Company? A. Yes, sir. Q. There is no one else who is charged with that class of duties which ordinarily are termed actuarial ? A. We have an actuary, but the mathematician is the ranking officer. Q. Oh, yes, and the actuary acts under his supervision? A. Yes, sir. MR. HUGHES: I am much obliged to you, Mr. Rhodes. That is all at present. Mr. Fiske. Testimony of Haley Fiske HALEY FISKE, called as a witness, being duly sworn, testi- fied as follows: Q. Mr. Fiske, you reside in the City of New York? A. I reside in Bernardsville, New Jersey. Q. Your are an officer of the Metropolitan Life Insurance Company? A. Yes, sir. Q. What office do you hold? A. Vice President. Q. And how long have you held that office? A. Since Oc- tober, 1 89 1. Q. Are you connected with any other company? A. I am a director of some other companies. Q. In what companies are you a director ? A. I am a director of the Metropolitan Trust Company, of the National Shoe & Leather Bank, of the International Banking Corporation, Metro- politan Bank, Lincoln Traction Company. Q. The Guarantee Loan & Building Company, of Minneapolis? A. Oh, yes. Q. No. 60 Wall Street? A. No, no longer. Q. What matters are under your charge in connection with the Metropolitan Life Insurance Company? A. Well, I think in connection with the President I may be said to have charge of the whole company, except the financial end, that is, the execu- tive management of the Home office and of the field. Q. You have that in the absence of Mr. Hegeman? A. Yes. Q. Or do you have that generally? A. I have that generally, of course, consulting with him about it. Q. Now, the Metropolitan Life Insurance Company, I under- stand, was originally incorporated under the General Insurance Law passed June 24, 1853, under the name of The National Travelers' Insurance Company? A. Yes, sir. MR. HUGHES: I offer the declaration and certificate of the in Testimony of Haley Fiske National Travelers' Insurance Company dated January 20, 1866, providing for incorporation of that company under the law of June 24, 1853. (Marked Exhibit 11) The text of Exhibit No. 11 will appear at the end of the min- utes of Thursday's session. THE WITNESS: I think I should have added to my duties the general supervision of the legal work all over the country. Q. You are a member of the Bar? A. Yes, sir. MR. HUGHES: I read from article III of this declaration the following: • " Capital of the said compariv shall be two hundred thousand dollars, and the capital stock shall be divided into four thousand shares of fifty dollars each, which shall be personal property, transferable only on the books of the company in conformity with the By-laws of the company. ' The holders of the said capital stock may receive a semi-an- nual dividend of three and one-half per cent, on the same, and on any surplus standing to their credit on the books of the com- pany as hereinafter provided." "Article 7th: Every shareholder shall be entitled to one vote for directors for each and every share of stock standing in his or her name on the books of the company, and it shall be lawful for any member of the company possessing the right to vote to do so by proxy duly authorized in writing." "Article 10th: During the month of January in each year the directors shall cause a true exhibit to be prepared of all the busi- ness and affairs of the company, which shall show its assets and liabilities, both present and contingent, and also the net surplus after deducting an amount amply sufficient to cover all out- 112 Testimony of Haley Fiske standing risks and other obligations, including any dividend which may have been declared as above provided. "The directors shall cause the whole of the net surplus to be credited to the stockholders in proportion to the amount of stock held by each. The whole amount of surplus credited as afore- said shall remain in the hands of the company as a guarantee surplus fund for the security of policyholders, until the same shall amount to the sum of eight hundred thousand dollars, at which time certificates (the Legislature consenting) for the said eight hundred thousand dollars shall be issued to the persons entitled thereto, and from that time all net earnings of the com- pany may be annually divided among the stockholders in pro- portion to the amount of stock held by each. "The directors may from time to time issue scrip representing such surplus, which scrip shall be transferable in the manner to be directed by the Board, and shall entitle the holder thereof to such interest or dividends thereon as may from time to time be declared by the directors." I note upon the record Chapter 286 of the Laws of 1867, amending the charter of the National Travelers' Insurance Company, also chapter 49 of the Laws of 1868, further amending the charter of the National Travelers' Insurance Company and changing the name of the said company to the Metropolitan Life Insurance Company. I also note upon the record chapter 87 of the Laws of 1874, amending the charter of the National Travelers' Insurance Com- pany, and also the Act of 1867 above mentioned. Also Chapter 437 of the laws of 1883, amending the charter of the Metropolitan Life Insurance Company of the City of New York, and Chapter 492 of the laws of 1902, further amending the charter of the National Traveler's Insurance Company, and also the above-mentioned Act of 1867. "3 Testimony of Haley Fiske Now, I read upon the record, Section XIII of Chapter 49 of the laws of 1868, as follows: "Section XIII. At every election of directors each stock- holder shall be entitled to vote in person or by proxy for each and every share of the capital stock of the Company owned and held by him in his own name on the books of the Company, and any person insured for one year before any election for the whole term of life in the Company, or by > an endowment policy, upon either of which the annual premium shall not be less than one hundred dollars, and every person entitled to an annuity from the Company of not less than one hundred dollars, shall be en- titled to one vote in person, but not by proxy, unless the same shall be recorded in a book kept by the Company for the pur- pose three months prior to any election." Q. Was that resolution changing the voting right of stock- holders obtained by the Company, so far as you know? A. That was the act of what? Q. Of 1868, which, as I understand it, was the first act which gave the policyholders the right to vote under the conditions stated? A. Well, I doubt if anybody now connected with the Company knows. Q. You don't know about that? A. I think prior to the term of any officer. Possibly, Mr. Hegeman, was an officer then, but I don't know. MR. HUGHES: I also read Section XVI of Chapter 49 of the Laws of 1868, as amended by Chapter 87 of the Laws of 1874: "Section XVI. On the first day of January in each year, or within sixty days thereafter, a valuation of the assets and liabili- ties of the company shall be made, and after placing to the credit of the stockholders seven per cent of the amount of the capital 114 Testimony of Haley Fiske stock, which may be paid to the stockholder one-half on the fif- teenth day of May and the remaining one-half on the fifteenth day of November, and after providing for all the outstanding liabili- ties of the company, all the remaining profits or surplus shall be placed to the credit of the policyholders who may be entitled to participate in the profits or surplus of the company in proportion to the amount of premium paid respectively as hereinafter pro- vided, which credit may be represented by scrip, subject to all the provisions of this charter, but no credit or scrip shall be made for any fractional part of a dollar, nor shall any policyholder be en- titled to a credit for profits who has not been insured for three full years and whose policy for life or endowment is not in actual force at the time." I read Section XX of Chapter 49 of the Laws of 1868, as amended by Chapter 87 of the Laws of 1874: "Section XX. When the gross assets of the company shall amount in value to five hundred thousand dollars, it shall be law- ful for the directors to retire one-half of the capital stock of the company by payment to the stockholders of one-half of the par value of the stock and by issuing to each stockholder on such payment a new certificate reducing each stockholder's stock one- half. Such new certificate shall represent as many shares as did the old one, and each share of the new stock shall be of the par value of twenty-five dollars." Q. Are you able to state whether any such retirement was made? A. That was done, sir. Q. That was done in exact conformity with the statute ? A. I have no doubt of it. The capital stock is one hundred thousand dollars and the par value is to-day twenty-five dollars. MR. HUGHES: I read Section II of Chapter 437 of the Laws of 1893: "5 Testimony o} Haley Fiske " Section II. The said Metropolitan Life Insurance Company is hereby authorized and empowered from time to time to increase its capital stock to an amount not exceeding two millions of dol- lars, by the issue of additional shares of the par value of twenty- five dollars each, said additional stock to be paid in cash or by the application of such surplus as may be derived from the business of the ' Industrial Department.' Such increase stock shall be appor- tioned pro rata among the stockholders of record at the time such increase is made, and no greater cash dividends shall be paid upon the capital stock of said company than seven per cent, per annum. Q. Was the capital stock so increased ? A. Yes, sir. Q. And what is the present amount of the capital stock? A. Two millions of dollars. Q. And what is the dividend permitted upon that two millions 6i dollars? A. Seven per cent. MR. HUGHES : I now read the amendment of Section XIII of Chapter 49 of the Laws of 1868, made by Chapter 492 of the Laws of 1902, as follows: " Section XIII . At every election of directors each stockholder shall be entitled to one vote in person or by proxy, and for each and every share of the capital stock of the company owned and held by him in his own name on the books of the company, and any person insured for one year before any election for the whole term of life in the company, or by an endowment policy, upon either of which the annual premium shall not be less than one hun- dred dollars, shall be entitled to one vote in person or by proxy, provided that the Board of Directors may further extend, but shall not curtail, the right of voting at elections for members of the Board of Directors to any class or classes of its policyholders, un- 116 Testimony of Haley Fiske der such regulations as they may prescribe, upon obtaining the approval of the Superintendent of Insurance thereto in writing." Q. Are those acts to which I have referred all the amendments to .the charter of the company? A. Yes, sir. Q. Are you able to state whether the legislation of 1 902 , extend- ing the rights of policyholders and limiting the voting rights of stockholders, was procured by the company? A. Yes, sir; by the request of the Board of Directors. Q. At the request of the Board of Directors? A. Yes, sir. Q. Was any action taken by the stockholders in the matter? A. Except incidentally, as the Board of Directors contains a very large proportion of the stock, nearly all of the stock. Q. No formal action? A. No, no formal action. Nearly all the stock is represented on the Board of Directors. Q. Is the same statement true of the legislation of 1874? A. I don't know, sir. Q. You don't know. Now, as a matter of fact, at the present time the provision relative to the distribution of profits or surplus after the payment of the seven per cent, upon the stock, is found in Section XVI as amended by Chapter 87 of the Laws of 1874, is it not? That is the last provision? A. Well, most of the — the very largest proportion, a very enormous proportion of the pol- icies in force are non-participating policies; there have been no tontine policies issued, or semi-tontine, for nearly thirty years. Q. As a matter of fact, during your connection with the com- pany, has any credit been made to stockholders in excess of seven per cent, dividends? A. No, sir. Q. And you understand that they are limited to seven per cent? A. Oh, they are absolutely. Q. And have no interest in the accumulations? A. None whatever. Q. Are you conversant with what has taken place at recent elections of the Metropolitan Life Insurance Company? A. I 117 Testimony of Haley Fiske think so. You read that an extension of the right of voting' should be made by a resolution of the Board, and I have a copy of that resolution. Q. Could be made? Has there been a further extension? A. Yes, sir. Q. At what time? A. I think that is the date (handing paper to Mr. Hughes) . Soon after the act was passed. Q. 1903? April? A. Well, no; soon after the act was passed, in 1902. That is the notice of election in 1903 ; that is the resolu- tion. Q. This is an amendment to the charter passed or made by the Board of Directors pursuant to the permission contained in Chapter 492 of the Laws of 1902? A. Yes, sir. MR. HUGHES : I offer that in evidence and read it upon the record as follows: "RESOLVED, Section 1, that every policyholder in this com- pany whose policy shall have been in force for the full term of one year before and shall be in force at the time of any annual meeting for the election of directors, shall have the right of voting for members of the Board of Directors, provided that policy- holder or proxy shall, not more than twenty days nor less than ten days before the date of such election, file with the secretary of this company a written notice of intention to so vote at such annual election, and if by proxy, a copy thereof." Q. What number of votes was cast at the last election of direc- tors of the Metropolitan Life? A. Something over thirty -eight thousand policyholders, in addition to the stock. Q. How many policyholders are there in your company? A. Eight million of policies are in force. Testimony of Frederick H. Ecker Q. That includes, of course, the industrial policies? A. Yes, sir, and so does the resolution. Q. And the resolution makes no distinction? A. None what- ever. Q. There is no discrimination there with regard to amount of insurance held? A. None whatever. Q. One policyholder, one vote, without reference to the quality or character of his insurance ? A. Yes, sir. Q. Now, how many votes were cast at the last election that were not cast by proxy? A. My impression is, not many. I was not present at that meeting, but I have here the inspector of election who will give any information you like about that. Q. If you will withdraw a minute I will ask him to go on? A. Yes, sir. "MR. HUGHES: Will the inspector of election take the stand? FREDERICK H. ECKER, called as a witness, being duly sworn, testifies as follows : BY MR. HUGHES: Q. What connection have you with the Metropolitan Life In- surance Company? A. I am the Comptroller. Q. And how long have you been Comptroller? A. Since January first. Q. And what are your duties as Comptroller? A. I have charge of the investments on bond and mortgage with the con- sultation and approval of the president and likewise of the Real Estate Committee. Q. Did you act as inspector of election at the last election? A. I did. 119 Testimony of Frederick H. Ecker Q. Did you make a certificate of the results of that election? A. Yes. Q. Have you that there? A. I think not. MR. HALEY FISKE: Yes, it is here. Q. A book is produced, purporting to contain the certificates of the inspectors of election and the minutes of the meeting for the election of 1905, held April nth, 1905. Did you sign that list? A. I did. Q. Has there been any contested election in the Metropolitan Life within your memory? A. Not to my knowledge. Q. And that extends over how long a period? A. Seven or eight years, I should say. Q. And are nominations made or vacancies in the Board by the Board itself? A. I do not know. Q. You don't know how the names are made up of those to be voted for? A. I do not. Q. Have you acted as inspector of election prior to the last elec- tion? A. Yes. Q. For several years? A. For several years. Q. And as a matter of fact the election of the officers who have been elected has been unanimous, so far as the votes cast has been concerned? A. With possibly one exception that I recall. Q. What exception is that? A. When a stockholder voting voted for himself instead of the ticket that all of the rest of us voted for at that election. Q. Making a minority vote of one vote for himself? A. That is my recollection. Q. And with that exception, the vote has been unanimous? A. Yes. Q. Now, I notice that in the certificate of 1905 it appears that there were 115,030 votes cast, being 76,800 of votes of stock- 120 Testimony of Frederick H. Ecker holders and 38,930 of votes of policyholders. What proportion of the policyholders' votes were cast by proxy. A. All but three or four. Q. Has that been true for several years? A. Yes. Q. The three or four that voted in person, are they connected with the Metropolitan Life? A. No, they are not. Q. People that came in? A. I should like to correct my testi- mony. Three or four at the last election, and some previous elections; I think, perhaps, a dozen or more. Q. Some of them connected with the Metropolitan Life? A Not connected at all. Q. You publish a notice of the election? A. Yes, sir. Q. In the City of New York? A. Yes. Q. Anywhere else? A. No. Q. Do you keep a list of the policyholders? A. That isn't in my department. Q. You don't know anything about that. A. Couldn't testify about it. Q. To whom do the proxies run that are voted? A. To the President. Q. Mr. Hegeman? A. Mr. Hegeman. Q. As President or individually? A. I don't recollect. Q. Have you a form or proxy here? MR. HALEY FISKE: We will have one. f MR HUGHES: Then I will just ask him a question about these votes, Mr. Fiske. Q. The net result of this is, as I understand it, that of the 38,920 of policyholders' votes, about 38,926 or 27 were cast by Mr. Hegeman as proxy for policyholders? A. Yes. Q. Now, will you turn to the election of 1904, please? A. Yes. Q. How many votes cast in all? A. 97,256. 1 2.1 Testimony of Haley Fiske Q. How many stockholders' votes? A. 75,880. Q. How many policyholders' votes? A. 21,376. Q. How many cast by Mr. Hegeman? A. I couldn't tell now. Q. Well, within a dozen? A. Practically all. Q. All but about a dozen? A. I should say about that. Q. Under this proxy, of course? A. Yes. Q. And that would be true in prior years ? A. AsIrecollect.it, yes. MR. HUGHES: Mr. Fiske, will you resume? HALEY FISKE resumes the stand. THE WITNESS : I want to say that, in addition to the pub- lication in the newspapers in New York stated in that paper which you have there, a notice of the election is published in the Metropolitan paper of which about ten millions are distributed annually to policyholders, and also the date of the election is printed on every policy that goes out. Every policyholder as soon as he gets a policy has notice of the election, which is always on a certain date ever)- year, a certain Tuesday. Q. Is any formal notice sent to every policyholder by mail or otherwise? A. No, sir. It is impossible to send to eight millions; only by this newspaper. Q. Apart from the practicability of it, I only want to know the fact? A. Yes. Q. How many proxies does Mr. Hegeman hold? A. Well, he voted what he held last election. Q. He votes all he holds? A. Yes, sir. Q. So, if he voted 38,000 and odd those are what he held? A. Yes. Testimony of Haley Fiske Q. Does any other officer of the company hold any proxies? A. No, sir. The proxy runs to Mr. Hegeman or myself. I have a blank. Q. I would like to see one of the forms? A. I think they are all alike. "MR. HUGHES : I offer this form of proxy in evidence. (Marked Exhibit 12.) MR. HUGHES: I will read it right on the record: KNOW ALL MEN BY THESE PRESENTS that I, the holder of policy No. , the subscriber thereto, do hereby constitute and appoint JOHN R. HEGEMAN, and in his ab- sence or omission to act I hereby constitute and appoint Haley Fiske, my attorney and agent, for me and in my name, place and stead, to vote as my proxy for members of the Board of Directors at any and every meeting for the election of directors of the Metropolitan Life Insurance Company of New York hereafter held, and to do and perform all other acts and things incident thereto, hereby giving my said attorney, agent and proxy, full power of substitution and revocation thereof, and hereby ratify- ing and confirming all that my said attorney, agent and proxy, shall lawfully do or cause to be done by virtue hereof. "This power and proxy is to continue in force during and for the period of ten years from the date hereof. This proxy is re- vocable at my pleasure. "In witness whereof I have hereunto set my hand and seal this • day of 190 , at "Signed and delivered in the presence of: (Blanks for signature and witness). 123 Testimony of Haley Fiske Q. For how long has this form of proxy been in use? A. I think continuously since the act of 1902 was passed. Q. The policyholders were given a limited right to vote by the earlier statute, were they not, the statute of 1874? A. Yes, sir; but no proxies were ever printed for that purpose. Q. Were any votes cast by policyholders prior to 1902 ? A.I don't remember that any were; never heard that any were. Q. Is any record of proxies kept? A. A list of the proxies is kept and a record by the card system; yes, sir. Q. Do you keep a- record of revocations? A. Yes, sir; there have been no revocations, but in case of lapse, the card repre- senting that proxy is taken out. Q. So far as the option to the policyholder to revoke the proxy is concerned, that has never been exercised, so far as you know? A. It has never been exercised. Q. I see that this form provides for the continuance of the proxy for the period of ten years. What is the average life of a policy in your company? A. The average life of the— -the average duration of the industrial policies in force on the 31st of December last was six and a half years, about. Q. And of the other? A. The others, I don't know, sir; I presume it is about the same. Q. Will you name, please, the officers of the Metropolitan Life Insurance Company? A. Mr.. John R. Hegeman is President, I am Vice-President, Mr. George H. Gaston is Second Vice-Presi- dent, Mr. George B. Woodward is the Third Vice-President, Mr. James S. Roberts is Secretary, Mr. James M. Craig is Actu- ary, Doctor Thomas H. Willard and Doctor Augustus S. Knight are Medical Directors, Mr. Stewart L. Woodford is Counsel; then there are some assistant secretaries, Mr. John R. Hegeman, Jr., Mr. J. J. Thompson, who is also cashier, and the officer under the two titles, Mr. T. R. Richardson is an Assistant Secretary, and on the Pacific Coast, Mr. Taylor is Assistant Secretarv. 124 Testimony of Haley Fiske Q. "What is the salary of Mr. Hegeman? A. One hundred thousand dollars. Q. What is the salary of the Vice-President? A. $75,000. Q. Are there two Vice-Presidents? A. No, sir, but one. Q. That yourself? A. Yes. Q. What is the salary of the other officers? A. Mr. Gaston's, the third, is $37,500. Mr. Woodward's I know, but I have for- gtten ; it is somewhere between twenty thousand and twentv-five thousand dollars. Mr. Ayres', I think, is $15,000. Mr. Craig, who has been with us thirty years, I think, is $20,000. The cashier and assistant secretary, I believe to be $15,000. I had sent for the list, but it has not come yet. Q. Are there any relatives of the Mr. Hegeman connected with the company? A. Yes, sir. Q. Who are they? A. His son is an assistant secretary. Q. What is his name? A. John R. Hegeman, Jr.; I have mentioned his name. Q. What is his salary? A. It is in the neighborhood of $3,000 or $3,500. Q. How long has he been connected with the company ? A. It is quite a good many years ; I could not tell how many ; it is six or seven or more. Q. Any one else? A. He has a brother-in-law who is a pur- chasing agent. Q. Among the officers? A. No, not among the officers. Q. What in a general way are the duties of the President? A. The President? Q. Yes. A. Well, he has general supervision of the officers of the company, and particularly in charge of the affairs of the company in connection with the finances. Q. Are the investments of the company made by the President directly in the first instance? A. In connection with the Fin- ance Committee. 1*5 Testimony of Haley Fiske Q. Does the Finance Committee pass upon the propriety of an investment before it is made? A. Not necessarily. Q. Usually, what is the practice? A. I think Mr. Hegeman's practice is to call them together or consult them in some way. Q. Before an investment is made? A. Yes. Q. Who constitutes the Finance Committee? A. Mr. James, the president of the Lincoln Bank, is chairman. Mr. Silas P. Dutcher, president of the Hamilton Trust, is one, and Mr. Joseph E. Knapp, the son of the former president, is the third one. Q. How often do they meet? A. Mr. Hegeman is a member ex-officio; they meet at the home of the president. Q. Do they have stated meetings? A. No, sir, except that they always meet before the quarterly meeting of the Board of Directors, but otherwise they meet when called by the Presi- dent. Q. Then the consultations between Mr. Hegeman and the members of the Finance Committee are generally informal ? A.' I will not say that; there are only three of them; he calls them together. Q. They are all in the building there? A. No, sir, none of them in the building ; Mr. Knapp is within two or three blocks and Mr. James is up on 42 d street, not far away. Mr. Dutcher comes to New York every day, he is in Brooklyn. Q. Does the Finance Committee keep minutes? A. There is a book of minutes; yes, sir. Q. Who writes up the book? A. I do the actual writing in the book, but the writing is done from memoranda furnished me by Mr. Hegeman, by the Committee. Q. Do the directors get fees? A. Yes, sir. I^Q. For attending meetings? A. Yes, sir. Q. How much? A. The fees are a division of $25 for each director, excluding the officers. 126 Testimony of Haley Fl , ': : Q. Do the officers get any fees? A. Not for directors' meet- ings. Q. Do they for committee meetings? A. No, sir. Q. Do the other members of the committee who are not officers get fees for attending committee meetings? A. The Finance Committee get fees; yes, sir. Q. Not including the officers? A. No, the officers do not get any fee at all. Q. The officers get no fees at any time ? A. No, sir. Q. Do you act under the president — I think I have already brought that out. You have general supervision of a class of matters independently of the president ? A. Everything except the financial part, I have pretty general charge of. Q. I have asked for the other companies to produce a state- ment of salaries which will show the changes in the salaries from the time of the last investigation, from 1877, 'say, to the present time, of the executive officers of the company, will you kindly have your company make up such a statement and present it? A. Yes, sir. Q. I have also asked for a list of securities. A. I have that here. Q. Have you it complete? A. A list of securities as now owned I have complete, yes, sir. Q. The other list is in course of preparation? A. Yes, sir. Q. If you will, hand us the list you now have. A. (Produced.) Q. What are the fees of the directors for attending meetings? A. $25 for each director, excluding the officers, divided among those who are present. Q. That is, $25 for each director present? No; it is to get them all present, as many as possible, the absent directors get nothing. Q. It is a sort of tontine plan of dividing your directors? 127 Testimony of Haley Fiske A. Yes ; the purpose is to procure as many to be present as pos- sible. Q. The fees of the Committeemen are how much? A. The Finance Committee get varying fees; if they are called together for a single purpose, I think the fee is $10; if they are called to cancel or to count securities, it is $25 ; I think those are the only two. BY MR. ARMSTORNG: Q. As a matter of practice, doesn't that plan produce fewer directors than more ? A. No, sir ; we have had very full meetings ever since we have had that plan ; I presume everybody hopes the other fellow won't come, but they all come. Q. If I was on that board I should see they did not. A. We have very few absences from our meetings in the Board. BY MR. HUGHES: Q. No man wants the other man to get his fee? A. That is it. Q. How frequently does the Finance Committee meet? A. I think there is seldom a week without their being called; some- times several times a week. Q. And those are entered in the minutes? A. Yes, sir. Q. You have those here? A. Yes, sir. Q. I don't want to examine them just now, I shall want to a little later. A. Of course, there are times when they don't — in hot weather and things of that sort; it depends on the business that calls them together. Q. I am requested to ask what would be the average amount of policy held by the policyholders that aggregate eight million? 128 Testimony of Charles W. Camp A. We have about one billion and a half in force of insurance; I am not quick at mathematics. Is that an average of two hun- dred ? I may say this, that the industrial policies average I should say $150. The ordinary policies not far from $1,000 I should think. Q. Have you a list of the policyholders? A. In a sense, yes; there is not a list kept by itself; it would be impossible to do that. Q. Is there a list accessible to policyholders? A. There are books in the office, which, put together, would show a complete list of policyholders. Q. But not kept in any one place? A. Yes, in one room. Q. I mean not together, so that if I went there, for example, unacquainted with your records, and asked to see a list of the policyholders I would not be able to find an actual list? A. I think we could show you the 8,000,000. It would take some time. Q. You have an electorate among the policyholders of 8,000,- 000. A. I could not say that; there are 8,000,000 of policy- holders in force, and we have found by experience that about 70 per cent, are different individuals; that would make 5,600,000.. Q. And has any effort ever been made to examine your lists of policyholders or to obtain names? A. No, sir. Q. Any objection to that course? A. No, sir, except that in a litigation on one of the old tontine policies a lawyer tried to get a list for the purpose of getting clients. Q. He did not succeed? A. Well, no, not in whole; he got some on a short list. Q. Mr. Lindenbury wants me to have an answer to that ques- tion whether there is any objection to the policyholders seeing the list? A. Oh, no, none whatever. CHARLES W. CAMP, called as a witness, being duly sworn, testified as follows : 129 Testimony of Charles W. Camp BY MR. HUGHES: Q. Mr. Camp, you are an officer of the Mutual Reserve Life Insurance Company? A. Yes, sir. Q. What office do you hold ? A. Secretary. Q. How long have you been Secretary? A. I became secre- tary of the Mutual Reserve Fund Life Association in 1894, and have continued secretary of that company, now known as the Mutual Reserve Life Insurance Company. Q. When was its name changed? A. In 1892, re-incorporated. MR. HUGHES: I offer in evidence the Declaration and Charter of the Mutual Reserve Life Insurance Company, certifying that the Mutual Reserve Fund Life Association, originally organized under Chapter 267 of the laws of 1875, and re-incorporated and transacting business under Chapter 175 of the Laws of 1883, has accepted the provisions of the Insurance Law, to wit: Chapter 690 of the Laws of 1892. Admitted and marked Exhibit No. 13, and is as follows: EXHIBIT NO. 13. DECLARATION AND CHARTER OF MUTUAL RESERVE LIFE INSURANCE COMPANY. Insurance Department, April 17, 1902. State of New York. This is to certify that the Mutual Reserve Fund Life Associa- tion, a corporation originally organized under and by virtue of Chapter 267 of the laws of 1875, and reincorporated and trans- acting business under Chapter 175 of the Laws of 1883, of the State of New York, and the laws amendatory thereof and supple- 130 Testimony of Charles W. Camp mentary thereto, has duly accepted the provisions of the Act of the Legislature of the State of New York, being' Chapter 690 of the Laws of 1 8 9 2 , known as " The Insurance Law " and the amend- ments thereto, and'in conformity with the same has duly adopted the following amended charter: ARTICLE I. The name of the corporation shall be "Mutual Reserve Life Insurance Company." ARTICLE II. The Company shall be located and its principal place of busi- ness shall be in the City of New York, in the State of New York. ARTICLE III. The business of the Company shall be insurance upon the lives or the health of persons, and all and every insurance appertaining thereto, the making of endowments, and the granting, purchasing and disposing of annuities, such kind of insurance being authorized under subdivision one of Section 70 of "The Insurance Law." ARTICLE IV. Section 1 . All the corporate powers of the Company shall be exercised by the Board of Directors and such officers and agents as the Board may elect or appoint. Section 2 . The Board of Directors shall consist of twelve per- sons, the majority of whom shall be citizens and residents of the State of New York, elected as hereinafter specified and as in the by-laws provided. Section 3 . The Directors shall continue to be divided into four classes of three each, and as the term ot each class shall expire, its successors shall be elected at the annual meeting of the members for the term of four years, three directors to be elected each year. In case of failure to elect Directors at any annual meeting of the. I3 1 Testimony of Charles W. Camp members, the Directors whose regular term of office does not then expire shall have power, acting as a Board, to elect directors to fill the vacancies caused by such failure to elect ; and in case of any vacancy occurring in the Board, at any time, the Board of Direc- tors shall have power to fill such vacancy for the unexpired term, a majority of the votes of a quorum of the then existing Board constituting a choice. Any retiring Director shall be eligible for re-election. Section 4. The present by-laws of the corporation, which form part of its contracts with its members, shall continue to be the by-laws of the Company unless or until the same shall be revised or amended in the manner therein provided. ARTICLE V. Section 1. The annual meeting of the members of the Com- pany shall be held on the fourth Wednesday in January of each year, at which meeting the election of Directors shall be held. Not less than five days' notice of each annual meeting shall be given by publication of the notice of such annual meeting for three consecutive days at least five days prior thereto in two daily newspapers, published in the City of New York. All such elec- tions shall be by ballot, and a plurality of votes cast shall elect. The Board of Directors shall appoint three inspectors for each annual election. Section 2. At every annual election of Directors each mem- ber of the Company in good standing shall be entitled to one vote, in person or by proxy, provided that no vote by proxy or power of attorney shall be accepted unless registered with the Secretary of the Company at least ten days before the election at which it is offered and such proxy must at the time be a mem- ber of the Company. Section 3 . The regular annual meeting of the Board of Direc- tors shall be held after the annual meeting of members at which 132 Testimony of Charles W. Camp the Board of Directors shall elect a President, a Vice President, and such other officers as may be prescribed by the by-laws, who shall hold their respective offices for the terms therein mentioned. Section 4. The present members of the Board of Directors and present officers of the corporation shall continue to be such Directors and officers until the expiration of the respective terms for which they have been elected. ARTICLE VI. Section 1 . The Company shall have no capital stock, but shall be a mutual company. Section 2. The Board of Directors shall, within two months subsequent to the first day of January in each year, cause an estimate to be made of the profits and true state of the affairs of the Company, as near as may be, for the preceding year, which estimate and the individual allotment thereof, shall be conclusive upon all persons entitled to share in any distribution of surplus which shall be paid or credited under and according to the terms of the several respective policy contracts. Section 3. The Board of Directors shall have authority to reserve and set aside such an amount of the profit in excess of ' the reserve required by law to be held and maintained, as shall in their judgment be for the best interests of the Company. ARTICLE VII. No persons shall incur any personal liability for the losses, obligations, or other liabilities of his Company by reason of being a member thereof, or a policy or certificate holder therein. ARTICLE VIII. The Company shall be entitled to have and enjoy all the rights, privileges and provisions of existing laws which might be in- cluded in this Charter and enjoyed by it, if it were originally incorporated under "The Insurance Law" of this State. 133 Testimony of Charles W Camp. -, ARTICLE IX. The charter of the Company shall be perpetual. IN|.WITNESS WHEREOF, the corporation has caused its corporate seal to be affixed hereto and the same (seal) to be attested by its president and secretary this twenty-fifth day of February, one thousand nine hundred and two. F. A. BURNHAM, [seal] President. CHARLES W. CAMP, Secretary. State of New York, 1 City and County of New York, > ss.: Borough of Manhattan, J On this twenty-fifth day of February, one thousand nine hun- dred and two, before me duly appeared Frederick A. Burnham and Charles W. Camp, each personally known to me, and they severally and duly acknowledged the execution of the foregoing instrument as the act and deed of the aforesaid corporation, and each being by me duly and severally sworn each for himself says that the said Frederick A. Burnham resides in the Borough of Manhattan in the City, County and State of New York, and is president of the said corporation, and the said Charles W. Camp that he resides in the Borough of Queens, County of Queens, City of New York, and is the Secretary of the said corporation; that the seal was affixed thereto by the Secretary in pursuance of authority of the Board of Directors, and that the said President and Secretary have attested the same by their signatures in pur- suance of like authority. SEWELL T. TYNG, (SEAL) Notary Public, New York County. -34 Testimony of Charles W. Camp. Q. Are you conversant with the proceedings at the last elec- tion for directors? A. Yes. Q. How many policyholders are there in your company? A. I should think in the neighborhood of 70,000. Q. How many voted at the last election? A. I am very bad at remembering figures, because I usually have them before me; in the minutes of the Annual Meeting you will find the number of persons who voted in person, and those who voted in proxy. Q. Have you those minutes, here? A. I have them here. Q. Will you produce them, please? (Book produced.) MR. HUGHES: Mr. Fiske desires to correct a statement which he made inadvertently, that he was not a director in the corporation known as No. 60 Wall Street. I understand you are such director. MR. FISKE : I am such director; I thought your inquiry re- ferred to a bank at that location ; and from that I had resigned. Q. If you will, please show me the record of the last election. (Book produced). Q. That is a pretty full story as my eye catches it there. Now, if you will take the stand without putting all this in — the last election was held on January 25, 1905, was it not? A. Yes, sir. Q. And previous to that a notice had been published where? A. In New York City. Q. Anywhere else? A. Not outside of the city. Q. How many papers? A. Three papers. Q. For how long? A. For fotu" consecutive days. Q. Four days? A. Yes, sir. Q . Was there any notice sent by mail to the policyholders ? A . Yes. I3S Testimony of Charles W. Camp Q. To each policyholder? A. Yes.' Q. Who sent that? A. It was sent from the home office. Q. Is that your regular practice? A. Yes, invariably. Q. You keep a list of policyholders? A. We have a card index. Q. Do you have any other index — a mailing list or anything of that sort? A. Yes. Q. And you keep this revised so as to know what policies are in force and what are not? A. Yes, sir. Q. And you send notice of the annual meeting? A. Yes. Q. Now, at 2 P.M. on the day stated, January 25th, 1905, the polls were opened and remained open for how long? A. One hour. Q. And how many voted during that time? A. Thirty-eight ballots were cast in person and 20,786 ballots were cast by proxy. Q. Who were the persons that cast the ballots in person? A. Members of the company, chiefly. Q. Oh, yes, but I mean were they persons connected with the offices of the company? A. Principally; there were some few outside ; if you remember, it was blizzard day. Q. Was there anything unusual about the small number gf persons who voted in person on that day? A. Yes, sir, I think so. Q. You think there were more in other years? A. Yes, sir. Q. Now, take the 20,786 that cast ballots by proxy, who acted as proxy? A. The president. Q. Mr. Burnham? A. Yes, sir. Q. Frederick A. Burnham? A. Yes, sir. Q. Do the proxies held at the office of your company run to Mr. Burnham? A. Yes, sir. Q. Do they run to anybody else? A. No, sir. Q. How long has that been so? A. For the last ten years. Q. How many proxies does Mr. Burnham hold? A. Now? 136 Testimony of Charles W. Camp Q. Yes. A. I don't know now; I suppose it is something near the same figure. Q. In other words, he voted all his proxies or practically all? A. Practically all; there may be a hundred difference. Q. Have you the form of the proxy that he voted? A. Yes, sir. Q. Will you produce that, please? A. Yes, sir (produced). Q. Now, this form of proxy is the one that has been in use for some years? A. Yes, the last ten years. Q. Is that the only form of proxy that so far as you know has been voted at the elections of the company? A. Yes.' Q. And you are conversant with that matter? A. Yes, sir. MR. HUGHES: I offer the form in' evidence. Admitted and marked Exhibit 14, and is as follows: EXHIBIT 14. "KNOW ALL MEN BY THESE PRESENTS; That I . . of State of assured under certi- ficate or policy No. in the Mutual Reserve Life Insurance Company, do hereby constitute and appoint Frederick A. Burn- ham, of New York, State of New York, or his representative thereunder duly authorized, or, in the event of his death, the executive committee of said company, or a majority thereof, my sole, true and lawful attorney and agent, for me and in my name, place and stead, to vote as my agent, attorney or proxy, according to the number of votes I would be entitled to cast if personally present at the next and also at each and every general, annual or special meeting of the said Mutual Reserve Life Insurance Company, or the subscribers or members thereof, for the election of directors, or for any other election or purpose whatever. This power of attorney and proxy shall be valid and effectual, 137 Testimony of Charles W. Camp and shall continue in full force for the period of ten years from the date hereof, or until at least thirty days after a notice in writ- ing expressly revoking or suspending the same shall have been delivered to the Secretary of said company. This proxy shall not be operative at any meeting of the com- pany at which the undersigned is present in person. IN WITNESS WHEREOF, I have hereunto set my hand and seal, this day of One thousand nine hundred and . . . (Sign here) (Seal) Signed and delivered in the presence of Witness to signature. Q. These are sent to policyholders with a note suggesting its execution? A. Yes, sir. Q. And a stamped envelope for its return? A. Yes, sir. Q. Do you keep track of the proxies to see how many have expired? A. Yes. Q. And how many requests do you send out for proxies in the course of a year? A. We do not send them, sir, every year. We have not sent since 1902, and before that we sent out in 1900. At such periods, when directed, we send to the newer members of the company that have come in since the last notice was sent out. Q. Do you send to all of them? A. All. Q. Requesting the proxy? A. Yes, in such language. Q, Would it be fair to make this statement of the last election as representative of your elections, about 20,786 proxies voted by Mr. Burnham, and then a few votes personally, as in that case thirty-eight? A. So far as that goes, yes, sir. 138 Testimony of Charles W. Camp Q. So far as which goes? A. That there is a large difference between the proxies voted. Q. I want it more definitely than that; take the number of proxies voted, would it be about 20,000 voted by Mr. Burnham? A. In the year 1904, the preceding year, there were present 22,555 ballots which were cast, 45 in person. Q. Cast by Mr. Burnham in proxy ? A. Yes. Q. And 45 cast in person? A. Yes, sir. Q. I do not care to go through this, whenever you think you can state properly that that is representative ? A. I think so. Q. Have you the form of notice that is sent to policyholders for the election? A. The notice of the annual meeting? Yes. Q. The notice of the annual meeting that you say is mailed? A. Yes, sir. Q. Have you it present ? A. Yes, sir. Q. Can you produce it? A. Yes, sir (produced). MR. HUGHES: I offer it in evidence. Admitted and marked Exhibit 1 5 and is as follows : EXHIBIT 15. MUTUAL RESERVE LIFE INSURANCE COMPANY. Frederick A. Burnham, President. NOTICE. The members of the Mutual Reserve Life Insurance Company are hereby notified that the twenty-fourth annual meeting of the company will be held at the offices of the company, Mutual Re- serve Building, 305, 307 and 309 Broadway, New York, on the fourth Wednesday (twenty-fifth) of January, 1905, at one o'clock P. M., at which meeting an election of three directors will take i39 Testimony of Charles W. Camp place to fill the vacancies caused by expiration of terms of Fred- erick A. Burnham, George D. Eldridge and Elma A. Miller. Charles W, Camp, Secretary. THE WITNESS: It is sent out in different languages to the people in Europe. Q. What is Mr. Burnham's salary at present? A. $39,000. Q. Are there any relatives or connections of his employed in the company, or offices of the company? A. Yes, his brother is counsel. Q. Mr. George Burnham? A. Yes, sir.1 Q. Who are the officers of your company? A. Mr. Frederick A. Burnham, President; Mr. George D. Eldridge, First Vice- President; George Burnham, Counsel; Mr. George W. Harper, treasurer; Mr. James W. Boden, medical director; I am the secre- tary; R. L. Jones, Assistant Secretary; William Porter, Comp- troller. I think that is all. Q. What are their salaries? If you cannot give them I would save time by suggesting that you present a statement of the salaries going back — your company was originally incorporated in 1881? A. Yes, sir. Q. From the time of its incorporation to the present time, the ' salaries of the executive officers, showing their changes? A. Yes, sir. Q. If you will get that for me to-morrow I will be obliged. A. Yes, sir. Q. Have you a finance committee? A. We have a committee that is called the finance and auditing committee. Q. Is that an auditing committee or a committee that has direct charge of investment ? A. It is an auditing committee properly. Q. Who has charge of the making of investments? Q. Primarily the matter is investigated by a committee who has charge of the mortgages, etc.; I am speaking of mortgages now. 140 Testimony of Charles W. Camp. j and brought before the Board, but the Board of Directors them- selves are the ones who take final action. Q. Take the purchases of bonds for example? A. That would also come before the Board of Directors. Q. And as to dealings, in the first instance? A. The Comp- troller, the Comptroller would investigate and report to the board. Q. Is that done always before an investment is made. A. I think so ; I know of no exception. Q. Do any of the officers negotiate transactions for the pur- chase or sale of securities without the action of the board? A. I think not, sir. Q. How often does the Board meet? A. Every Wednesday. Q. Every week? A. Every week. Q. Do the members of the Board receive fees for their attend- ance? A. Only those who are not officers ; the officers receive no fees. Q. What do the other members receive ? A. $20. Q. Have you any standing committees except this auditing committee that you have spoken of? A. The various standing committees report to the executive committee, which is really the active committee of the company. Q. The executive committee manages the company? A. Practically, yes. Q. Who are on the executive committee? A. The President, Mr. Burnham; Vice-President Eldridge; Treasurer, George W. Harper; Director, Horace S. Brockway; Director, Richard Deeves. Q. I have asked for the production of certain books and a list of securities, as well as for the list of salaries that I have mentioned, if you can have those in the morning ? A. I have those that you have asked for. Q. The hour has arrived for adjournment and we will suspend; you have those with you? A. Yes, sir. 141 Testimony of Charles W. Camp Q. If you will give them to me now I will be obliged. A. Yes, sir. MR. ARMSTRONG: The Committee desires that all witnesses who have been subpoenaed remain in attendance upon the Com- mittee until they are dismissed by counsel or excused ; does this apply to those who have been sworn as well as those who have not yet been sworn, Mr. Hughes? MR. HUGHES: Except where other arrangements have been made with counsel. MR. ARMSTRONG: Except where other arrangements have been made with counsel. The Committee will adjourn until 10 o'clock to-morrow morning. Adjourned until to-morrow, September 7th, 1905, at 10 A. M. 142 ALDERMANIC CHAMBER, City Hall, New York City. THURSDAY, September 7, 1905, at 10 a.m. Met pursuant to adjournment. THE CHAIRMAN: Gentlemen, since the adjournment yes- terday the Committee has asked the Chairman to make the ses- sion hours from 10.30 until 1 in the morning, and from 2 to 4 130 in the afternoon ; and we shall endeavor to start to-morrow at 10:30 and at 2, and adjourn promptly at those hours. We desire to hold sessions four days, meeting next Tuesday and adjourning Friday afternoon at 4:30, if the convenience of those concerned will permit it, and we hope it will. If the witnesses, for the benefit of the reporters and stenog- raphers, will announce their names loud enough so that I can announce them also, it will conserve the convenience of all in the room who desire to know the names of the witnesses as they are before them. WILLIAM ALEXANDER, being duly sworn, testified as follows: BY MR. HUGHES: Q. Mr. Alexander, you reside in the city of New York? A. I do. Q. And you are an officer of the Equitable Assurance Society? A. I am Secretary. Q. How long have you been secretary? A. Since 1880. i43 Testimony of William Alexander. Q. And were you connected with the company prior to that time? A. As Assistant Secretary and as clerk. Q. When did you first become connected with the society ? A. At the close of the year 1869. Q. And when did you become assistant secretary ? A. I think in 187 1 ; I have not that date in my mind. Q. You are related to the former President, James W. Alex- ander? A. I am a brother. Q. A brother? A. A brother. MR. HUGHES: I offer in evidence the charter of the Equita- ble Life Assurance Society of the United States, dated May 9, 1859, reciting its organization, pursuant to an act providing for the incorporation of life and health insurance companies and in relation to agencies of such companies, passed June 24, 1853. Charter marked Exhibit 16. MR. HUGHES: I read for the record the following provisions of this charter: "ARTICLE 3. The capital of said Company shall be One Hundred Thousand Dollars in cash, divided into One Thousand shares of One Hundred Dollars each; which shall be personal property, transferable only on the books of the Company, in conformity with its By-Laws. The holders of the said Capital Stock may receive a semi-annual dividend on the stock so held by them, not to exceed three and one-half per cent, of the same, such dividends to be paid at the times, and in the manner desig- nated by the Directors of said Company. The earnings and receipts of said Company, over and above the dividends, losses and expenses, shall be accumulated. "ARTICLE 4. The corporate powers of said Company shall 144 Testimony of William Alexander be vested in a Board of Directors, and shall be exercised by them, and by such officers and agents as they may appoint, * and from time to time empower. The Board of Directors shall consist of Fifty-two persons, a majority of whom shall be citizens of the State of New York, each of whom shall be a proprietor of at least five shares of the said Capital Stock. The Board of Directors may, previous to any annual election, and after giving notice at the previous meeting of the Board, provide for diminishing the number of the Directors to not less than Twenty-four, in which case one-fourth of the total num- ber, as thus diminished, shall be elected annually, in the same manner as hereinafter provided, in regard to the fifty-two Direc- tors above named ; and the same powers and authority shall vest in said Board of Directors, thus diminished, as were previously exercised by the former Board of Directors." Then follows a list of the persons constituting the first Board of Directors. I shall also read a subsequent paragraph of Article 4 as follows: "In the election of Directors, every stockholder in the Com- pany shall be entitled to one vote for every share of stock held by him, and such vote may be given in person or by proxy. At any time hereafter, the Board of Directors, after giving notice at the two previous stated meetings may, by a vote of three- fourths of all the Directors, provide that each life policyholder, who shall be insured in not less than Five Thousand Dollars, shall be entitled to one vote at the annual election of Directors, but such vote shall be given personally and not by proxy. The Board of Directors shall have power to declare, by By- Law, what number of Directors, not less than seven, shall con- stitute a quorum for the transaction of business." 145 Testimony of William Alexander I also read "ARTICLE 6. The insurance business of the company shall be conducted upon the mutual plan." I also read the following paragraph of Article 6 : "The officers of the Company, within sixty days from the ex- piration of the first five years from December 31, 1859, and within the first sixty days of every subsequent period of five years, shall cause a balance to be struck of the affairs of the Company which shall exhibit its assets and liabilities, both pres- ent and contingent, and also the net surplus, after deducting sufficient amount to cover all outstanding risks and other obliga- tions. Each policyholder shall be credited with an equita- ble share of said surplus. Such equitable share, after being ascertained, shall be applied to the purchase of an additional amount of insurance (payable at death or with the policy itself) expressing the reversionary value of such equitable share at such interest as the Directors may designate; or if any policy- holder so direct, such equitable share of surplus shall be applied to the purchase of an annuity, at such rate of interest as the di- rectors shall designate, to be applied in the reduction of his or her future premiums. In case of death the amount standing to the credit of the party insured at the last preceding striking of balance as aforesaid, shall be paid over to the person entitled to receive the same, and the proportion of surplus equitably belonging to him or her, at the next subsequent striking of balance, shall also be paid, when the same shall have been ascer- tained and declared. In case of the death of any party insured prior to passing any period for striking of balance, as aforesaid, the Board of Di- 146 Testimony of William Alexander rectors may provide what (if any) share of such surplus shall be paid to such person. The officers of the Company within the first thirty days after the expiration of five years from the 31st day of December, 1859, shall cause a general balance statement of the affairs of the Company to be made, which shall be open to the inspec- tion of any policyholder for sixty days during the usual hours of business. Said statement shall show the amounts received during the preceding five years for premiums, interest and annu- ities, and also the amounts paid during the same time for losses, expenses and otherwise, and the balance remaining in the treasury, together with the manner in which the same is in- vested." Q. Has that charter ever been amended? A. The charter was amended, but it never went into effect. MR. ROGERS: A little louder, please. A. The original charter is in effect, as I stated. Q. In other words, proceedings were taken for the amend- ment of the charter, but the proceedings never became effective? A. So I understand it. Q. Prior to the 10th day of June, 1905, a majority of the capital stock of the Equitable Life Assurance Society was held by certain trustees under a deed of trust of the late Henry B. Hyde, was it not? A. Yes, sir. Q. So appeared on the books of the company? A. I don't know that that was entered on the books or not. Q. I mean the fact that the majority of the stock was held by trustees? A. I don't think there was any record on the books. Q. But that was the fact? A. That is the fact. MR. HUGHES: Now I offer in evidence an indenture trust 147 Testimony of William Alexandet deed, dated September 17, 1895, between Henry B.Hyde, party of the first part, and Louis Fitzgerald, John Sloane, Marcellus Hartley, James W. Alexander, Chauncey M. Depew, Annie F. Hyde and Thomas D. Jordan, parties of the second part. I submit a copy which has been furnished me for Mr. Hyde, subject to correction on examination with the original. Marked Exhibit No. 17. As 'the matter of the stock ownership of the Equitable So- ciety has received a great deal of attention, I shall read in full the trust deed and the other papers relating to the present control of that company. THIS INDENTURE, made the 17th day of September in the year of our Lord one thousand eight hundred and ninety- five by and between Henry B. Hyde, of Islip, Long Island, in the State of New York, party of the first part, and Louis Fitzgerald, John Sloane, Marcellus Hartley, James W. Alexander, Chauncey M. Depew, Annie F. Hyde and Thomas D. Jordan, parties of the second part, WITNESSETH : WHEREAS, the party of the first part has this day delivered to the parties of the second part certain certificates of stock of five hundred and two shares of the Capital Stock of the Equitable Life Assurance Society of the United States (hereinafter called "The Society"), the said certificates being severally and re- spectively dated and numbered as in the schedule hereto an- nexed, and being in the names of the several persons and for the number of shares stated in the said schedule with respect to each, and the said certificates being severally endorsed with assign- ments and powers of attorneys signed by the persons to whom such certificates were issued. Testimony of William Alexander NOW THIS INDENTURE WITNESSETH that the party hereto of the first part has conveyed, assigned, transferred and set over, and by these presents does convey, assign, transfer and set over the said certificates and the shares of stock mentioned in the said certificate to the said parties of the second part and the survivors and survivor of them and their successors and assigns (hereinafter called "the trustees"), as joint tenants and not as tenants in common, to have and to hold the same, IN TRUST, nevertheless, and upon the trusts and to and for the uses and purposes and subject to the conditions hereinafter ex- pressed. I. The trustees shall hold and stand possessed of the said shares of stock mentioned in the said certificate and may from time to time and as often as they may deem expedient, cause the said certificates or any new certificates issued at any time in the place or stead of those mentioned in the annexed schedule to be transferred to their own names, or to the name or names of either of them or of any one or more of their number, or to the name or names of any other person or persons who may' be des- ignated by the trustees. II. The trustees shall from time to time, by a vote of the majority of the trustees for the time being designate some person (who need not necessarily be one of their number) who shall be empowered to vote upon all of the said shares of stock at any and all meetings of the Society; and the trustees shall cause to be delivered to the person designated by them for such purpose, all such proxies or powers of attorney in due form of law as shall be necessary to enable him to vote upon all the shares of stock held by the trustees; and they may from time to time revoke such designation and substitute another person in the place and stead of the one so designated ; but after the said James Hazen Hyde 149 Testimony of William Alexander shall attain the age of twenty-one years he shall be empowered to vote upon the said shares and shall receive and hold the said proxies and powers of attorney, and the powers conferred upon the trustees under this paragraph shall be operative only in case of the refusal by the said James Hazen Hyde to act, or in case of his inability or absence from the United States. III. The Trustees may also from time to time, by a vote of the majority of the trustees for the time being, designate some per- son (who need not necessarily be one of their number) who shall be empowered to collect and receive all income, profits and divi- dends which may become due or payable upon the said shares of stock, and who shall apply the same under the direction of the trustees to the uses and in the manner hereinafter provided ; and the trustees shall cause to be delivered to the person designated by them for such purpose all such orders or powers of attorney or other instruments as may be necessary to enable him to collect and receive the said income, profits and dividends and they may from time to time revoke such designation and substi- tute another person in the place of the one so designated. IV. The trustees shall cause all the certificates for the shares hereinafter mentioned, and all new certificates issued at any time in the place of stead of any of those mentioned in the an- nexed schedule to be kept together in a secure place ; each certifi- cate being duly endorsed with an assignment and power of attor- ney in blank executed by the person or persons to whom each certificate is issued. V. At all meetings of the said society the person so as afore- said designated or appointed by the said trustees to vote upon the said shares, shall vote in accordance with the instructions of a majority of the trustees for the time being ; and all questions 15° Testimony of William Alexander with relation to the meaning of this indenture, to the custody or place of deposit of the said stock certificates, the execution of assignments, proxies, orders or powers of attorney, to the selec- tion of persons to whom any new certificates shall be issued, to the transfer of such shares, and to the designation of persons and powers to vote on such shares and to collect the income, profits and dividends thereof, shall be decided by a majority of the trustees for the time being at a meeting regularly called as here- inafter provided. But after the said James Hazen Hyde shall attain the age of twenty-one years, no votes' shall be cast upon the said shares at any election of the Equitable Assurance Society except for a person approved by the said James Hazen Hyde. VI. The trustees shall pay and deliver, or cause to be paid and delivered, all of the net income, profits and dividends of the said shares of stock to the said Henry B. Hyde, the party hereto of the first part, during his life; and from and after his death they shall pay and deliver the same, or cause it to be paid and delivered, to James Hazen Hyde (the son of the party of the first part) during his life or until he attains the age of thirty years. But if the said James Hazen Hyde shall have attained the age of thirty years during the lifetime of his father, the party hereto of the first part, then and in that event this trust shall terminate immediately upon the death of the party of the first part, and all the property then held by the trustees shall forthwith vest abso- lutely in him, the said James Hazen Hyde. VII. Upon the death of the said Henry B. Hyde, leaving the said James Hazen Hyde him surviving, the trustees shall con- tinue to hold and stand possessed of the certificates of stock then in their hands, and all money or other trust property of which they may then be possessed under and by virtue of this indenture iSi Testimony of William Alexander for the uses and purposes hereinafter expressed, but if the said James Hazen Hyde should die before, or upon the same day with the said Henry B. Hyde, then and in that event the trustees shall pay over and deliver all of the said certificates of stock and other property to such person or persons as the said Henry B. Hyde may by his last will and testament appoint, and in default of appointment, to the next of kin of the said Henry B. Hyde. If the said James Hazen Hyde should survive his father, the party hereto of the first part, and should be under the age of thirty years at the time of the death of the party of the first part, then and in that event the trust hereby created shall continue during the lifetime of the said James Hazen Hyde, or until he attains the age of thirty years. And upon the death of the said James Hazen Hyde, or upon his attaining the age of thirty years, whichever event shall first happen, the trust hereby created shall cease and determine and the trustees shall forthwith pay over and deliver all of the certificates of stock then in their hands, and all money or other trust property of which they may then be pos- sessed under and by virtue of this indenture to the said James Hazen Hyde, if living, or, if the said trust be terminated by his death, to such person or persons as he may by his last will and testament appoint, and in default of appointment, to the eldest male child of the said James Hazen Hyde, and if he leaves no male child him surviving, then to Annie F. Hyde, the wife of Henry B. Hyde, and if she be dead, then to the next of kin of James Hazen Hyde. VIII. The trust hereby created may be terminated at any time by the party hereto of the first part (during his lifetime) by giving notice in writing to the trustees for the time being; and immediately upon the service of such notice the trustees shall forthwith convey, assign, transfer and set over the said shares of stock, and deliver all the certificates of stock then in 152 Testimony of William Alexander their hands, and all money and other trust property of which they may then be possessed under and by virtue of this inden- ture, to the party of the first part, or to any person or persons whom he may designate in writing. IX. When the said James Hazen Hyde attains the age of twenty-one years he shall forthwith be and become a trustee under this indenture in all respects as if he had been named herein as one of the parties hereto of the second part, and had executed this indenture, notwithstanding the number of trus- tees may thereby be increased above seven, and thereafter no person shall be chosen a trustee except with the consent and approval of the said James Hazen Hyde. But after the said James Hazen Hyde shall attain the age of twenty -one years, the first vacancy occurring thereafter shall not be filled unless such vacancy shall reduce the whole number of trustees below seven. As soon as the said James Hazen Hyde attains the age of twenty- five years, the above named John Sloane, Marcellus Hartley, Chauncey M. Depew, Annie F. Hyde, or Thomas D. Jordan, or their several or respective successors in office, shall cease to be trustees under this agreement, and the only trustees hereunder shall from thenceforth and until the termination of the trust be the above named Louis Fitzgerald and James W. Alexander (or their several successors in the trust) and the said James Hazen Hyde. It is the intention of this indenture that the number of trustees shall always be held at seven until the said James Hazen Hyde attains the age of twenty-five years, except, upon the coming of age of the said James Hazen Hyde, when the number of- trustees may temporarily be increased to eight, as hereinbefore provided; and that when the said James Hazen Hyde attains the age of twenty-five (25) years, the number of trustees shall immediately be reduced to three, and shall con- tinue to be kept at three, until the termination of the trust. iS3 Testimony of William Alexander X. In case of the death or resignation of the above named James W. Alexander, if his son, Henry Martyn Alexander, Jr., be living, the said Henry Martyn Alexander, Jr., shall immedi- ately become a trustee hereunder, with all the powers and duties in all respects as though he had been named herein as one of the parties hereto of the second part and had executed this indenture. XI. Any other vacancy occurring in the number of the said trustees, by death, resignation, or any other cause, shall be filled by the remaining trustees, who shall, by a writing under their hands and seals, designate and appoint a new trustee in the place of the one dying, resigning, or ceasing from any cause to act; and the person or persons so chosen to fill vacancies shall, upon the execution of said paper, have the same rights, powers and duties in all respects, and shall be vested with the same title to the property held in trust under the indenture, as though he or they had been named herein as a party hereto of the second part and had executed this indenture. XII. The action of a majority in number of the trustees for the time being shall be binding in any matter arising under the indenture, but no trustees shall be liable for the acts or defaults of his co-trustees to which he has not assented. XIII. The trustees shall receive a compensation of twenty (20) dollars a meeting each for their services so long as the said trust continues, and upon the termination of this trust, whether by the death of the said Henry B . Hyde or James Hazen Hyde, or upon the said James Hazen Hyde attaining the age of thirty years, the trustees at the time of such termination shall receive the further sum of one hundred dollars ($100) each for paying over and delivering certificates or other property then in their hands to be in full of all claims or demands for compensation; iS4 Testimony of William Alexander and in case the trust is terminated by notice by the said Henry B. Hyde in his lifetime, the trustees shall only receive the annual payment above specified up to the time of service of the notice to terminate the trust and they shall not receive any further sum for paying over or delivering the same. All the foregoing provisions in reference to compensation are in the place and stead of commissions or other compensation for the services of the trustees under this indenture. XIV. It is understood and agreed by and between the parties hereto to be the fact that the said James Hazen Hyde was born .on the 6th day of June, 1876. And this indenture further witnesseth, that the parties hereto do hereby accept and agree to carry out the terms of the said trust as hereinbefore set forth, and to perform the duties and obligations imposed upon them hereby; and the said parties of the second part do further agree that, in case the said James Hazen Hyde shall survive the party hereto of the first part, the parties of the second part and their successors will use all rea- sonable efforts to induce the said James Hazen Hyde upon his attaining the age of thirty years and upon the termination of this trust, to make a new settlement of the stock and property hereinbefore described, and in such manner that the same may continue so long as lawfully may be, to be held and controlled by suitable trustees and to be preserved for the benefit of the children of the said James Hazen Hyde after his death. IN WITNESS WHEREOF, the parties hereto have to these presents executed in duplicate, interchangeably, set their hands and seals, the day and year first above written. H. B. HYDE. J. W. ALEXANDER. LOUIS FITZGERALD. CHAUNCEY M. DEPEW- JOHN SLOANE. ANNIE F. HYDE. M. HARTLEY. THOMAS D. JORDAN. iS5 Testimony of William Alexander MR. HUGHES : I also offer in evidence the deed of appoint- ment of William H. Mclntyre as Trustee under the said Trust Deed. Marked Exhibit 18 and read by Mr. Hughes as follows: WHEREAS, on or about the 17th day of September, 1895, Henry B. Hyde, then of Islip, Long Island, now deceased, by indenture dated on this day, conveyed, assigned, transferred, and set over, upon the trusts and subject to the limitations and con- ditions therein contained, certain personal property unto John Sloane, Louis Fitzgerald, Marcellus Hartley, James W. Alexan- der, Chauncey M. Depew, Annie F. Hyde and Thomas D. Jordan. AND WHEREAS in said indenture it is, among other things, provided in Article X thereof as follows: "That any other vacancy occurring in the number of said trus- tees by death, resignation or any other cause, shall be filled by the remiaining trustees, who shall, by a writing under their hands and seals, designate and appoint a new trustee in the place of the one dying, resigning or ceasing from any cause to act," and that such persons so appointed shall have the same powers, rights and duties in all respects, and be vested with the same title to the property held in trust under said indenture as though originally named as a part thereto: AND WHEREAS, heretofore, and on the 14th day of January, 1903, Louis Fitzgerald, James W. Alexander and James Hazen Hyde were the sole surviving, qualified and acting trustees and parties of the second part under said indenture ; u„,< , jj|| ; .,, ^ AND WHEREAS, upon the said 14th day of January, 1903, the said Louis Fitzgerald duly tendered in writing his resignation 156 Testimony of William Alexander as such trustee, which said resignation has been accepted by the said James W. Alexander and James Hazen Hyde, as trustees, leaving a vacancy in the number of trustees, NOW, THEREFORE, under and by virtue of the power and authority conferred by said indenture or deed of trust, we, the undersigned James W. Alexander and James Hazen Hyde, sole surviving, qualified and acting trustees thereunder, do, by this writing under their hands and seals, designate and appoint Will- iam H. Mclntyre as a new trustee in the place and stead of the said Louis Fitzgerald, resigned, to have the same rights, powers and duties in all respects, and to become and remain vested with the same title to the property held in trust under said indenture as though he had been named therein as a party thereto of the second part and had executed said original indenture. • IN WITNESS WHEREOF we have hereunto set our hands and seals this fourteenth day of January, 1903. JAMES W. ALEXANDER. JAMES H. HYDE. (Certificate of acknowledgment.) MR. HUGHES: I am informed that Mr. James W. Alexander resigned the Trusteeship and that W. B. Bremner was chosen un- der the terms of the Trust Deed to take his place, but there is no evidence of that at the moment. I mention it to supply later in the course of the evidence, and later the exact proof will be pre- sented. I will ask the witness. Q. Do you happen to know, Mr. Alexander, whether Mr. James W. Alexander resigned as Trustee? A. I know he did, yes; I know he did. 157 Testimony of William Alexander Q. And when did he resign as Trustee? A. I couldn't give you the date; it was early, I think, in this year. Q. 1905? A. 1905. Q. And do you recall that subsequently, or do you know that subsequently his resignation was accepted? A. I am satisfied that it was; I remember hearing so. Q. Yes, and that Mr. Bremner was elected Trustee in his place? A. That I did not know. Q. Who is Mr. Bremner, W. D. Bremner? A. Mr. Bremner was formerly Mr. James W Hyde's assistant, and is at the pres- ent time assistant treasurer of the Company. MR. HUGHES: Now I offer in evidence agreement or bill of sale dated June 8, 1905, between James Hazen Hyde, Annie F. Hyde, Mary B. Ripley and the said James Hazen Hyde and William H. Mclntyre, as Trustees, and Thomas F. Ryan. I submit a copy which has been furnished me by the attorneys for Mr. Ryan subject to correction on inspection of the original. Marked Exhibit No. 19. MR. HUGHES: I will read it upon the record. "AN AGREEMENT made this eighth day of June, in the year One thousand nine hundred and five, between James Hazen Hyde, Annie F. Hyde, Mary B. Ripley and the said James Hazen Hyde and William H. Mclntyre, as trustees, hereinafter called the vendors, parties of the first part, and Thomas F. Ryan, individually and as representing certain undisclosed policy holders of the Equitable Life Assurance Society, hereinafter called the purchaser, party of the second part: WHEREAS, the vendors together own the legal title and beneficial interest in and to at least five hundred and one (?oi) 1S8 Testimony of William Alexander shares of the capital stock of the Equitable Life Assurance Society (hereinafter called the Society) under the terms of a cer- tain deed of trust bearing date It is hereby covenanted and agreed between the parties hereto as follows: FIRST : The parties of the first part hereby sell and deliver and the party of the second part hereby purchases certificates for five hundred and one (501) shares of the capital stock of the Society out of a total authorized outstanding issue of one thou- sand shares of the par value of one hundred dollars per share. SECOND: The purchase price for said shares of stock shall be the sum of Two Million five hundred thousand dollars ($2,500,- 000) to be paid in cash at the time of the execution and delivery of this agreement, the receipt whereof is hereby acknowledged. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals the day and year first above written. James H. Hyde, Thomas F. Ryan, Wm. H. Mclntyre Individually and for his associates W. B. Brenner Annie F. Hyde Mary B. Ripley MR. HUGHES: I also offer in evidence assignment and trans- fer by Annie F. Hyde and Mary B. Ripley submitting a copy which I have received from Mr. Ryan's attorneys, subject to correction on inspection of the original. THE CHAIRMAN: Assignment and transfer of what? MR. HUGHES: I will read it in just a minute. Marked Exhibit 20 and read by Mr. Hughes as follows: 159 Testimony of William Alexander New York, June 9, 1905. In consideration of one dollar to each of us in hand paid, the receipt whereof is hereby acknowledged, we do hereby severally assign, transfer and set over unto James H. Hyde all of our and each of our right, title and interest to and .in all the shares of capital stock of The Equitable Life Assurance Society of the United States now held in trust by James W. Alexander, James H. Hyde and William H. Mclntyre as trustees under a deed of trust made by Henry B. Hyde and dated the day of and to and in all the proceeds of the sale thereof. Signed, sealed and delivered in the presence of: Annie F. Hyde (Seal) C. F. Williamson. Mary B. Ripley (Seal) MR. HUGHES: I also offer in evidence assignment and trans- fer by James H. Hyde to Thomas F. Ryan dated June 10, 1905, submitting a copy which I have received from Mr. Ryan's attorneys subject to correction on examination of the original. Marked Exhibit 21 and read by Mr. Hughes as follows: " In consideration of One dollar to me in hand paid by Thomas F. Ryan, of Oak Ridge, Virginia, I hereby sell, assign, transfer and set over to the said Thomas F. Ryan all my right, title and interest in remainder, in and to five hundred and two (502) shares of the capital stock of the Equitable Life Assurance Society of the United States assured to me on and after the sixth day of June, 1906, by that certain indenture, dated the 17th day of September, 1895, by and between Henry B. Hyde, of Islip, party of the first part, and Louis Fitzgerald, John Sloane, Marcellus Hartley, James W Alexander, Chauncey M. Depew, Annie F. Hyde and Thomas D. Jordan, parties of the second part, and as well all my right, title and interest in and to the said 160 Testimony of William Alexander five hundred and two (502) shares of stock assigned and con- veyed to me by my mother, Annie E. Hyde, widow of the said Henry B. Hyde, and my sister, Mary B. Ripley, widow of the late Sidney Dillon Ripley, on or about the 9th day of June, 1905. For the better assurance to the said Thomas F. Ryan of the rights, titles and interests aforesaid I am about to subscribe and publish simultaneously herewith and bearing date this day a codicil to my Last Will and Testament, whereby I execute the Power- of Appointment in respect of the said stock vested in me by the seventh article of the said indenture of September 17, 1895, in favor of the said Thomas F. Ryan, and for divers valuable considerations to me moving I" hereby covenant that I will not revoke the said appointment or make any further or other appointment in respect of the said stock or any part thereof. AND I FURTHER COVENANT AND AGREE to and with the said Thomas F. Ryan that in case of any breach by me of the covenant last aforesaid the said Ryan may at his. option recover from me, my heirs, executors and administrators the damage suffered by him, or return the said stock and recover from me, my executors and administrators the full sum of Two million five hundred thousand dollars ($2,500,000). AND I FURTHER COVENANT AND AGREE with the said Thomas F. Ryan to execute hereafter such further conveyances and appointments as may be required by the said Thomas F. Ryan, his executors, administrators or assigns, for the further assuring to the said Thomas F. Ryan, his executors, adminis- trators or assigns, the said shares of stock. IN WITNESS WHEREOF, I hereto set my hand and seal this tenth day of June, 1905. James H. Hyde (Seal). In the presence of W. C. Gulliver. 161 Testimony of William Alexander MR. HUGHES: I now offer in evidence Power of Attorney from James H. Hyde, William H. Mclntyre and Wilfred B. Bremner, Trustees, dated June ioth, 1905, to Thomas F. Ryan, submitting a copy received from Mr. Ryan's attorneys, subject to correction on examination of original. Marked Exhibit No. 22 and read by Mr. Hughes as follows: "KNOW ALL MEN BY THESE PRESENTS, that we, James H. Hyde, William H. Mclntyre and Wilfred B. Bremner, Trustees, do hereby constitute and appoint Thomas F. Ryan irrevocably Attorney and Agent with power of substitution for us and in our names, place and stead, to vote as our proxy at the next and any future meetings of the stockholders of The Equitable Life Assurance Society of the United States for the election of Trustees, or for the transaction of any other business, according to the number of votes we should be entitled to vote if then personally present. IN WITNESS WHEREOF, we have hereunto set our hands and seals at New York, the tenth day of June, 1905. Signed, sealed and delivered in presence of Bronson Winthrop. James H. Hyde, Wm. H. McIntyre, I Trustees. W. E. Bremner, MR. HUGHES : I also offer in evidence codicil to the Last Will and Testament of James Hazen Hyde, dated June 10, 1905, submitting a copy received from Mr. Ryan's attorneys and sub- ject to correction on examination of the original. Marked Exhibit 23 and read by Mr. Hughes as follows: 162 I Testimony of William Alexander v "I, JAMES HAZEN HYDE, of the Town of Islip, County of Suffolk, State of New York, do hereby make, publish and declare this as and for a Codicil to my Last Will and Testament, dated the 28th day of January, 1905, but except as modified by this Codicil I hereby in all respects confirm my said Will, to wit: FIRST. WHEREAS, I have simultaneously herewith sold to Thomas F. Ryan and associates Five hundred and two (502) shares of the capital stock of the Equitable Life Assurance Society of the United States; and WHEREAS, said sale was and is made upon the condition, among other things, that I make this Codicil to my Will irre- vocable, and was and is made in consideration, among other things, of my making this Codicil to my Will irrevocable, I hereby declare this Codicil to be irrevocable, and agree to deliver the same simultaneously with the closing of the said sale to Thomas F. Ryan for himself and his said associates. SECOND. WHEREAS, said shares of stock so sold were the subject of a certain trust, deed or indenture dated the 17 th day of Sep- tember, 1895, between my father, Henry B. Hyde, and Louis Fitzgerald, and others, and were by said trust deed assigned and transferred by the said Henry B. Hyde to the said Louis Fitz- gerald and others in said trust deed or indenture named, under and upon the trusts therein expressed ; and WHEREAS, under and by virtue of the seventh clause of said trust deed a power of appointment was under certain conditions 163 Testimony of William Alexander reserved to me to be exercised by me by my Last Will and Testa- ment: NOW, THEREFORE, in the place and stead of any disposi- tion of the said shares of stock heretofore made by me in any manner whatsoever, and especially in my Last Will and Testa- ment and under the power given to me by said trust deed or agree- ment, and as a part and in confirmation of my said sale to Thomas P. Ryan and associates, I hereby direct and appoint that upon my death the trustees in said deed or agreement named, or their survivors, or their successors, or assigns, transfer and de- liver all the said five hundred and two shares of stock to the said Thomas F. Ryan, if living, and if he is not then living to such person or persons as he shall in writing and under seal designate, said shares of stock to be and become the absolute property of the said Thomas F. Ryan, or of his said appointee or appointees as the case may be, and I hereby revoke all and every disposition, appointment or designation heretofore made by me of or in re- spect to said shares of stock in my Last Will and Testament. THIRD. I hereby expressly revoke the appointment as executor of the persons named in my said Last Will and Testament, and in place and stead of the persons so appointed in and by said Last Will and Testament, I hereby make, constitute and appoint my mother, Annie F. Hyde, and my friends William H. Mclntyre and Henry Rogers Winthrop as Executrix and Executor of and Trustees under my said Last Will and Testament and of this Codicil thereto. FOURTH. I hereby revoke all previous codicils to my Last Will and Testament. 164 Testimony of William Alexander IN TESTIMONY WHEREOF, I, the said JAMES HAZEN HYDE, have to this Codicil, consisting of three sheets of paper, to my said Last Will and Testament set my hand and affixedjmy seal this tenth day of June, One thousand nine hundred and five. JAMES H. HYDE. Signed, sealed, published and declared by the said testator as and for a Codicil to his Last Will and Testament in the presence of us and each of us, who, in his presence and at his request and in the presence of each other have hereunto subscribed our names as witnesses. Elihu Root, 25 East 69th St., New York. W. C. Gulliver, 8 East 56th St., New York. MR. HUGHES: I now offer in evidence Trust Agreement between Thomas F. Ryan, Grover Cleveland, Morgan J. O'Brien and George Westinghouse, Trustees, dated June 15th, 1905, submitting a copy thereof subject to correction on examination of the original. Marked Exhibit No. 24 and read by Mr. Hughes as follows: AN AGREEMENT, made in the City of New York, in the State of New York, this fifteenth day of June, one thousand nine hundred and five, between THOMAS F. RYAN, of the first part, and GROVER CLEVELAND, MORGAN J. O'BRIEN and GEORGE WESTINGHOUSE (hereinafter called the "Trus- tees,") of the second part. WHEREAS, the Equitable Life Assurance Society of the 165 Testimony of William Alexander United States (hereinafter called the "Society"), is a corporation of the State of New York, having a full paid capital stock of one thousand (iooo) shares of the par value of one hundred dollars ($100) each, of which five hundred and two (502) shares are held by the party of the first part ; and WHEREAS, the corporate powers of the Society are vested by its charter in a Board of Directors consisting of fifty-two (52) persons, divided into four (4) classes of thirteen (13) directors each, each class serving for a term of four (4) years, so that thirteen (13) directors are selected, at each annual election of the Society, and WHEREAS, the directors of the Society have adopted a plan for the mutualization of the Society by so amending its charter that, of the fifty-two (52) directors of the Society, twenty-eight (28) should be elected by the policyholders and twenty-four (24) by the stockholders; and WHEREAS, the consummation of said plan of mutualization and formal action thereon by the Superintendent of Insurance of the State of New York have hitherto been prevented by liti- gation, and in order to effect, so far as practicable, and without further delay, the result sought to be attained by such plan of mutualization, the party of the first part has entered into this Agreement with the Trustees: NOW THIS AGREEMENT WITNESSETH AS FOLLOWS: First : The party of the first part hereby transfers to the Trus- tees said five hundred and two (502) shares of the capital stock of the Society for the purpose of vesting in the Trustees the right to vote thereon for the term and upon the terms and conditions stated in this agreement. The existing certificates for said stock 166 Testimony of William Alexander shall be surrendered and cancelled, and certificates therefor shall be issued to the Trustees, in which certificates it shall appear that the same are issued pursuant to this Agreement, and that fact shall also be noted in the entry of the Trustees as owners of such stock in the proper books of the Society. Second: The Trustees are exclusively authorized to exercise the voting power on the stock held under this Agreement for the election of directors of the Society, and shall, at every annual election of directors of the Society, so vote on said stock, that out of every thirteen (13) persons for whom such vote shall be cast seven (7) shall be selected in accordance with the wishes of the policyholders of the Society, expressed as hereinafter provided, and the remaining six (6) directors shall be selected by the Trus- tees in their uncontrolled discretion, to the end that, of the entire fifty-two (52) directors, twenty-eight (28) shall be policy- holders of the Society, selected by, or on behalf of, the policy- holders and twenty-four (24) shall be lawfully eligible persons selected by the Trustees in their sole discretion. The wishes of the policyholders in respect of the directors to be voted for by the Trustees shall be expressed in the following manner: In each year at any time prior to the first day of No- vember, any holder of any policy which shall have been in force for one year or more, may send to the Trustees at the Equitable Building, No. 120 Broadway, New York City, a written request, designating policyholders of the Society to the number of not more than seven-thirteenths of the number of directors to be elected at the next ensuing election of directors for whose election as di- rectors such policyholders desire the Trustees to vote at such annual election of directors, or requesting the Trustees to exer- cise their discretion on his behalf in the selection of policyholders to act as such directors. Third: The Trustees are authorized, in respect of said stock, 167 Testimony of William Alexander to take, in their discretion, by vote thereon or otherwise, any action necessary or proper to effect the consummation of said plan for the mutualization of the Society, by securing to the policyholders the right to elect directly twenty-eight (28) of the fifty-two (52) directors of the Society, or a like proportion of the entire number of directors of which the Board of Direc- tors shall from time to time consist. Fourth : In case said plan of mutualization shall become opera- tive and the policyholders shall become entitled to vote di- rectly for twenty -eight (28) directors of the Society out of an aggregate number of which the Board of Directors may from time to time consist, then the Trustees, in respect of the stock held under this agreement, shall continue to vote for such law- fully eligible persons to be the remaining directors as they shall in their uncontrolled discretion, select. Fifth: Incase of vacancies in the Board of Directors, due to resignation, death or other cause, the Trustees may make recom- mendations to the Directors of the Society as to the persons to be elected to fill such vacancies to the end that the purposes of this agreement may be promptly and effectually accomplished. Sixth: No vote shall be cast upon said stock for any purpose except with the unanimous approval of the trustees, but the Trustees may empower any one of their number actually to cast their vote. Seventh: Any trustee may at any time resign by delivering to the other Trustees his resignation in writing. In case of the death or resignation of any Trustee, the vacancy shall forthwith be filled by an appointment made in writing by the remaining Trustees. The term "Trustees" whenever used herein shall 168 Testimony of William Alexander include the parties of the second part, and their successors so appointed. Eighth: The party of the first part shall be entitled to the dividends on the stock deposited by him under this agreement. Ninth: This agreement shall continue in force for the full period authorized by section 20 of the General Corporation Law of the State of New York, viz., five (5) years from the date hereof. It shall be continued thereafter so long as the Trustees shall deem advisable, and the party of the first part hereby agrees that, upon the expiration of any period of five (5) years, he will, upon the request of the Trustees, execute an instrument continuing, for a further period of five (5) years, this agreement and the powers of the Trustees hereunder, including said power to require an extension hereof. This Agreement may, however, be terminated by the Trustees in their discretion whenever in their opinion its purposes have been accomplished, or for any reason its termination is, in their opinion, advisable. Tenth: Every other stockholder of the Society may transfer his stock to the Trustees, to be held subject to the provisions of this Agreement, and thereupon may participate in the terms, conditions and privileges thereof. In witness whereof, the parties hereto have set their hands unto five originals hereof the day and year first above written. In presence of Elihu Root Thomas F. Ryan Paul D. Cravath Grover Cleveland Morgan J. O'Brien George Westinghouse. 169 Testimony of William Alexander BY MR. HUGHES: Q. I note that in the paragraph 3 of this trust agreement it is stated that the trustees are authorized in their diseretion by a vote on their stock or otherwise to take any action necessary or proper to effect the consummation of the plan previously mentioned for the mutualization of the society by securing to the policy holders the right to elect directly twenty-eight of the fifty-two directors or a like proportion of the entire Board of Directors. Are you able to state whether any such steps have been taken? A. The only steps that have been taken to my knowledge by the trustees has been to nominate directors to fill vacancies. Q. No steps for the consummation of the plan for the mutu- alization of the society by an amendment of its Charter? A. Not to my knowledge, sir. Q. Is there litigation pending which prevents such steps being taken at the present, do you know? A. There is litiga- tion pending and I presume that would prevent it. Q. What is that litigation? A. There is a suit brought by a minority stock holder, Mr. Lord. Q. Franklin B. Lord? A. Franklin B. Lord. Q. Yes, and how far has that suit progressed? A. To a cer- tain part of the matter. Q. Enjoining further proceedings under the plan of mutualisa- tion? A. So I understand. Q. And is there an appeal pending? A. There is an appeal pending, I believe. Q. To the Appellate Division of the Second Department? A. I think so, yes. Q. Now, after the execution of these papers on in the course of June and later, 1905, were there transfers of stock upon the books? A. There were. 170 Testimony of William Alexander Q. I show you a list which has been furnished me of stock- holders of record of the Equitable Life Assurance Society under date of September 5th, 1905, and I will ask you whether that is a correct list of the stockholders? A. That was a correct list on that date. MR. HUGHES: I offer it in evidence. (Marked Exhibit No. 25, and read by Mr. Hughes as follows:) EXHIBIT No. 25. STOCKHOLDERS OF RECORD SEPTEMBER 5TH, 1905 Shares. Albright, J. J S Alexander, Charles B 78 Alexander, H. M 5 Alexander, James W 10 Alexander, William 8 Beebe, E. P. &. F. C. Welch, Trustees 5 Bigelow, Charles E -■ 3 Blair, C. Ledyard 5 Bryan, Joseph 5 Bryant, John D 4 Butler, Nicholas Murray 5 Cleveland, Grover, Morgan J. O'Brien and George West- inghouse, Trustees, etc S 02 Colby, Bainbridge 5 Collord, Martha T. Fiske 10 Cuyler, T. DeWitt 5 Depew, Chauncey M 5 Eckert, Thomas T S Fay, Charles J r 171 Testimony of William Alexander Shares. Forgan, James B 5 Haarstick, Henry C • 5 Harrison & Smith 4 Hazelton, Franklin H 5 Herrick, D. Cady 5 Hogencamp, William 1 5 Hurlbut, William Henry .- io Hyde, Henry B io Hyde, James H io Inman, Samuel M 5 Johnson, Bradish 5 Jordan, Thomas D 5 Kennedy, H. V. R 31 Kennedy, Rachel L 4 Krech, Alvin W 5 Lambert, Edward W 10 Lambert, Samuel W 10 Lord, Daniel 11 Lord, Fanny Bolton 1 Lord, Frances T 13 Lord, Franklin B 10 MacLean, James G 1 MacMartin, Malcom 8 MacMartin, Malcolm, and Elizabeth M. Maxwell, Trustees for Anna W. MacLaren 2 McCook, Janetta A 2 McCook, John J 5 Mclntyre, William H 5 Morgan, George H 4 Morse, Charles W 15 Morton, Levi P 5 Morton, Paul 5 172 Testimony of William Alexander \ Shares. Navarro, Alfonso de 20 Navarro, J. F IO Phillips, Jane F 6 Ripley, Sidney Dillon s Roebling, F. W s Snyder, Valentine P 5 Spratt, Thomas 5 Tarbell, Gage F s Thomas, E. B s Trask, Spencer 5 Van Home, Sir William C 5 Wilson, George T 5 Winthrop, H. R 12 Zehnder, Charles H 5 Q. What is the date of the annual election of directors of the Equitable Society? A. First Wednesday of December. Q. Since the last election have there ever been changes of the directorate by resignations and elections of persons to fill the vacancies? A. There have. Q. I have been handed a list of the present Directors of the Society with a statement of their terms of office, and also stating whether they were policyholders or stockholders. I will ask if this is correct? A. That is correct as September 5th. There have been no changes since. Q. September 5th, 1905? MR. HUGHES: I offer it in evidence. (Marked Exhibit 26 and read by Mr. Hughes as follows:) 173 Testimony of William Alexander EXHIBIT NO. 26. BOARD OF DIRECTORS. THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES. September 5TH, 1905. FIRST CLASS.— Term expires December 31st, 1903. Directors elected prior to appointment of Messrs. Cleveland, O'Brien and Westinghouse, Trustees. Gage E. Tarbell New York City Policyholder and stockholder. Bradish Johnson New York City Policyholder and stockholder. Alvin W. Krech " " Policyholder and stockholder. David B. Moffat Denver, Col. Policyholder. Samuel M. Inman Atlanta, Ga. Policyholder and stockholder. H. Rogers Winthrop New York City Policyholder and stockholder. Charles H. Alexander " " Policyholder and stockholder. Valentine P. Snyder " " Stockholder. Directors elected on nomination of Messrs, Cleveland, O.Brien and Westinghouse, Trustees: Nicholas Murray Butler New York City Stockholder. Charles H. Zehnder Philadelphia Policyholder and stockholder. J 74 Testimony of William Alexander Jacob G. Schmidlapp Cincinnati, 0. Policyholder. Ferdinand W. Roebling Trenton, N. J. Policyholder and stockholder. SECOND CLASS. — Term expires December 31st, 1905. Directors elected prior to appointment of Messrs. Cleveland, O'Brien and Westinghouse, Trustees: Thomas T. Eckert New York City Stockholder. Thomas DeWitt Cuyler Philadelphia Policyholder and stockholder. William Alexander New York City Policyholder and stockholder. Directors elected on nomination of Messrs. Cleveland, O'Brien and Westinghouse, Trustees: George F. Victor New York City Policyholder. Wallace L. Pierce Boston, Mass. Policyholder. Daniel A. Tompkins Charlotte, N. C. Policyholder. Thomas Spratt Ogdensburg, N. Y. Policyholder and stockholder. Frank S. Witherbee Port Henry, N. Y. Policyholder. James McMahon New York City Policyholder. THIRD CLASS. — Term expires December 31st, 1907. Directors elected prior to appointment of Messrs. Cleveland^ O'Brien and Westinghouse, Trustees: Levi P. Morton New York City Stockholder. Sir Wm. C. Van Home Montreal, Can. Stockholder. , i7S Testimony of William Alexander James B. Forgan George J. Gould Thomas D. Jordan Henry M. Alexander C. Ledyard Blair Chauncey M. Depew Chicago, 111. New York City Policyholder and stockholder. Policyholder and stockholder. Policyholder and stockholder. Stockholder. Policyholder and stockholder Stockholder. Directors elected on nomination of Messrs. Cleveland, O'Brien and Westinghou.se, Trustees: John J. Albright Willis F. McCook Chas. E. Littlefield Edwin 'W. Robertson William Whitman Buffalo, N. Y. Pittsburg, Pa. Bangor, Me. Columbia, S. C. Boston, Mass. Policyholder and stockholder. Policyholder. Policyholder. Policyholder. Policyholder. FOURTH CLASS.— Term expires December 31st, 1907. Directors elected prior to appointment of Messrs. Cleveland, O'Brien and Westinghouse, Trustees: William H. Mclntyre New York City James H. Hyde George T. Wilson Henry C. Haarstick St. Louis. Mo. Policyholder and stockholder. Policyholder and stockholder. Policyholder and stockholder. Policyholder and stockholder. 176 Testimony of William Alexander John J. McCook New York City Policyholder and stockholder. J. F. Navarro " " Stockholder. Paul Morton " " Policyholder and stockholder. Directors elected on nomination of Messrs. Cleveland, O'Brien and Westinghouse, Trustees: Ernest B. Krutsschnitt New Orleans Policyholder. Eben B. Thomas New York City Policyholder and stockholder. D. Cady Herrick Albany, N. Y. Policyholder and stockholder. Joseph Bryan Richmond, Va. Policyholder and stockholder. Emanuel W. Bloomingdale New York City Policyholder. Q. I have been handed this list of the present officers of the Equitable Society and I will ask you if that is correct? A. This is the correct list. MR. HUGHES: I offer it in evidence. (Marked Exhibit 27 and read by Mr. Hughes as follows) : EXHIBIT NO. 27. OFFICERS OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES (Elected annually by the Board of Directors.) President Paul Morton Vice-President Second Vice-President Gage E. Tarbell Third Vice-President George T. Wilson 177 Testimony of William Alexander Fourth Vice-President Secretary William Alexander Assistant Secretary H. Rogers Winthrop Actuary Joel G - Van Cise Comptroller William A. Day Treasurer Assistant Treasurer Wilfred B. Bremner Auditor Francis W. Jackson Superintendent of Agencies Sanford C. Boiling Registrar f William R. Bross Medical Directors \ Arthur Pell (Elected to serve during pleasure of the Board.) Associate Actuary Robert G. Hann Assistant Actuary Robert Henderson Associate Auditor Alfred W. Maine Assistant Auditor Herbert R. Coursen Cashier Michael Murray Assistant Registrar Samuel S. McCurdy Mortuary Registrar William E . Johnson Recorder Samuel Frost Q. What is the salary of the president? A. The salary of the president is one hundred thousand dollars less 20 per cent., $80,000. Q. Why do you say one hundred thousand dollars less 20 per cent.? A. Because an order was recently issued that all salaries should be reduced by a percentage. Q. Of 20 per cent.? A. 20 per cent, on all salaries above a certain amount. Q. Above what amount? A. I am not quite sure but I think $15,000 and below that, and above $5,000 15 per cent., and above $2500 10 per cent. This I could obtain very easily — 178 Testimony of William Alexander those dates— the points when they changed; but the large sal- aries we deducted 20 per cent, the larger salaries. Q. What was the date of that change? A. That was early in July, I think. Q. Of this year? A. It takes effect on the 1st of August of this year; it has taken effect on the 1st of August. 0. James W. Alexander was president prior to the election of Mr. Morton? A. Yes. Q. At what salary? A. A hundred thousand I believe. Q. And for how long a time has that been paid? A. I should have to have that obtained. Q. At what salary? A. One hundred thousand I believe. Q. And for how long a time has that been paid? A. I should have to have that made up. The salaries are being made up in anticipation of being called for. Q. A list is being made up. The Vice President was formerly James Hazen Hyde? A. Yes. Q. And there is no vice president at present ? A. The office is not filled. Q. The salary attached to that office is a hundred thousand dollars subject to this deduction of 20 per cent at present? A. I presume so. Q. But there has been no action on that? A. There has been no action taken in regard to the vice president. Q. And second vice president, Gage E. Tarbell; he has been second vice president? A. Yes. Q. And what is his salary ? A. His salary as reduced is forty thousand dollars; from fifty to forty. Q. And the third vice president George T. "Williamson, what is his salary? A. Thirty four thousand dollars. Q. Thirty four thousand dollars. That is a reduced salary after taking off the 20 per cent? A. Yes. 179 Testimony of William Alexander Q. There is no fourth vice president at present? A. There is not. Q. What is the salary attached to that office? A. My recol- lection — I have here the salaries of the existing office and have only to fill up the blanks, I think it is thirty-five thousandjat the present time — at the time of his resignation. Q. That is without any reduction? A. Without any reduc- tion. Q. And your salary? A. Was twenty-five thousand dollars — is now twenty thousand. Q. And Assistant secretary, Henry Rogers Winthrop? A. $5,400 as reduced. Q. The Actuary, G. Van Size?. A. $14,000. Q. And the Comptroller? A. $25,000. Q. You are giving the present salaries? A. Present salaries. Q. As reduced? The treasurer — you have no treasurer at present? A. No treasurer. Q. What was the salary affixed to that office formerly? A. I do not remember. Q. Assistant treasurer, Mr. Bremner? A. $4320. Q. Reduced salary. And the present salary of the Auditor, Francis W. Jackson? A. $10,635. Q. The Superintendent of Agencies ? A. $17,400. Q. Of the Registrar? A. That is vacant. Q. What was it formerly, do you remember? A. Five thou- sand, I think. Q. The Medical Directors, Dr. Bruce and Dr. Ball? A. Ten thousand and eight thousand five hundred. Q. Is Mr. William H. Mclntyre connected with the company at present in any other capacity than as director; is he on any com- mittee? A. He is on — he is a member of the committee on accounts, and I think he is also a member of the Executive Committee. I have a list of the Committees here. 180 Testimony of William Alexander Q. I see that I have a list here. Now, the by-laws of the Equitable Society as they formerly existed are these, are they not? A. These are the by-laws as amended August 3d, 1904. Q. And these remained in force until that time? A. At August, 1904, they remained in force until the early part of this year, I think; I have not that data with me as to the dates. I have the date of the last amendment. MR. HUGHES: I will have that marked for identification. (Marked Exhibit 28 for identification.) THE WITNESS: It occurs to me that I can furnish that date from the Board Minutes which are in the room. Q. Never mind, I have it here. Is this a copy of the amended by-laws? A. This is a copy of the by-laws as they exist to-day. Q. And as they are amended July 27th, 1905? A. Yes. MR. HUGHES: Just mark that for identification. (Marked Exhibit 29 for identification.) Q. Prior to this recent change in the by-laws, that is the amendment of last July, the meetings of the Directors were held how frequently? A. Once every quarter. Q. And the amendment of August provided what? A. For monthly meetings. Q. Prior to the amendment of last August was there a Finance Committee? A. There was. Q. What did the Finance Committee do? A. The Finance Committee met once a month and revised — reviewing the action of the Executive Committee. i«i Testimony of William Alexander Q. This action, however, was always after the fact, was it not? A. It was. Q. In other words, investments have been made and then they were reported to the Finance Committee? A. Yes, sir. Q. The sales had been made and then they were reported to the Finance Committee? A. Yes, sir. Q. And rarely were the matters brought in the first instance before the purchase or sale had been effected to the attention of the Finance Committee as such. A. These matters were at- tended to almost exclusively, if not exclusively, by the Execu- tive Committee. Q. What was the difference between the personnel of the Execu- tive Committee and of the Finance Committee prior to the recent changes? A. The condition recently — at the time — about that time the same men I think, with but one exception, were on both committees. Q. And the only exception was Jacob Schiff ? A. Yes. Q. And the Executive Committee was really the committee? A. Yes. Q. And the Finance Committee was practically a nominal af- fair? A. It had become so. Q. And the amendment of the by-laws cut off or trespassed on the Finance Committee ? A. Yes. Q. And left all matters in charge of the Executive Committee? A. Yes. Q. So that as I understand it you have no Finance Committee at all now? A. There is no Finance Committee. Q. And whatever duties formerly devolved upon the Finance Committee are now devolved upon the Executive Committee? A. They are. Q. Was there an amendment also in the recent amended by- laws increasing the power of the president? A. This I cannot say 1S2 Testimony of William Alexander Q. Without reading upon the record the voluminous by-laws I will note the amended by-law with regard to the powers of the president, reading from Exhibit 29 for identification, by-laws, section 1 : "There shall be an annual meeting for the election of the president who shall have plenary power over all the departments and business of the society subject to the control of the Board of Directors." Those words, "who shall have plenary power over all the departments and business of the society subject to the control of the Board of Directors " were added by the amend- ment of July, 1905, were they not? A. That is it. Q. Have you the minutes of the Board of Directors here? A. Yes. Q. Will you produce them, please? A. The recent minutes? Q. Yes. (Minutes produced by witness.) Q. Now, if you will turn to your minutes of the early part of this year, I would like to have you state whether or not prior to this amendment of July, 1905, an office is not created called the Chairmanship of the Board? A. Such an office was created. Q. And when was that created? A. That was created about the middle of the year, I can find the record in the minutes here in a moment. On June 9th, the by-laws were amended, and the office of Chairman of the Board was established. Q. Now, at that time, were the words "who shall have plenary power over all the departments and offices of the Society subject to control of the Board of Directors" inserted in the by-laws, having reference to the chairman of the Board of Directors? A. That was the fact. Q. In other words, the Chairman was provided for who should have a general supervisory power? A. That is the fact. 183 Testimony of William Alexander Q. And who was elected to the chairmanship at that time? A. The Honorable Paul Morton. Q. And subsequently the office of Chairman of the Board of Directors was abolished? A. It was. Q. And when did that take place? A. That took place at a later meeting, and the by-laws were then put back as they were before but those words were left in. Q. That is, the words that I have quoted; would those refer to the office of president? A. Yes. Q. And Mr. Morton was elected president? A. Yes. Q. Was that in July, the time of the . A. Yes, I think it was. Q. • amended to which I have referred ? A. I think it was. Q. Now, how many standing committees are there at present under the new re'gime of the Equitable Society? A. There are five standing committees Q. What are they? A. Four standing committees. What are they, did you ask? Q. Yes, what are they? A. There is the Executive Commit- tee, the Committee on Agencies, the Committee on Insurance, the Committee on Accounts. Q. The Executive Committee consists of how many members, and of whom? A. I have them here. Shall I read the names of the Executive Committee? Q. Yes. A. Paul Morton, Chairman, William A. Day, Chaun- cey M. Depew, James H. Hyde, Thomas D. Jordan, Alvyn W. Craig, William H. Mclntyre, Valentine P. Snyder, Gage E. Tar- bell, Eben B. Thomas and George D. Wilson. Q. Under the by-laws the Executive Committee consists of the president, who shall be the Chairman, the vice-president, the comptroller, and not less than six others, and you have named those who now are on the committee. You included in the list Thomas B. Jordan, was he serving as comptroller or by virtue of 184 Testimony of William Alexander his office as comptroller? A. The by-laws provided that the comptroller shall be a member of the committee. According to the action on the minutes of the Board he was elected — his name was on the list of men elected. It is a matter of construction. He has not attended recent meetings and I am unable to state — I can only state the facts that the name entered on the minutes of the Board was Thomas B. Jordan, and not simply the office, and the title of the office. Q. When did Mr. Jordan cease to be comptroller ? A. He was — he ceased to be comptroller in July or August. Q. And Mr. Day was appointed in his place? A. He was. Q. I see that Mr. Day, as well as Mr. Jordan, was named in the list of the Executive Committee that you have given? A. Mr Day was elected as comptroller. Q. Who are the present members of the Committee on Agen- cies? A. John J. McCook, chairman, Samuel M. Inman, F. De Witt Tyler, Gage E. Tarbell, George D. Wilson. Q. And who are the Committee on Insurance? A. Edmund C. Blair, James H. Hyde, and Henry M. Alexander. Q. And who are the Committee on Accounts ? A. V. P. Sny- der, Henry M. Alexander, Thomas B. Jordan, and William Alex- ander, and W. H. Mclntyre. Q. Have you the minutes showing the communication that President Alexander addressed to the Board of Directors early in the year? A. I have the minutes of the Board in the room; there were certain documents — voluminous documents — that re- lated to the papers, that are on file with the records of the Board; I am pretty sure that is not in the room, it can be produced. Q. Will you let me see what minutes you have here of the pro- ceedings that have been taken? A. There are three volumes of the minutes of the Board of Directors. Q. Have you the minutes of the meeting in February when 185 Testimony of William Alexander President Alexander made his statement to the Board? A. Yes, sir. Q. Without taking up the particular record, Mr. Alexander, what I want briefly to get at is this : we can arrive at the present situation, and lay a basis for our future inquiries, without repeat- ing what is familiar to all of us. Mr. Alexander made a certain communication to the Board suggesting that policyholders be given a right to vote for directors, did he not? A. Yes, sir. Q. About what time was that made? A. That was, I think on February 8th. Q. 1905? A. 1905. Q. Was it followed by the appointment of a committee? A. The appointment of a Committee of the Board. Q. To consider that subject? A. To consider that subject. Q. Did that Committee report? A. That Committee re- ported. Q. Was there a plan provisionally arranged for the election of twenty-eight of the fifty-two directors by policyholders of the company? A. There was, yes, sir. Q. Was there then the suit instituted that you have referred to and an injunction subsequently obtained prohibiting further steps in the direction of mutualization ? A. Yes, sir. 0. Will you state whether or not a Committee was appointed from the Board of Directors for the purpose of examining into the affairs of the company at or about that time? A. There was. Q. Called the Frick Committee? A. Yes, sir. Q. And did the Committee make a report? A. It did. Q. Is this the report? A. That is the report. MR. HUGHES: I offer it in evidence (Admitted and marked "Exhibit 30.") MR. HUGHES: As this is perfectly familiar, I will not read it; you can have it to use as an exhibit in the case. 18b Testimony of William Alexander Q. And subsequently was there an examination of the Equit- able by the State Insurance Department? A. There was. MR. HUGHES: I will have this volume of testimony taken by Superintendent Hendricks, marked for identification. (Said volume marked "Exhibit 31 " for identification.) MR. HUGHES : I offer in evidence the preliminary report of Superintendent Hendricks, as of June 21, 1905, with an addenda. (Admitted and marked "Exhibit 32.") Q. Have you there a list of the salaries of the officers that we can have in a convenient form ? A. I am having that prepared running back to 1877. Q. Showing the changes? A. Yes; I have here only a pencil memorandum of those at present. Q. Have you also a statement of the bank balances ? A. That is prepared or being prepared. Q. It is not here at present? A. It is not in the room. Q. Have you the list of securities that has been called for? A. That is being prepared. Q. They are in course of preparation? A. Yes, sir. BY MR. McKEEN: Q. Mr. Alexander, since you have been Secretary, have you known of any sales of stock, public sales of stock of the Equit- able? A. There have been from time to time public sales of stock. Q. Do you recall about when the last public sale occurred?. A. I have not kept track of those matters, and I cannot answer that question. 187 Testimony of William Alexander Q. Do you recall what price was paid for that stock at any public sale that you do remember? A. The information I have received in reference to matters of that kind has been exceedingly vague ; there have been rumors that very large prices have been paid, and then apparently there have been sales at low prices, and no sales at all, and stock has been withdrawn. I, of my own knowledge, am not able to testify as to that. I remember certain sales of some distance back. Q. Will you, please state just what recollection you have of sales of that stock, public sales, and about what prices it brought? A. I remember some years ago Q. How many years ago? A. The particular transaction I was about to mention was on I suppose ten or fifteen years ago, that was at one thousand dollars a share. I have been told of sales recently at three thousand dollars and twenty-five hun- dred dollars, but they were not public sales, and it is only by hearsay. Q. Have you any personal knowledge of any sale of the stock at private sale other than what knowledge you have of the recent sale to Mr. Ryan? A. Yes; I cannot vouch for the statement; a broker told me that he had bought stock at three thousand dollars a share, a gentleman whom I know, and whose word I take to be correct ; he told me that he had paid for four shares of Equitable stock within the last few months three thousand and few dollars over — a little over three thousand dollars a share. Q. Are you at liberty to mention that gentleman's name? A. As far as I am concerned, I am perfectly willing to do it. Q. What is his name? A. Mr. Dodge told me. Q. Were any of these public sales of stock that have occurred since you have been secretary made through Muller's auction rooms so that they are a matter of record anywhere? A. The stock has — blocks of stock have frequently been put up, adver- tised there and sales have occurred. The one I referred to where 188 Testimony of William Alexander the one thousand dollars, I think, was paid for ten shares, was an auction sale there; but there is, of course, records of those matters ; whether they have been actual sales or withdrawals or not, I don't know. BY MR. HUGHES: Q. What fees are paid directors for attendance at meetings? A. For the ordinary committees the directors receive ten dollars ; those who are present receive ten dollars each. Q. Including officers who are members of the committee? A. Not at the present time. Q. When was the practice changed? A. The practice was changed recently by the existing President, Mr. Morton. Q. For how long prior to that time had the officers received fees for attending committee meetings? A. It had been the regular custom of the company. Q. For how many years? A. For many years. Q. A fee of ten dollars ? A. A fee of ten dollars for the regular committees; the members of the Executive Committee at the present time, I think, receive twenty-five dollars. Q. Well, formerly, and prior to the present administration, did they receive twenty -five dollars? A. Yes, sir. Q. The members of the Executive Committee? A. Yes, sir. Q. Including the officers? A. Yes; not at present. Q. But not at the present time ? A. No. Q. Do the members of the Executive Committee at present who are not officers receive twenty-five dollars? A. I believe so; I do not attend the meetings of that committee, and it is barely possible that a change may have been made, but I believe they still receive twenty-five dollars. Q. The only change in the amount of fees paid to committee- 189 Testimony of William Alexander men is in the fact that officers no longer get fees; otherwise, you understand the amounts are the same? A. Yes, sir. Q. And so far as fees paid directors are concerned, what is their amount? A. Ten dollars for each meeting, for each at- tendance. Q. Has there been any change in that respect? A. No, that is the regular fee. Q. Does that include officers? A. The officers do not receive fees at the present time. Q. For attending the Directors' meetings? A. For attending the Directors' meetings. 0. Prior to the present regime they did? A. They did. Q. Have you the stock transfer books of the Equitable here? A. I have. Q. Will you produce them? A. (Produced). Q. Will you show me the transfers that have been made, please, since the first of June, 1905? A. You mean the actual stock transfers in the book? Q. Yes? A. Yes. Q. Mr. H. R. Winthrop was the holder, I believe, of twenty- seven shares of the stock of the company; has that stock been transferred by him ? A. He has, at the prssent time, according to my recollection, twelve shares in his name, and the other shares have been transferred to other parties. Q. To whom were they transferred? A. The Assistant Registrar is familiar with these books, and he is here, and I think if you will permit , Q. I don't want to stop on it A. If you will permit him to work that out 0. There were some twenty-seven shares held by Mr. Win- throp, and some thirty-five or forty-five held by Mr. Bremner, and I would like to know what disposition has been made of TO' Testimony of Frederic Cromwell them? A. Of course it is quite feasible to work these things out and figure these things out and follow them out. MR. HUGHES: You can make up, without stopping on it now, aT statement of the changes in stock since the first of June, 1905, without taking the time to go over it now. Q. You say Mr. Jordan is on the Executive Committee or may- be, according to the construction of the vote? A. Yes. Q. Does he attend meetings at the Equitable? A. He has not recently attended any meetings. Q. Do you know where he is? A. I do not; he lives in Engle- wood, New Jersey. Q. You have not seen him recently? A. I have not seen him for some time, since he ceased to be comptroller of the company. MR. HUGHES: That is all for the present; if you will kindly make up some of those statements, I may want to call you again. Mr. Granniss.I am informed, desires to correct his testimony by noting that the Assistant Treasurer and the Comptroller are not members of the Finance Committee, although they at times at- tend the meetings of that Committee, but not attending them in an official capacitv. FREDERIC CROMWELL, called as a witness, being duly sworn, testified as follows: BY MR. HUGHES: Q. Mr. Cromwell how long have you been connected with the Mutual Life Insurance Company? A. I was made a trustee in 1880, and Treasurer in 1884. 191 Testimony of Frederic Cromwell Q. And have been a trustee of that company for how long? A. Since 1880. Q. Are you connected with any other Company as officer or trustee? A. Insurance company? Q. No; any company? A. Oh, many. Q. Will you please state with what companies you are con- nected as an officer or trustee? A. The Delaware & Hudson Canal Company; The Morris & Essex Railroad; the Jefferson- Clearfield Coal & Iron Company; the Gill Engraving Company; the Morris & Essex Q. To avoid repetition, you might state as you go along what your connection with those companies is? A. I am director. Q. And where you are an officer, if you will state that as well? A. I am officer of no company but the Mutual Life. Q. But director of these others? A. Director, entirely. Q. Yes? A. Then the Guarantee Trust Company, the Morton Trust Company, the Fifth Avenue Trust Company, Bank of Commerce; I think that is about all. Q. The Atlanta & Charlotte Air Line Railway Company? A. The Altanta & Charlotte Air Line Company. Q. The Central Realty Bond & Trust Company? A. That is no longer existing. Q. The Commercial Trust Company of New Jersey? A. Yes; and the Mutual Alliance Trust Company. Q. The Mutual Alliance Trust Company? A. Yes, sir. Q. The New York Dock Company? A. Yes, sir. Q. The Sixth Avenue Railroad Company? A. The Sixth Avenue Railroad Company. You got a list? Q. The Worcester, Nashua & Rochester Railroad Company? A. Yes, sir. Q. Do you receive compensation from any of these companies? A. Not at all. 192 Testimony of Frederic Cromwell Q. Except for fees for attendance at directors' meetings? A. That is all. Q . Are you a member of the Finance Committee of the Mutual Life Insurance Company? A. Yes. Q. And you have been such during the time that you have been Treasurer? A. My recollection is that the Treasurer has always been a member of the Finance Committee. The By-Laws which state that, they were passed many years ago, but I am not sure that that statement was in the By-Laws when I first became Treasurer, but I have always been a member of the Finance Committee, but the By-Laws were passed about twelve or four- teen years ago and detail that more fully. Q. Who are the other members of the Committee? A. George F. Baker, Charles R. Henderson, A. D. Julliard, James N. Jarvie, George G. Haven. Q. Have you the minutes of the Finance Committee here for a period of some years? A. Yes. Q. (showing paper) . Is that a correct list of the members of that Committee? A. Adrian Iselin, Jr., I left out, that is true; there is a correct list. MR. HUGHES: I offer the list in evidence. (Admitted and marked "Exhibit 33" and is as follows:) FINANCE COMMITTEE. George F. Baker Charles P. Henderson A. D. Julliard George C. Haven Adrian Iselin, Jr. James N. Jarvie R. A. McCurdy, President 193 Testimony of Frederic Cromwell R. A. Granniss, Vice-President W. R. Gillette, Vice-President Frederic Cromwell, Treasurer Q. In practice, how are matters of investment brought up in the committee; do you make the proposals? A. I make a state- ment to the Committee. Q. You do? A. No transaction in securities can be made in the Mutual Life without the approval of the Finance Committee or of the sub -committee; the Finance Committee which you speak of meets but once a week, and there is a sub-committee which meets also once a week, earlier, to pass upon things which are afterwards approved by the General Committee, but no trans- action can be made, except loans on collateral Q. If the matter of a purchase or sale is up for consideration on the day following the regular meeting of the Finance Com- mittee, can the sub-committee act on it? A. The sub-committee can act on it. Q. It does not wait until the Finance Committee meets, but the matter is subsequently reported to the Finance Committee ? A. In point of fact, the sub-committee makes most of the secu- rities investments. Q. And then the Sub-committee reports these security invest- ments after they have been made, to the Finance Committee? A. To the Finance Committee. Q. And that is true also of sales, the sub-committee makes most of the sales? A. Yes. Q. And reports its transaction at the next meeting of the General Committee? A. It makes every sale and every pur- chase. Q. But my point is, it does not make any purchase until after the Finance Committee as a whole has acted, but makes the sale or 194 Testimony of Frederic Cromwell purchase and reports its action to the General Committee? A. Yes. Q. Who a/e on the sub-committee? A. A. D. Juilliard, George G. Haven, Adrian Iselin, junior, and as a substitute, if one is away, James N. Jarvie. Q. Are there any ex-ofncio members of the sub-committee? A. The President and either of the Vice-Presidents, and the Treasurer. Q. Who gives most attention to these matters on the sub- committee? A. Those three; I give the most attention of the sub-committee; I mean, no investment can be made which does not pass through my hands, and no investment can be made without the unanimous consent of the Committee. Q. That is the sub-committee? A. The sub-committee, and if the other committee don't unanimously approve, some other disposition would have to be made by it. Q. In that case, you would have to sell out what you bought? A. Yes; if I made any purchase or sale or any transaction, it must have the unanimous consent of the Finance Committee. Q. You mean unanimous of all present? A. Of all present. Q. What is the quorum of the Finance Committee? A. I think the by-laws are here. Q. You are a director of the Guarantee Trust Company? A. Yes, sir. Q. What is the capital of that company? Two million dollars. Q. How much of the stock of that company is held by the Mutual Life Insurance Company? A. I have not the papers here, but over eight thousand shares; I cannot carry these fully in my mind. Q. Eight thousand six hundred and forty-eight shares? A. Yes. Q. That is carried on your books at a book value of $1,265,- I9S Testimony of Frederic Cromwell 920.44, does that mean that the shares actually cost that amount of money? A. It does, yes, sir. Q. Are you a stockholder in the Guarantee Trust Company? A. I am. Q. What amount of stock do you hold in it ? A. One hundred shares. Q. Is Richard A. McCurdy a stockholder in the Guarantee Trust Company? A. He is. Q. To what extent? A. I don't know. Q. Is Robert A. Granniss a stockholder in the Guarantee Trust Company? A. I don't know, I think he is; I am perfectly safe in saying that he is. Q. Is Robert H. McCurdy a stockholder in that company? A. I don't know. Q. Or Walter R. Gillette? A. He is. Cj. You don't know to what amount? A. I do not. Q. Is Augustus D. Juilliard a stockholder in the Guarantee Trust Company? A. He is. Q. And. George G. Haven? A. He is. Q. And Adrian Iselin, Jr.? A. Yes, sir. Q. And James N. Jarvie? A. Yes, sir. Q. And George F. Baker? A. Yes, sir. Q. And Charles R. Henderson? A. And Charles R. Hen- derson. Q. Well, what other persons who are officers or directors of the Mutual Life Insurance Company are stockholders in the Guarantee Trust Company? A. That I don't know. MR. BECK: Do you want that information now? MR. HUGHES: If you can give it to me. 196 Testimony of Frederic Cromwell MR. BECK: The rules of the Finance Committee do not pro- vide as to what shall be a quorum. Q. In practice, how many of the Finance Committee consti- tute a quorum, or with what number of members present do you proceed to business? A. Well, to speak very plainly, our Fi- nance Committee, unless one is out of town, is always in full at- tendance. I do not say that for any affectation, but our men take so much interest in the Finance Committee, which is the center of things, that they do come regularly. Q. Am I right in supposing that every member of the Com- mittee, both regular and ex-officio, with the possible exception of Mr. Granniss, is a stockholder in the Guarantee Trust Com- pany? A. Every one, and Mr. Granniss, probably. Q. When did the Mutual Life Insurance Company acquire its stock holdings in the Guarantee Trust Company? A. I would have to have the data: the Guarantee Trust Company was for- merly the Guarantee & Indemnity Company, and became after- wards, under changed conditions, the Guarantee — was incor- porated as the Guarantee & Indemnity Company under the offices of its present directors, until finally it was changed to the Guarantee Trust Company ; that was a matter of policy to elimi- nate the name "Indemnity." Q. There was a time when the Mutual Life acquired a large interest in that company when it was known as the Guarantee & Indemnity Company? A. Yes, sir. Q. And that was about how many years ago? A. Well, it must be twelve years ago ; I am not quite sure on that. Q. And then did it acquire subsequently the holdings which it now has? A. It acquired more. Q. And has sold some since? A. And has sold some since. Q. Do you recall about how much it acquired? A. Something over ten thousand shares. 197 Testimony of Frederic Cromwell Q. Between ten and eleven thousand shares? A. Yes, and they have sold down to eighty -six hundred. Q. The ten or eleven thousand shares were acquired at the same time that you became a stockholder in the Guarantee Trust Company? A. At the same time. Q. And at the same time that the other members of the Finance ' Committee whose names you have mentioned, Mr. Baker, Mr. Henderson, Mr. Juilliard, Mr. Haven, Mr. Iselin, Mr. Jarvie and Mr. McCurdy, acquired stock in the Guarantee Trust Company? A. At the same time. Q. In other words, the fact is that the Guarantee & Idem- nity Company was a company organized to do a certain class of business, and the stock of that company was largely acquired by officers and directors of the Mutual Life, who took stock for themselves, and by the investment of the Mutual Life itself in the stock of the company? A. I would not say that; if you will allow me to correct that. Q. Certainly? A. There was not a large portion taken; the reason why these gentlemen or I took that interest, which is riot a large one, was that we were expected to give a good deal of thought to it, and it seemed perfectly proper as we became directors to give some interest to our investment. Q. You are speaking of your individual interest? A. I am speaking of all of them. Q. You don't know what the other interests were? A. They were all of quite moderate amounts, I am quite sure. Q. What would you say they were? A. From one hundred to two hundred shares each. Q. And about how many who are interested in your company own from one hundred to two hundred shares each in the Guar- antee Trust Company? A. About three or four, I don't know; that is a matter of record; I should think about that number; the purpose of that, if you will allow me to state 198 Testimony of Frederic Cromwell Q. Certainly, state quite fully? A. The purpose was not to interest these gentlemen or interest ourselves; we reached a point where it seemed necessary, and I think the events have fully proved that — we reached the point where it seemed neces- sary for us to have larger facilities in our deposits and in using our money. Q. You wanted to provide a place to use the large deposits of the Mutual Life? A. And to get securities; we have been more than once put to it to know how to use our large accumu- lations, and were liable — we always felt in carrying a balance full justification, because, quite contrary to the general impres- sion, a life insurance company is subject to certain drafts. In the first place, which is perhaps remote, it is liable for its surrender values ; the total transactions in our department alone amounted to above one million dollars, and we are liable, we so advertise ourselves, liable to loan on policies, and we have about twenty- five million dollars loaned on policies to-day. Q. How much on the average do you keep in cash on deposit in various institutions; what would be your average monthly aggregate balances? A. That depends very much upon the times, upon the needs of money; we have carried up to eighteen million dollars, and there are times when money is accumulated — we have carried about eighteen million dollars; to-day we have between nine and ten million dollars. The reason of that discrepancy lies in this, and this is an illustration; for the use of the money we have bought largely of the Japanese bonds which we sold to-day; we have bought five million dollars within a month, five million dollars of one class of bonds; New York Central three and one-half per cent, bonds; we have taken of those Pennsylvania Railroad convertible bonds five million dollars; we have also adopted the policy of having enough money to take a large block of securities of that kind. Q. And that is the reason why you need that money, and 199 Testimony of Frederic Cromwell not to A. Yes, sir, and why we wanted a Trust Company which we could rely upon. Q. Now, just explain we may understand it, but it will be valuable to have your explanation for the record, just what may be accomplished by the control of a trust company that could not be accomplished as easily in another way? A. Perhaps the best illustration I can give you is when we hear of a large issue of bonds about to be made Q. Yes? A. And we firmly believe that by taking hold of those bonds to the extent of five million dollars or more, we can get them at an advantageous price — trust companies like the Guarantee Trust Company and others of that kind have a clien- tele — they take so many — they say we will take two million dollars, they place them among their customers; another trust company places one million. When the time comes for a large financial transaction, it is a question whether we can take five million or six million, and I have seen the time when I have offered to take sixteen million dollars in one security; we arranged to do it. Q. What was that? A. Of that sixteen million dollars we would take comparatively small portions, but through our trust companies and their operatinos we would be able to place it. Q. Place what? A. Place the large block. Q. For which you would agree to become responsible or to take? A. Not at all; we would by taking a large block get a great reduction in price. Q. The point you make is that you would be in a position to have machinery for the disposition of the bonds or scrips that you would not care to retain , and you would gain the advantage of subscribing or purchasing a larger amount ? A. Yes, sir ; I will give you an illustration. When Cuba issued her bonds, which are really a government bond, the loan would not have been taken unless we had at the beginning, after thorough examina- Testimony of Frederic Cromwell tion, unless we took five million dollars of them; we did not take five million dollars of them Q. So you agreed to take or become responsible for the taking of five million dollars? A. Yes, sir. Q. Now, explain how, having agreed to take that, you could utilize your trust company? A. They took two million dollars, I don't remember the exact amount. Q. Did you let them have part of your five million dollars? A. Not until we had informed — yes, we took it together. Q. You did not take five million dollars to keep? A. No; we never do any business with any trust company having any inter- est, not any more than any other trust company; I mean, we are entirely disassociated with any trust company in any way. In regard to Cuba bonds, if you will let me finish, they are sell- ing at a hundred and eight, and it cost us under ninety, that is why we buy sterling securities of that kind; our securities have increased in value. Q. You agreed to take five million dollars of Cuba bonds? A. Yes, sir. Q. Did you take them? A. I think we took four million dol- lars. Q. You are sure you agreed to take five million dollars? A. No, I say we took whatever we agreed Q. Then the figure was four million instead of five million? A. That is my recollection. Q. Did you take the four and pay for them? A. Yes. Q. Then, do I understand that you sold some of the four mil- lion to the Guarantee Trust Company? A. No. Q. Did you sell them to anybody else? A. No, sir. Q. Did you keep them? A. Yes, sir. Q. Then, how did the Guarantee Trust Company in any way help you in acquiring the four million dollars of Cuba bonds? 201 Testimony of Frederic Cromwell A. Because we could not take that interest unless we took that amount. Q. What amount? A. Five million dollars. Q. Four million dollars, you mean? A. Yes, four million; our Guarantee Company, whom we had, in effect, controlled the transaction of that kind, took one million dollars. Q. So you agreed to take four million dollars and the Guaran- tee Company agreed to take one million dollars? A. Yes, sir. Q. What special advantage was there to your company in the Guarantee Trust Company taking one million dollars, why couldn't you take the five million dollars if it was a good invest- ment? A. We did not want to take so many. Q. That is a very good investment, isn't it, that Cuba bond? A. Yes, as a matter of judgment. Q. And you satisfied yourself that it was a very good one when you went into it? A. I think I may safely say we always limit ourselves; there is a limit to all investments of that kind. Q. But you are desirous of getting large blocks? A. It seems we are desirous of getting large blocks, but there is a limit, and we desire to get them at a low price. Q. You did not want the Guarantee Trust Company to take bonds which it would not be safe for the Mutual Company to hold? A. We would not have taken the four million unless we knew we were safe. Q. I understand, but if it was safe for the Guarantee Trust Company to take the one million dollars, why wouldn't it be safe for you to take it? A. Because there is a limit; we only go to a certain point in any security. Q. Owning about half the stock of the Guarantee Trust Com- pany, if there had been a loss of that one million dollars, the Mutual Life would have sustained that anyway, wouldn't it? A. Yes, sir. Q. I do not quite catch the point then, why you should take Testimony of Frederic Cromwell only four million dollars of the Cuba bonds and have the Guar- antee Trust Company take the one million dollars? A. Because you can readily understand, I think, Mr. Hughes, by their taking the one million dollars, they took the responsibility of it. Q. But you, as the owner of the Guarantee Trust Company to the extent of nearly one-half, took the responsibility to the ex- tent of one-half, didn't you, in effect? A. The Guarantee Trust Company buys securities for entirely different purposes than we do. v Q. For what purposes? A. To sell them at a profit; we do not sell. Q. You hold? A. We hold; the purposes is entirely different. Q. You thought that those bonds could be sold at a profit? A. Yes, s'ir. Q. And they were taken by the Guarantee Trust Company in order that they could be marketed at a profit, and the Guarantee Trust Company could make that profit? A. Yes, sir. Q. Now, are there any other illustrative transactions that occur to you? A. I guess I have had enough, unless I have the figures before me ; I would not now say that four million and one million are exactly correct. Q. What was the transaction in which you were willing to take sixteen million dollars? A. Not for ourselves. Q. What was the transaction? A. It was the purchase of a mortgage bond of the Southern Railway Company. Q. The Southern Railroad? A. Yes, sir. Q. What issue, definitely; what was the particular name of the issue, Southern Railroad what? A. Collateral trust bonds; I could not give you the name of it. Q. How much did the Mutual Life take actually? A. We took three million dollars. Q. And who took the rest that made up the sixteen million dollars that you were willing to take? A. The New York Life 203 Testimony of Frederic Cromwell took four million dollars; the First National Bank took two mil- lion five hundred thousand dollars; this is a matter of recollec- tion, gentlemen. Q. Certainly; you may correct it freely at any time you find you have fallen into error? A. I could not tell you the rest, but there is' nine million five hundred thousand dollars out of the six- teen million. Q. You said something about offering to take sixteen million dollars? A. We did not come near getting them. Q. Were you willing to take the sixteen million dollars? A. We could place them — that is, the part; one of the uses I may say, that a man who deals in securities of that class — I don't mean that we would take sixteen million dollars, but we could find interests who would take their share of them and then we would have them; we would go to other institutions or banks and have them take them. The custom in the Street is to divide them when you get a large thing of that kind. That makes the particular object for the corporation to place the bonds. You understand that they want it placed in blocks, and gives a con- trol or a good interest, if the different partners know where the securities have gone ; that is merely a matter of purchase and sale. Q. Now, what is the Mutual Alliance Trust Companv? A. The Mutual Alliance Trust Company was started with a belief that a Trust Company upon the East side, started over on Grand Street, would be an acceptable thing in two ways, for good busi- ness, but it was started through the desire of some of the Israelite persuasion, because they had a great deal of interest in the Mu- tual, and that a trust company over on Grand street would be a good thing for them. Q. What is the capital of that trust companv? A. Five hun- dred thousand dollars. Q. When was it organized? A. Four or five years ago. 204 Testimony of Frederic Cromwell Q. How much does the Mutual own in it? A. One hundred thousand dollars, isn't it, you have it there? 0. I find here $116,500. A. $116,500, yes. Q. For which they paid $2 00? A. Yes, sir. Q. The book value of $233,000? That is on your book; is that right? A. That is the book writing. Q. Your book value is $233,000, isn't it? A. $233,000. Q. That is a cost to you of $116,500? A. Yes, that shows that $16,500 were afterwards bought at 220. Q. And what was the one hundred thousand bought for? A. 200, the subscription price; the company had a surplus of five hundred thousand dollars and a capital of five hundred thousand dollars. Q. Are you a stockholder in the Mutual Alliance? A. I am, yes. Q. How much stock do you hold in that? A. One hundred shares. Q. Are any of the other officers of the Mutual Life stockholders in the Mutual Alliance? A. Mr. McCurdy -and Mr. Jarvie. Q. How much does Mr. McCurdy have? A. The same as I have, Q. One hundred shares? A. Yes. Q. Mr. Jarvie? A. One hundred shares. Q. Is Mr. Juilliard in it? A. He has no stock. Q. Or Mr. Haven? A. No. Q. Or any of the other members of your committee? A. No; they had some, but they sold it. Q. I omitted to ask you how much money you keep on de- posit with the Guarantee Trust Company on an average? That is, when I say you, I mean the Mutual Life Insurance Company? A. We never let it go above a million or a million and a half, but when we have investments it runs down to $500,000, as it is now. Q. It varies between $500,000 and a million and a half? *, A. 205 Testimony of Frederic Cromwell Yes ; when it is a million and a half often we get money where it is difficult temporarily to do better than that ; they pay us inter- est, you know. Q. What interest do they pay you on your deposit? A. Two . ^er cent. Q. What interest do they make as a rule on their loans? A. Well, I think this summer they found it very difficult to make that; I say, two per cent., sometimes there have been periods when they paid us two and a half, but two is the rule, and I do not think they have made any money on deposits we had with them this summer, but they do make money on them. Q. They calculate to? A. They can tell it is going to lie there and is permanent money. Q. Is it permanent money that lies there right along? A. We keep a balance of half a million there always. Q. And that is well understood ? A, That is well understood. - Q. Now, in the Mutual Alliance Trust Company, this little company over on the East side, do you keep a deposit there? A. Yes. Q. About what line do you calculate to maintain with the Mutual Alliance Trust Company? A. We have one deposit there, $250,000. Q. You mean, that is a settled deposit kept there right along? A. We do not change it. Q. You do not draw against it? A. It is struggling. ' Q. You mean the trust company is struggling, not the deposit? A. The Trust Company is struggling, but it is good enough. Q. The deposit is left there and you have not up to date drawn against it, that is the point? A. Yes, sir. Q. What interest do you get on that? A. Two per cent. Q. I think I omitted to ask you when that Mutual Alliance Trust Company was organized? A. I said four to five years ago, I think, four years. 206 Testimony of Frederic Cromwell Q. Has that deposit been there continuously? A. Yes, sir; it was more than that at one time, it was five hundred thousand dollars earlier, and then we drew it down to $250,000. It has some six millions dollars on deposit. Q. What dividend does the Guarantee Trust Company pay? A. Twenty per cent. Q. How long has it paid twenty per cent? A. I would not like to trust my memory for that, but I should say it paid twenty per cent, during the past four years. Q. I see that you state here that the market value of the Guar- antee Trust Company's stock is $4,756,400; that is, of your 8,648 shares, the market value flat is $555, is it? A. Yes. Q. How many transactions are there in the Guarantee stock nominally in the course of a month? A. Not many. Q. Or in the course of a year? A. I should say half a dozen or more. Q. There are very few transactions, are there not ? A. Very few. Q. To furnish a basis of quotation? A. They have been sold at public sale. Q. Small lots? A. Some large lots. Q. How large a lot do you know of having been sold at public sale? A. I do not recall. Q. What is the largest that you do recall? A. I would not want to testify to that. Q. You have not in mind any particularly large lot have you? A. No ; I can testify this, that the stock has not sold — I am sure the stock has not sold below 600 in a long time. Q. Now, take this Mutual Alliance, has that paid any divi- dends? A. It has not paid any dividends. Q. Never paid any dividends ? A. Never. Q. And are you acquainted with any market transactions in its stock? A. No, I am not; I do not think there have been any market transactions. 207 Testimony of Frederic Cromwell Q. I see that is carried on your books at par? A. Yes, sir. Q. Practically, there is no market? A. The stock cost S200 at the first purchase, and then the subsequent purchase made the entire cost $233,000; we marked it down in this statement to 200, which makes it diminish by the statement $33,000 in market value. I might say, if I be allowed to, that the company is ab- solutely good and will absolutely surely work out, but the allies have not come forward in the business we expected; still, the company has got six millions dollars deposited, and it is run with a great deal of care ; it became rather a pet of two or three of us to make it succeed; we are having hard work to do it, but it will come out all right. Q. I notice that you carry it on your books under the head of market value at $233,000; as a matter of fact you are ac- quainted with the book value of that stock, on its own books, are you not? A. Yes, sir. Q. Is that the book value of that stock, 200, on its own books? A. The book value is above that. Q. The book value on its books? A. Yes, sir. Q. You know that to be a fact? A. I know that. Q. Senator Armstrong suggests that you state to us the sur- plus and undivided profits of the Mutual Alliance? A. The sur- plus was brought down ; I could not give you it exactly, it was brought down to about twelve thousand or fifteen thousand dol- lars by a very severe marking off ; we lost thirty thousand dollars in one thing; when we went in we bought New York City securi- ties to conform to the law, and our loss on that was thirty thou- sand dollars. Q. What did you say the capital was? A. $500,000. Q. And the surplus is how much? A. Is not $20,000. Q. $20,000? A. Yes, sir. Q. And are the undivided profits included in that or separate? A. The undivided profits are $500,000. 208 Testimony of Frederic Cromwell Q. And what you call a surplus of $20,000? A. That is after a very severe marking off. Q. So that the net assets are $520,000? A. It is less than $20,000; I could not give you the exact figure. Q. $1,020,000 would be the amount of the total capital, sur- plus and undivided profits ? A. Yes, sir. Q. Showing the book value a shade above 200? A. Yes, sir. Q. Now, the Morristown Trust Company, is the Mutual Life Insurance Company's owner of stock in that? A. Yes, sir. Q. To what extent? A. I will have to look at that. Q. Seventeen hundred and fifty shares ? A. Yes, sir. Q. For which the Mutual Company paid how much? A. 300. Q. And the market value is stated in your reports to be what in your last report ? A. 525. Q. What is the capital of the Morristown Trust Company? A. $600,000. Q. You a stockholder in that company? A. I am. Q. To what extent? A. One hundred and sixty shares. Q. Is Mr. McCurdy a stockholder in that company? A. He is. Q. To what extent? A. I could not tell you. Q. Is Mr. Robert H. McCurdy a stockholder in that company? A. That I don't know; I suppose so. Q. Mr. George F. Baker? A. I think not. Q. Mr. Charles R. Henderson? A. I think not. Q. Mr. Augustus D. Juilliard? A. He is. Q. To what extent? A. A small extent; I don't know. Q. George G. Haven? A. He is. Q. To what extent? A. I don't know. Q. Mr. Adrian Iselin, Jr.? A. No. Q. Mr. James N. Jarvie? A. No. 209 Testimony of Frederic Cromwell Q. What other person connected with the Mutual Life are stockholders in the Morristown Trust Company? A. I don't know of any. Q. How much money do you calculate to keep on deposit with the Morristown Company; when I say you, I mean the Mutual Company? A. I think I will have to have that list of bank balances; $250,000. Q. $250,000? A. Yes, sir. Q. Is that a permanent deposit as it was in the case of the Mutual Alliance ? A. No; we check that- at times. Q. But it maintains about that balance? A. We went into the Morristown Trust Company because it was believed an especially promising thing to do. Q. In what way was it specially promising? A. It does the largest banking business almost in New Jersey of its kind, leaving out, of course, Newark and the larger cities, and a very con- servative one. It supplies a need which Morristown felt. It has to-day — I cannot state the amount of deposits, but a very large deposit account, and it is earning twenty per cent. Q. For how long has it paid twenty per cent? A. It pays sixteen now. Q. It paid twenty per cent, previously? A. No ; it never paid twenty per cent.; it is earning twenty per cent. Q. It is an accumulation? A. Yes, sir. Q. What is its surplus? A. One million five hundred thou- sand dollars; I am giving this in round figures. It has a capital of six hundred thousand dollars and a surplus of one million five hundred thousand. Q. And undivided profits in addition? A. About $1,500,000 I should suppose would cover them both. Q. What interest do you get on your deposit there? A. Two per cent. Testimony of Frederic Cromwell Q. Is that $250,000 an average daily balance? A. It is. Q.And how long a time has that been an average daily balance with the Morristown Trust Company? A. I could not tell you that. Q. What would you say? A. It goes on Q. $200,000 I understand from Mr. Beck? A. $200,000, yes. Recess until 2p.m, 211 Testimony of Daniel H. Wells AFTER RECESS. THE CHAIRMAN: Mr. Cromwell does not seem to be here yet. Is there any other witness here that you can examine? MR. HUGHES: We can go on with another witness, Mr. Daniel H. Wells, will you take the stand? DANIEL H. WELLS, called as a witness, being duly sworn, testified as follows: BY MR. HUGHES: Q. Where do you reside, Mr. Wells? A. Hartford, Connec- ticut. Q. And you are an officer of the Connecticut Mutual Life In- surance Company, of Hartford? A. Yes, sir. Q. What is your office? A. Actuary. Q. How long have you been actuary? A. Since 1881. Q. We have requested you to attend, Mr. Wells, as an officer of that company in order that the Committee might be informed as to the machinery of your company in the election of directors and officers and generally with reference to the government and administration of its affairs. How many directors or trustees have you? A. Twelve. Q. Your company is a purely mutual company? A. Yes, sir. Q. And has been in existence for how long? A. Since 1846. Q. Who are entitled to vote for directors or trustees in your Company? A. Every person whose life is insured under a par- ticipating policy. Testimony of Daniel H. Wells Q. How are your directors classified with reference to tenure of office and elections? A. They hold office only for a single year and are elected annually. Q. The entire Board is elected annually ? A. The entire Board is elected annually. Q. Do you publish notices of the election? A. Yes, sir. Q. Where are the notices published and for what time? A. The charter requires that they shall be published in two news- papers printed in Hartford for two weeks prior to the election. Q. Do you publish notices anywhere else than at Hartford? A. Not to my knowledge. Q. Do you give notice in any other way of the elections save by this publication? A. I think not, sir. Q. You do not mail to policyholders entitled to vote any notice of the election? A. No, sir. Q. Are you able to say how many votes were actually cast at the last election for directors ? A. No, sir, I am not. Ordinarily I should think the number of votes cast was from forty to fifty. Q. Forty to fifty? A. In that neighborhood. Q. That would be the average number of votes cast for a series of years? A. Perhaps in the neighborhood of fifty, yes, sir. Q. That would cover perhaps the last ten or fifteen years? A. I should think perhaps so. Q. How are these forty or fifty votes cast — in person or by proxy? A. In person. Q. And are no votes cast by proxy? A. No vote has been cast by proxy, I think, since 1866. Q. Have you any By-Law prohibiting the casting of votes by proxy? A. No, sir. Q. Have you any statute in Connecticut regulating proxies which would be applicable to your Company? A. Proxies by the State law can only be used at a single annual meeting. Q. They expire then with the meeting? A. Yes, sir. 213 Testimony of Daniel H. Wells Q. Is there any provision in the law of Connecticut as to whether the same proxy can be reappointed? A. I think not. Q. Who are the forty or fifty persons that voted at the last election? A. Mostly employees and some agents of the Com- pany who took the trouble to come in to the annual meeting. Q. How many of the forty or fifty are employees of the Com- pany? A. Oh, probably four-fifths of them, employees or officers. Q. How many policyholders has the Connecticut Mutual? A. We have in force about 65,000 policies; we have probably 50,000 policyholders, somewhere in that neighborhood. Q. How many policyholders having participating policies, who, under your charter, are entitled to vote? A. Oh, probably 40,000 of them. Q. Have you any list of policyholders at your office ? A. Yes, sir. Q. In what form is it? A. Well, we have a record of policies in force and with the figures, and we have in addition also a card index of persons insured in that Company. Q. And is there any index or list of policyholders at any other place than at your main office in Connecticut? A. I think not. Q. How many policyholders entitled to vote for directors have you in the State of New York? A. That I could not tell you. Q. How many policies are in force in the State of New York? A. That I could not tell you. Q. Can you approximate it? A. No, sir; but our report to the State Insurance Department will doubtless give the number; of course, if I were at the office, we have the record there, but I could not tell you here. Q. Are your indices of policyholders accessible to policyhold- ers? A. They probably would be if any policyholder requested it. Q. Has any such request ever been made? A. I don't know that any such request ever has been made. 214 Testimony of Daniel H. Wells Q. Has there been any contested election in your memory, in the Connecticut Mutual? A. No, sir, never has been but one ticket. Q. How is that ticket prepared, or the persons whose names are on it nominated ? A. Usually the same persons, the existing directors, are the nominees, and I don't know whether the tickets are written or printed ; I think written ; they are either written or printed in script letters. Q. And according to your experience that ticket is unanimously elected by those who vote? A. I think it always has been since my connection with the Company. Q. (Handing book) Looking at the report to the Department of the State of New York, can you now state how many policies are now in force in the State of New York of your Company? A. Policies in force in New York, December 31, 1904, 11,653. Q. And that, according to your judgment, would represent about how many policyholders? A. About 10,000. Q. But the report does not show how many of those are holders of participating policies or qualified to vote? A. No, sir. but probably at least eighty per cent, of them; probably at least five-sixths of them. Q. Are there any proxies of policyholders held at the office of the Company? A. Yes, sir. Q. How many? A. I think about 4,000. Q. Is any record kept of them? A. Whether there is any record aside from the proxies themselves, I don't know. Q. What steps are taking to assure yourselves that all of the proxies are in force? A. Occasionally, not often, but once in several years, we go through and take the proxies and compare them with our books and see which proxies are upon policies still in force. Q. Then do you destroy the others? A. That I could not say. 215 Testimony of Daniel H. Wells Q. What steps do you take to keep up a supply of proxies? A. No steps regularly at all, I think. Q. From time to time do you take steps to have proxies exe- cuted, if the policyholders are willing? A. I have known of cer- tain persons being asked to obtain proxies. Q. What persons ? A. Some of the agents of the company. Q. How often does that take place? A. Oh, I have not known of it more than two or three times in thirty years. Q. For example, how many proxies were obtained last year by your company? A. I don't know of any. Q. How recently have proxies been obtained by your company, or, I mean, proxies obtained that are held at the office of the com- pany? A. Not for several years, to my knowledge. Q. Then of the 4,000 that you have are a great many expired? A. They do not expire until they are used, unless they are re- voked by the giver. Q. So that proxies, no matter where executed, if the policy- holder giving it is still a qualified voter and the proxy has not been used and is not revoked, it remains in force? A. It remains in force until used. Q. The provision of the statute to which you referred a mo- ment ago had reference only to a case where a proxy had actu- ally been used? A. It can only be used at a single annual meet- ing. Q. But until used it is good? A. Yes. Q. Well, are the 4,000 that you speak of now in force, that is to say the policyholders still having participating policies and en- titled to vote, who executed these proxies? A. Repeat your question, please. Q. Are these 4,000 proxies good proxies, that you hold? A. So I suppose. Q. How recently have they been examined to ascertain? 216 Testimony of Daniel H. Wells A. Well, that I could not say; I think some two or three years ago. Q. Have you any form, of letter which is sent out suggesting the execution of proxies? A. No, sir. Q. To whom do these proxies run, these 4,000? A. Well, that I cannot say either. I do not recall the form of proxy. Cer- tainly not to me; I never asked or used a proxy, directly or in- directly. Q. During the life of the late President, did they run to him? A. Well, as I said, I could not say. If you want my presump- tion, I presume they run to the President or Vice-President of the company. Q. As officials, or individually? A. Well, I could not say that. Q. We are collecting data upon this question and should be very glad if you could furnish us with a specimen of the proxies that you have, if you could do so. You have none here at the moment? A. I have none here. Q. If you can send them to us we should be very glad to have them. We have them from a number of companies already? A. We should be glad to furnish you with any information you want. Q. How much insurance has the Connecticut Mutual in force? A. I think between $166,000,000 and $167,000,000. Q. What is the salary of the President? A. That at the mo- ment I don't know; less than $20,000. Q. Has it been less than $20,000, for a number of years? A. Yes, sir. Q. For how many years? A. I think no salary has ever equalled $20,000 in the history of the company. Q. What other executive officers have you? A. A secretary, three assistant secretaries, an actuary, an assistant actuary, per- haps that would end what you would call the executive officers. 217 Testimony ot Herbert H. White Q. Have you any vice-presidents ? A. We have no vice-pres- ident — I beg pardon. We have an acting vice-president, I think now. Q. And what is his salary? Is he an acting vice-president or acting president? A. An acting vice-president. Q. What is his salary? A. Well, he has been recently ap- pointed and I don't know; I don't know whether he has any sal- ary. Q. Is the gentleman who is here with you A. Mr. White? Cj. Yes, would he be apt to know? A. He would be more apt to know MR. HUGHES: Then will you step aside and we will have Mr. White take the stand. HERBERT H. WHITE, called as a witness, being duly sworn, testified as follows : BY MR. HUGHES: Q. You are a resident of Connecticut? A. I am. Q. And an officer of the Connecticut Mutual Life Insurance Company, of Hartford? A. Yes, sir. Q. Holding what office? A. Secretary of the company. Q. For how long a time have you been secretary? A. Since S99. Q. Will you state the salaries of the executive officers ? A. The salary of the President is $12,500 per annum, the salary of the acting vice-president is $1,200 per annum, at the rate of $1,200 per annum ; the salary of the secretary is $7 ,500 per annum ; of the actuary, the same as of the assistant actuary, 13*5,000 per annum; of the three assistant secretaries, $5,500; $5,000 and $4,000 re- 218 Testimony of Herbert H. White spectively; of the medical director, $5,000; of his assistant, $2,500; of the medical referee, $3,000. Q. Have you a treasurer? A. No, sir. Q. Who performs the duties which are usually performed by an officer known as the treasurer? A. Well, the Secretary does. Q. Have you a comptroller? A. No, sir. Q. Or an auditor? A. There are auditors who are elected by the policyholders at the annual meeting, who are entirely separate in their authority and work from any of the officers and are under no control of theirs. Q. When you say the policyholders you mean the forty or fifty who vote, as stated by Mr. Wells? A. They are elected at the annual meeting. Q. Well, as stated by Mr. Wells, there is no variance between you as to that? A. Oh, no. Q. What is the function of the secretary of your company? A. I can perhaps read it from Q. Well, if you can give it in a condensed way, I do not care for long details? A. I think I can read it more quickly than that. Q. Well, go on. A. It is shown in the by-laws. The secretary shall keep a record of the doings of the corporation and of the directors ; he shall keep in a safe and secure manner all the moneys notes and securities, or other property of the corporation, con- fided to his care, and do and perform such other services as the Board shall direct. He shall also give bonds of sufficient surety to be approved by the Board, in such form and amount as the Board shall prescribe, which bonds shall be kept by the President, and new bonds may be required by the directors whenever they shall judge it necessary. Q. What do the assistant secretaries do? A. Well, they are in charge of different departments, different kinds of work. , Q. They have a general supervision of agencies? A. No. 219 Testimony of Herbert H. White Q. Who has that? A. The President and the Superintendent of Agencies. Q. What is the salary of the Superintendent of Agencies? A. $4,000 per annum. Q. Who has charge of the real estate of the company? A. It is in charge — of course the Board of Directors, the President, and one of the assistant Secretaries. Q. The President has general supervision over all the affairs of the company? A. He has, yes, sir. Q. What are the disbursements of the company, total disburse- ments? A. Do you mean annually? Q. Yes. A. They approximate $8,000,000 per annum. Q. And the total gross receipts? A. Well, a little more. Q. And receipts from new business? A. I could not tell you that unless I looked at the annual statement. Q. Look at the memorandum which I now show you (handing paper) and give me, if you can, refresh your recollection in that way, what the disbursements of the company are and what are its receipts, gross receipts and receipts from new business, taking the last year? A. I don't see the receipts from new business here. Q. It may not be there. I did not look at it carefully. Well, you have the total receipts. The total receipts are about $8,- 300,000. A. Yes, sir, and the disbursements Q. Those are policyholders? A. Yes, and the total disburse- ments are $8,600,000. Q. The total, including the interest, premiums, etc., the total gross receipts are $8,300,000, and the total disbursements $8,600,000? A. Yes. Q. Now included in the disbursements there are paid to policy- holders in death losses, matured endowments, annuities and surrender values and dividends, upwards of how much? A. $7,- 234,628. Testimony of Herbert H. White Q. So that I am to understand that of the $8,600,000 dis- bursed by your company, $7,200,000 were disbursed to policy- holders either in the form of death losses or dividends and sur- render values, etc.? A. Yes, sir. Q. So that the total expenses of your company outside of what you paid to policyholders was $1,400,000? A. Approximately. Q. And the ratio of those expenses to what you paid to policy- holders, about one to five? A. Yes; but included in those other expenses are the taxes, of course, which we paid. Q. Yes, of that $1,425,000, $387,000 is for taxes? A. Yes. Q. Take the matter of advertising, how much was expended for advertising last year? A. $41,800. Q. And are you able to state how much insurance was written (handing paper) ? A. $10,630,955. Q. And is that actually paid insurance or simply written? A. That was written insurance. Q. And paid for, taken out? A. Well, ihe insurance issued the last day or two of the year is also included in this. Q. But it is intended to represent insurance taken out? A. In- surance taken out. Q. Of this $1,425,000, that appears to have been disbursed in all, excluding payments to policyholders in the year 1904, am I to understand that there were $417,500 for commissions and agency expenses? -A. Yes, including the first commissions and renewal commissions. Q. Ail kinds of commissions? A. All kinds of commissions. Q. And all agency expenses? A. And all agency expenses. Q. Does that include any part of the expenses of the Home OfUce.which are charged to agency expenses? A. I think not, sir. Q. That includes all the field work? A. Yes, sir Q. What rate of commissions is paid by your company to Testimony of Herbert H. White agents? A. On ordinary life policies thirty per cent, on the first commission Q. Of the first premium? A. Of the first premium, I should say, and on endowments, twenty per cent, of the first premium. Q. And what renewal commissions are paid? A. Well, the general agents seven and one-half per cent, on the ordinary life policies and five per cent, on the endowments ; the ordinary agent five and four respectively. Q. For how long a period are those renewal commissions paid? A. There is no limit. Q. Do you mean that these commissions on renewal premiums to which you have referred last for the life of the policy ? A . Yes, they are paid to the agency. Q. Do you farm out territories to general agents who appoint sub-agents? A. Yes, sir. Q. And the commissions that you have spoken of are the com- missions arranged by contract with the home office and your gen- eral agents? A. With the general agent. Q. And the general agent is at liberty within whatever his means may be to arrange for the sub-agents ? A. Yes. Q. And with the actual solicitor of the insurance ? A. Yes. Q. That is a matter with which you have no concern? A. We have no direct relation with any but the general agent. Q. And how many general agents have you? A. I cannot state at the moment; I should say somewhere from twenty-five to thirty -five. Q. I do not want to go very far into that matter at this time, simply availing ourselves of your presence here to get a little gen- eral information which we may ask you to amplify later? A. Yes, sir. Q. When we approach the subject more directly, but I would like to ask you now what, if any, steps you take to prevent the 222 Testimony of William H. Kingsley giving of rebates? A. The steps we take are the paying of small commissions comparatively. Q. Do you make advances to your agents? A. No, sir. Q. None at all? A. Excepting in this way, that some agents where we are starting an agency, we make a certain allowance for a certain limited period, which, at the end of that period, runs off. Q. How much have you outstanding now as advances to agents? A. Nothing; when the agents renders his account he draws on his allowance. Q. He only draws on his credit balance? A. He only draws so long as he is at work for the company, and the company can ter- minate the contract at any time. Q. Has that been the practice for many years? A. Yes, sir. Q. Or is it a new practice? A. It has been so for some years. Q. When you say some years, how long would you say? A. Before I came to the office it was in practice, six years ago. Q. Was this an established policy of your company not to make or carry advances for agents? A. Never have done so. Q. Did you do it in any indirect way? Is there any company . or institution in which your company is connected or with which its officers have any relation which makes advances to agents? A. No, sir. Q. So that you are prepared to state from your knowledge of the business that the agent does business upon his own capital and gets nothing indirectly from you or through the intervention of your company, save the commissions to which he is entitled? A. That is all. WILLIAM H. KINGSLEY, called as a witness, being duly sworn, testifies as follows: BY MR. HUGHES: Q. You reside at Philadelphia? A. I do. 223 Testimony of William H. Kingsley Q. And you are an officer of the Penn Mutual Life Insurance Company of Pennsylvania? A. I am. Q. How long have you been connected with that company? A. Very nearly 21 years. Q. Please state in what capacities ? A. Prior to 1895, as a gen- eral clerk; from 1895 to 1903, as its Western financial representa- tive, and in November, 1903, elected as Secretary and Treasurer. Q. Is that a purely mutual company ? A. It is. Q. Without capital stock? A. Yes, sir. Q. And who are entitled to vote for directors ? A. Its policy- holders. Q. Is there any limitation upon the rightof a holder of a policy with reference to the amount of the policy or otherwise to vote for directors? A. Under the charter of our company, the policy- holders have voting rights measured by the amount of premium paid. For the first dollar of premium paid, they are entitled to one vote and for each fifty dollars additional premium paid, an additional vote, so that a man's interest is commensurate with the amount of premium paid. Q. How many directors have you? A. Twenty -seven. Q. Are they all elected annually or divided into classes? A. They are divided into three groups, or at least, were originally and that has been maintained, so that nine trustees' terms ex- pire each year. Q. Do you give notice of the election? A. We do. Q. In what way? A. As prescribed by the charter, we give notice in two Philadelphia papers at least fourteen days prior to the date of the election, and on every notice that goes to policy- holders for premiums both from the home office and through our agencies, conveys the notice of the election, whether that be annual, semi-annual or quarterly. Some policyholders receiv- ing it four times, others twice, and other only once. Q. That is a mailed notice? A. Yes, sir. 224 Testimony of William H. Kingsley Q. Does that state the extent of the right of the policyholder to vote, the number of votes to which he is entitled? A. It does not ; it gives the time, place and hour of meeting, or of the elec- tion, rather. Q. Is the policyholder informed in any way of the number of votes he is entitled to cast ? A. Not in that notice ; some of our literature carries that information. Q. Can you state how many votes were cast at the last elec- tion? A. 1 136, and that was on a holiday. Q. When was that election held? A. It was on January 2, 1905, on which day New Years of that year was being celebrated. Q. Your regular election day is the second of January? A. No, it is the first Monday in January. Q. Now, how many of the 1136 votes were cast in person? A. All of them. Q. No voting by proxies ? A. The charter does not permit it. Q. Then, I understand, that a proxy under your charter cannot be used, and that a policyholder must appear in person to cast the votes to which he is entitled? A. The Legislature of Pennsyl- vania has defined — have made that definition of our charter. Q. You refer now to the Act of the Legislature of the State of Pennsylvania, approved March 11, 1870? A. Yes, sir. MR. HUGHES: I offer that in evidence. (Admitted and marked Exhibit 34, and is as follows:) EXHIBIT 34. A SUPPLEMENT. To the Act incorporating the Penn Mutual Life Insurance Com- pany of Philadelphia, granted February twenty-fourth, one thousand eight hundred and forty-seven. 225 Testimony of William H. Kingsley WHEREAS, The time allowed by the original charter of said company for the election of trustees is inconveniently brief: AND WHEREAS, a difference of opinion has arisen re- specting the legality of voting by proxy at such elections: AND WHEREAS, experience has proved that the present system of declaring dividends is unjust to the assured: Section 2 . Be it enacted by the Senate and House of Repre- sentatives of the Commonwealth of Pennsylvania in General Assembly met, and it is hereby enacted by the authority of the same, that the time for holding the election for trustees of said company shall be between the hours of ten A.M. and three o'clock P. M., instead of ten A. M. and twelve o'clock M., as designated in Section seventh of the charter. Section 2. That the true intent and meaning of section eighth of said charter is, that at the elections for trustees of said company only such votes as are offered by insured members in person shall be received and counted ; and that the term "insured member," wherever the same occurs throughout the charter or its supplements, shall apply and extend only to the person or persons who by the policy are the payers of the premium, except where a wife holds a policy on the life of her husband, in which case the husband shall be allowed to vote at elections as an insured member. Section 3. That in lieu of the manner of returning the surplus to insured members, as directed b}r section four- teenth of the original charter, it shall and may be lawful for said company to return the sarne either in cash or in scrip, or by reversionary addition to the policies, and in such sums as may express the equitable proportion of the aggregate surplus to which each member is entitled according to the 226 Testimony of William H. Kingsky actual value of the premiums paid, which sums shall be credited to the insured or received in reduction of premiums, as their annual premiums mature. B. B. Strang, Speaker of the House of Reps. Charles H. Stinson, Speaker of the Senate. APPROVED the eleventh day of March, Anno Domini one thousand eight hundred and seventy. JNO. W. GEARY. MR. HUGHES: At provision fourteen, which is amended by ssction three that I have just read, to wit: section 14 of the orig- inal charter, it is as follows, referring now to the act incorporating the Penn Mutual Life Insurance Company on February 24, 1847, which I Offer in evidence : (Charter admitted and marked Exhibit 35.) MR. HUGHES: "Section 14. The officers of said company shall, on the first Monday in January of every year, cause a state- ment to be made of affairs of the company, and a balance to be struck of the profit and loss account; and if there is a surplus after paying all losses and expenses of the said company for the year preceding the same, they shall credit each member with such a proportion of said surplus as the premiums paid by him, or her or them on risks determined, may be to the aggregate amount of the premiums earned during said year by the company." Q. Then, I take it that there are no proxies held at the office of the Penn Mutual Life Insurance Company? A. None whatever. Q. Who were these persons who voted to the extent of some 1 100 in number that vou have mentioned at the last election? 227 Testimony of William IT. Kingsley A. They are policy holders who took sufficient interest to come to the home office to cast votes. Q. How many of them were employees or agents of the Penn Mutual Life Insurance Company? A. Not exceeding twenty- five, I should think. Q. Then you said 1 136? A. Votes. Q. Then the rest of the 11 36 were cast by policy holders unre- lated to your company, except as they were policy holders? A- Yes, sir; I understood your question to be how many people voted who were connected with the company. Q. Yes? A. I say twenty-five; of course, those twenty-five men may have cast anywhere from three to five or ten votes ■ apiece. Q. That is what I want to get at. Will you just tell me what votes they did cast, if you can? A. Well, of the total vote cast. I should say less than one hundred, by people of the class that you name, connected with the company. Q. That is, of the votes? A. Yes, sir. Q. Now, how many persons were there who cast the remaining votes; that is, persons unconnected with your company save as they were policy holders? A. That would make 147, taking the figure 25 as connected with the company. Q. The number of persons voting in all then was how many? A. 172. Q. Of which 147 were not in any way connected with the company? A. Yes. Q. What steps were taken to bring the 147 to the office? A. They received the notice which was sent them of the election, and probably carried a memorandum of intention to vote, and came there to vote. Q. Are they requested in any other way so far as you know than by the notice? A. No, sir. Q. In other words, what steps do the managers of your com- 228 Testimony of William H. Kingsley party and the executive officers and directors take to insure the stability of the management, and that they will not be put out of office by an irresponsible body of policyholders who may clique together for the purpose of getting the control of your company? A. We take no steps; we comply with the requirements of the charter as to notifying them of the election, and notify the policy- holders in the manner that has been testified to, and then await the result. Q. Have you ever had a contested election in the Penn Mutual ? A. We have. Q. How frequently? A. One to my positive knowledge. Q. When was that? A. 1886. Q. Who succeeded, the administration or the outs? A. The opposition. Q. Overthrew the administration? A. They did. Q. That is, elected their ticket? A. They elected their ticket. Q. Was there an active campaign carried on lor that purpose or was it a surprise to the administration when the votes were counted? A. Well, it was an active campaign lasting during the day of election, you might say. Q. Had it been suggested prior to that time of the election that an effort would be made to elect a ticket different from that pro- posed by the management? A. It probably was known for a short time. Q. Do you remember how many votes were cast at that elec- tion? A. I think in the neighborhool of three thousand. Q. And you remember how many persons cast them ? A. I do not recall. Q. How are the names of policyholders in your company ob- tained by those who were qualified to vote and who would desire to arrange for a substantial vote for a particular ticket ? A. That information, if asked from our company, would be referred to the 220 Testimony of William H. Kingsky Board of Trustees which it is elected from and represents the policyholders and acted upon. Q. Has any such request ever been made? A. No, sir. Q. Take it in this, case you have mentioned where there was a contest, was any effort made to get at the names of qualified voters? A. Well, our agents who had the names of their respec- tive agencies, were the contestants at that election; at least, that was the element. Q. So those that really had access to the names of the persons entitled to vote were enabled through that to secure votes enough to carry that election? A. Yes, sir. Q. Are there any lists of policyholders except at you main office? A. Not complete lists. Q. You mean that there are lists of the policyholders within a given territory at the branch office in that territory? A. Yes. Q. And you have at you office lists of all the policyholders? A. Yes. Q. In what form? A. In the shape of a general index and card system. Q. You are not prepared to say whether that is accessible freely upon inquiry, to the policyholders? A. That is a point that has never come up for decision. Q. Has there been any other contested election than the one to which you have referred? A. Well, I think that there — I have heard there was one in 1872. Q. Well, coming to a more recent date than 1886, has there been any? A. Not since, no, sir. Q. Then those who were elected in 1886 have since that time procured, or the fact has been that their nominees have been elected from year to year? A. Yes, sir, such as survived. Q The nominees or the ticket that has been successful since 1886 has been a ticket nominated by the Board? A. The sur- vivors of it, ves. 130 Testimony of William H. Kingsley Q. And those elections to fill vacancies, in those cases the nominations were marked by the Board? A. By a committee appointed by the Board for that purpose. Q. And with the exception that you have stated, and since 1886, the ticket has been unanimously elected each year? A. Substantially so ; these is always more or less scratching. That does not amount to anything, but it is substantially unanimous. Q. Is there any notice published in the State of New York of your elections? A. Not as the act of our company, that I am aware of. Q. How many policyholders are there in the State of New York? A. I have not that information; you can get it from the report, I presume. Q. Will you state what is the number of policyholders and the policies in the State of New York? A. That and all similar in- formation had probably better be obtained from the Vice-Presi- dent at such time as you have him on the stand. Q. You do not feel at liberty A. I do not find that figure here. I know it is here but it is not in this place. Q. Can you state? A. The number of policies in force De- cember 31, 1904, in the State of New York, 10,667. Q. And that would represent the number of policyholders, ac- cording to your judgment, of about how many? A. I think it would be safe to say 8,000. Q. Going back to the contested election of 1886, I would be glad to have you state just what the purpose of that contest was ; I understand that only nine, or one-third of the Board, was at that time to be elected, and I want to know whether the object was to get rid of objectionable persons who were in a minority of the Board, or whether really to change the management of the company ; whether it was a small matter or a broad question of policy? A. Well, there was no personal animus in it and no de- sire to criticize the trustees who were opposed, but our agents 231 Testimony of William H. Kingsley representing the body of policyholders felt the Board of Trus- tees should be more widely scattered as to territory, and with that end in view, had a trustee elected from Massachusetts, one from Maryland and one from Western Pennsylvania, so that where we had a large volume of business there would be representation in the Board. Q. Was there correspondence among the agents preparatory to that movement? A. As to that I do not know. Q. I should be glad to have you state the salaries that are paid to the executive officers of your company ? A. The President re- ceives twenty-five thousand dollars. The Vice-President twenty thousand dollars ; the Second Vice-President fifteen thousand dollars. The Secretary and Treasurer receives twelve thousand dollars. The Actuary twelve thousand dollars. Q. Have you a Treasurer? A. The office of Secretary and Treasurer, while separately defined under the by-laws, are per- mittedly occupied by one person. The same person is elected Secretary and Treasurer. O. What was at the end of last year the total amount of assets of your company? A. Sixty-eight million five hundred and sixty-three thousand one hundred and forty-five dollars. Q. And what amount of insurance was in force at the end of last year? A. Three hundred and forty-two million six hun- dred and seventy-six thousand four hundred and forty-four dollars. Q. What is your total income for 1904? A. Sixteen million seven hundred and seventy-five thousand five hundred and two dollars. Q. What were your .total disbursements? A. Nine Q. The taxes being $398,000? A. $398,000, Q. So that including taxes the ratio of your disbursements, total disbursements, exclusive of the payments made to policy- holders, to such payments was about one to two, three'million 232 Testimony of JVilliam H. Kingsley expenses and six millions and some odd thousands of dollars to policyholders? A. Yes. Q. How much new insurance was taken during the year 1904? A. A little over eighty millions — sixty-two millions. Q. That is actually taken, out? A. Yes, sir. Q. What commissions are paid to agents of your company? A. I have not charge of the contracts with agents and my testi- mony on that matter would have to be supplemented. Q. Would the gentleman who is here with you know anything about it? A. No, sir; it comes undei the directions of the vice- president's department. Q. I find the total of commissions to agents expended as stated in this report is $1,859,000? A, A million and how much? Q. 859,000. Is that correct? A. $i,-//2,ooo, actual commissions. Q. You are not prepared to say what is the commission paid to an agent either on first premium or by way of renewal com- missions? A. Well, it depends entirely on the contract with the agent, with which I have nothing to do. The business of that is managed in the home office, coming from Philadelphia brokers. It varies in commission. Q. Do you make advances to agents? A. We have pursued the practice of making advances to agents for the development of territory and the taking on of sub-agents to a moderate extent Q. Are you able to state what your total outstanding advances to agents was for 1904? A. Between $250,000 and $300,000 se- cured by the pledge of their contract. MR. HUGHES: We shall ask you later on to present other data. We will proceed with the investigation and notify you at another time when we can get information which we will be very glad to have. 233 Testimony of Frederic Cromwell FREDERIC CROMWELL resumed the stand. THE WITNESS: Mr. Hughes, if you will allow me, I would like to correct one statement of mine. BY MR. HUGHES: Q. Certainly. A. Mr. Chairman, I spoke of the Cuba bonds. The million dollars was not given to the Guarantee Trust Company. I said the five millions — the reason I got that wrong was the issuing house withdrew a million afterwards. THE CHAIRMAN: A little louder. THE WITNESS : The issuing house withdrew a million dollars and that is what reduced our five millions to four millions. The contention I made about the advantage of going into a syndicate of that kind like these bonds obtains in this case, because we have sold all but one million of those bonds at a very large profit and have a million which cost us only 85 on our books, for the simple reason that we got in at the syndicate price. Q. Will you state, now that you mention the syndicate for the purchase or underwriting or the issue of those bonds, just what the syndicate was, who composed it? A. I couldn't tell you. I will tell you — I can give you some of the Q. Yes, what you can recall. A. I think the Gallatin Bank — I may be wrong as to the individuals in this, but I will give you as near as I can — Speyer & Company, who were of course the ones who treated with Cuba. I am under the impression that the other life insurance companies took some. I mean the two other large life insurance companies, and the large banking houses. Q. What individuals participated in it, as far as you know? 234 Testimony of Frederic Cromwell A. Well, that I don't know. I know that the banking houses did, but I don't know the individuals. Q. Did you participate in it? A. No, not through the • Q. Did Mr. McCurdy? A. No. Q. Did any of the officers of your company? A. No. Q. Other than Mr. Speyer, who was a director, I believe? A. Mr. Speyer was a director. I won't say that none participated through the bankers who got it; that I can't tell; but in any in- vestment of that kind no one ever participates with the Mutual Life. I want that understood. Q. A little louder. A. I say when there is a syndicate of that kind no one ever participates with the Mutual Life. The Mutual Life takes all it wants of a thing and there is no participation that has any bearing on it. Q. You mean by that that nobody takes a part of the Mutual Life allotment? A. Nobody does. Q. Or of what might.be called the Mutual Life participation? A. No. Q, Or if the Mutual Life goes in for a million, for three million that is the subscription of the Mutual Life in which no one else participates? A. No one else participates. Q. You said you did not know what persons might be in the syndicate through the banking house who was managing it. Just what distinction did you have in mind to draw there? A. The distinction is this, that — I am glad to have the oppor- tunity of drawing that distinction. Q. I would be very glad if you would. A. That I — I don't want to imply that any individual who is on our finance com- mittee, although I have nothing to do with their investments, is restricted from going into any syndicate he wants to, but he never goes in any syndicate that affects the Mutual Life or be- cause the Mutual Life is in it. Q. In other words you don't know whether any members of the 235 Testimony of Frederic Cromwell finance committee were, apart from the Mutual Life, themselves or himself a participator in the syndicate? A. I know that they are not when the Mutual Life considers it. Q. Do you know that none of the officers of the Mutual Life were participants in the Cuban bond syndicate? A. When we took it up, yes. Q. Well, at any time? A. No; I do not. I want to state positively that I had Cuban bonds myself. Q. Yes, but you A. But I didn't take them for many days atter the Mutual Life had their interest. Q. Did you take them by participating in the syndicate? A. Participating in the syndicate. Q. You were in the syndicate subsequently ? A. I was in the syndicate subsequently. Q. That is after the Mutual Life subscribed, you subscribed? A. Yes. Q. Well, after the Mutual Life had subscribed did other mem- bers of the finance committee of the Mutual Life also subscribe to the syndicate? A. That I couldn't say, some of them did, I know. Q. How do you know it? A. Because I advised them to. Q. What is that? A. Some of them did, I know, because I ad"-~" vised them to. Q. Who were they? A. I dd vised one or two banking houses and they got their interest from the banking house I did. I sent word to one banking house — I don't care about using the name — and they took a million of those bonds, and after they did I sent down and took my bonds from them and told two or three members of the committee that they were good bonds to buy. Q. There was an underwriting syndicate? A. Yes. Q. After the Mutual Life subscribed I understand you par- ticipated in that through the banking house then the banking 236 Testimony of Frederic Cromzvell house participated in the syndicate and you took an interest from them? A. Yes. Q. What was that banking house? A. I don't care to — Strong, Sturgis & Co. Q. Did other members of the finance committee do the like? A. I am very sure tbey did. Q. "Who are they you have in mind? A. That is rather telling their private buisness, but I don't know as I mind, I told Mr. McCurdy he had better take some and I told Mr. Juilliard. Q. And did they get them through the same banking house? A. Yes, sir. Q. In the same way? A. In the same way. Q. Not subscribing to the syndicate in the first instance? A. No, sir. Q. Then did the banking house take an allotment in the sub- scription ■ with the understanding that these gentlemen would take part of the bonds from the banking house ? A. No. Q. The banking house sold some of the bonds? A. Oh, sold them all. Q. To these gentlemen? A. Yes. Q. In just what amounts, do you know? A. No. I took fifty. Q. You took fifty bonds? A. Yes. Q. Now, at what price did the Mutual Life acquire those bonds ? A. Well, that is rather an intricate subject because the syndicate was made up in an intricate way. Q. Did you have a single agreement in writing? A . Yes. Q. Have you got that? A. Doubtless the company has it. Q. I should like to have that produced and we will suspend further inquiry on that until we have the record. Now the Morton Trust Co. Your company holds 2,000 shares of the Morton Trust Co., does it not? A. Yes. That is the paper made out by us? 2 37 Testimony of Frederic Cromwell Q. Yes. A. Yes. Q. 2,000 shares. You can follow the line there. For which they paid how much? A. They paid 250. Q. And when did they acquire those shares? A. September 28th, 1899. Q. All acquired in one block? A. I think so. Q. Have they owned more shares at any time since that date, A. They have not. Q. Are any of the members A. The reason I say I think so, Mr. Hughes, is this : The Morton Trust Co. was consolidated with the State Trust Co., but I think that — I am safe in saying that our purchase was an original one of the Morton. Q. What is the total capital of the Morton Trust Company? A. $2,000,000 — -I am afraid to take this — $2,000,000 — I carry so many figures in my head. Q. Are you a stockholder in the Morton Trust Company? A. I am. Q. To what extent? A. 50 shares. Q. Is Mr. McCurdy a stockholder in the Morton Trust Com- pany? A. Yes, sir. Q. To what extent? A. I don't know. He is a director, that is the reason I say that. Q. Is Mr. Juilliard a stockholder in the Morton Trust Com- pany? A. He is. Q. To what extent? A. I don't know the amount of his hold- ings. Q. Mr. Haven? A. Mr. Haven. Q. Mr. Jarvey? A. Mr. Jarvey. . Q. Mr. R. A. McCurdy? A. That is the president. Q. I mean Mr. R. H. McCurdy? A. Not that I know of. Q. Mr. Henderson? A. I think not. Q. Mr. Iselin? A. No. Q. Mr. Jellette? A. I don't know; I think not. 238 Testimony of Frederic Cromwell Q. Or Mr.Granniss? A. I don't know. Q. What deposits do you keep with the Morton Trust Com- pany on an average? A. We have never kept over $500,000 with them at any time. Q. Do you keep about that amount right along? A. I think our deposits are there now — we have a list. Q. Have you got a list of the deposits that I asked to have made up? A. Yes. Q. May I have it? (Produced by the witness.) MR. McKEEN: $500,000. THE WITNESS: $500,000. Q. I find that the bank balance, monthly bank balances, at the first of the month from the beginning of January to the first of September of your company in the Morton Trust Company is $500,000 constantly. I have just run through the pages and note that. You will see there is $500,000? A. Yes, sir. Q. Do I understand that that is an account against which as a rule you do not draw? A. As a rule we do not draw, yes. Q. So that practically it has been an account showing a bal- ance of $500,000 since the first of the year? A. Yes, sir. Q. And was that true in last year as well ? A. Yes, sir. Q. And the year before? A. Yes, sir. Q. And continuously for a long period ? A. Yes, sir. Q. You have had $500,000 in the Morton Trust Company not drawn against for how long? A. Most of the time since it has been started. Q. 1899? A. 1899. Q. And what interest are you paid on that? A. May I sup- plement that exactly? 239 Testimony of Frederic Cromwell Q. Certainly. A. To explain our reasons, would that be proper: i Q. Of course. I would very be glad to have you make any statement you think proper by way of explanation ? A. It draws 2 per cent. The reason of keeping these deposits in these trust companies is that we have a large interest in these companies. That goes without saying — but that the trust companies' stocks with the other stocks which we own, which are not large in value — well perhaps they are — but not large in value compared with the trust companies stocks — the profit on these stocks standing on our books above cost is $22,000,000 at the value we put them in at, and we don't write them at the full extreme value of sales- There isn't a trust company's stock which we have which we could not sell at a higher price than the market price we put on- The profit stands at $22,000,000. , Q. Those are your total holdings of trust company stocks? A. No; I am talking about stocks. I haven't the trust company stocks made up, but the trust companies have a large factor in it. Q. Let me get that clear. Just what is that $22,000,000 profit on? A. On stocks. Q. All stocks? A. Guaranteed stocks. Q. You mean a great variety of stocks? A. We have a great variety, yes. Q. And the quotations at which you take the market value you estimate a gain of $22,000,000 over what those stocks have cost you? A. Yes, sir. Q. Now you say the trust company stocks are included in that and are a very large factor in that game? A. Yes, sir. Q. Just what relevancy has that to the question of deposits which you keep with the company? A. Because, the relevancy is this, there is a very large profit which we have by holding the stock, and our deposits of course aid in the success of the com- panies. 240 Testimony of Frederic Cromwell Q. Well, that is what they are for, isn't it? A. Which we watch with great care. Now, when it comes to the interest, Mr. Hughes, if you will allow me to say, when 1 it comes to the inter- est, the investment in banking and trust companies stocks where deposits are maintained, the summary shows that the average interest return on the book value of those stocks is 6.3 per cent, but the average return upon the book value and bank balances which we carry, the differences 4.3 per cent. That includes, for example, certain banks like the American Exchange Bank where we get no interest, but the interest on all the deposits which we carry in these trust companies where we are interested and the interest on the market value of the trust company stocks. Q. You mean the interest on the book value? A. On the market value — on the boo:: value, — on the book values shows 4-3- Q. Yes. A. So that the Q. Well, the sum of your remarks, as I understand it, is that your investment in the trust company you regard as a very profitable one? A. As a very profitable one and as a channel which when needed Q. Before we take up the question of channel, taking first the matter of profit, you regard the investment in that trust com- pany as a profitable one? A. As a profitable one. Q. Now, what relation has your keeping of the deposits you have mentioned in the trust company to the making of the truse company's stock a profitable investment? A. Well, I suppose that the fact that they carry a good line of deposits and we assist them, of course helps the prosperity of the company. Q. Well, your keeping your deposits with the trust company is in short to aid the prosperity of the trust company? A. To aid it. Q. In which your company has a large interest; A. Yes, sir. 241 Testimony of Fredeiic Cumvwell Q. That is the sum and substance of it, isn't it? A. That is the sum and substance of it. Q. The Trust Company makes its money by loaning out or utilizing the funds it has at its command? "A. Yes. Q. And those funds are very largely the deposits which are made, and a very large deposit which is permanently made and not drawn against is a very important item of value in making a trust company successful? A. Yes, sir; and there are times come when a trust company says they can make a large loan at a low rate of interest when we are full of money, and I might say to them you can do that and we will deposit a million dollars with you so as to aid you in doing that for the time being. Q. Is that a separate deposit from this deposit which you men- tion which you keep not drawn against ? A. Generally the same deposit. Q. For example in this Morton Trust Company apart from the $500,000 which remains continuously on deposit and not drawn against, do you from time to time make other deposits to enable the trust company to make advantageous loans? A. No, sir; no, sir. Q. Do you do that with any other companies? A. No. Q. Take your illustration of a minute ago of the chance to loan a million dollars which a trust company has and you making a deposit to enable them to do that. Is that based upon some con- crete instance in your mind? A. No; we do it Q. Do you do that frequently? A. Well, not frequently, but quite so. Q. Now mention a case in which that has been done? A. Well, it is pretty hard to recall. I remember a case where a loan was made to — I don't like to mention the borrower, but a very large railroad in its construction where they borrowed a large sum of money and we aided in making a deposit. 242 Testimony of Frederic Cromwell Q. What trust company was that? A. That was the Guaran- tee Trust Company? But frequently we get a special rate. Q. Now what amount was the deposit you made in that case with the Guarantee Trust Company? A. I don't know. Q. Was it up in the millions of dollars? A. Yes. Q. Several millions of dollars? A. Oh no. We never would deposit over a million or a million and a half. Q. Was it in that neighborhood in this particular case? A. In that neighborhood. Q. And how long was it understood that the deposit would continue so that it could be utilized by the trust company for the purpose mentioned without being drawn out by you? A. We never give any pledge of that kind. Q. I know you never give any pledge, but so far as a gentle- man's agreement constitutes an understanding what was it? A. Never more than two or three months. Q. And you say you get a special rate of interest during that time? A. Very apt to, yes. Q. In that special case what was that interest? A. That I don't recall. Q. What was that railway, by the way? A. It don't seem ex- actly — I don't — that was a loan to the New York Central Rail- road some time ago. Q. Some years ago? A. No, not some years ago. Q. Within that period? A. That I couldn't tell, it is getting too close. Q. You have stated the objects of the deposits so far as they enabled the trust company to maintain an increase of prosperity? A. It has this other object, if you will allow me. Q. I was coming to that, I think, but you may go on. A. This syndicate'practice, that is generally misunderstood. What we understand by a syndicate and the use we make of a syndicate 243 Testimony of Frederic Cromwell is this, that people of large interests may unite in the purchase of a security the amount of which would be too great for one indi- vidual? The consequence is they get the investment at a less rate, and it goes without saying that each one has an exactly similar interest to his neighbor. There is no difference in their interest. But as I spoke of that one of sixteen millions of dollars they are enabled — any of those bankers are doing it all the time — and it is a great advantage to a large company like ours that has many millions, they are enabled to unite and take a large block of those bonds. We have a peculiar advantage that we are known when we take blocks of bonds to be holders. Q. That is, that you won't sell? A. Yes; and that makes us very desirable as syndicate participators. Q. That is you won't sell out your share? A. Yes. That makes us very desirable as syndicate participators. I state that to give the unselfish view of syndicates. Q. They are noted, I know, for that. Now going a little fur- ther. While these matters may be well understood tor some of us, for the purpose of the record and so there will be no miscon- struction of a transaction of this sort I should be very glad to have you explain the course of a syndicate operation. Now just take it up and expound it, if you will? A. Well, to — my railroad com- pany for example has made up its mind to issue a large block of bonds. We will say it is a railroad company which has bought some subsidiary lines and they propose to issue collateral trust bonds which will cover those. Q. Just state right there, by a collateral trust bond vou mean that when a railroad company has acquired or intends to acquire the stock or securities of other railroad corporations, that a bond with these various stocks and securities as collateral for its pay- ment is issued, called a collateral trust bond, and in that way funds are obtained by which these stocks and securities of the other railroad corporations can be acquired by the issuing com- '44 Testimony of Frederic Cromwell pany. Is that substantially correct? A. Yes, sir. The issuing company of course is a strong company which aDsorbs the other organization. Q. Yes. A. And the collateral trust bonds may have other bonds behind them, and so will they have stock. Therefore a collateral trust bond of a railroad company remains on the strength of the issuing company, but of course it is nothing else but a stock. Q. It is really a stock? A. Why collateral trust bonds are stocks; are nothing but stocks. Q. In other words if a company has a bond known as a col- lateral trust bond with stocks securing its payment, that bond really represents a limited or partial interest in those stocks? A. Naturally. You take this last very great bond of the Chi- cago, Burlington & Quincy and Great Northern, that rested on stocks entirely. Q. Yes. A. Now in getting up a syndicate, a company is get- ting up a syndicate of a number of millions, ten millions of dollars, for example, and some one, some great banker like Mr. Morgan, gets up a syndicate, and generally syndicates are gotten up by the bankers, by the trust companies, and they invite large in- vestors to go in and take over two or three millions of the ten millions and make the bid. They find they can buy this bond at a certain price if they can take the ten millions. Then a syndicate agreement — and there are all shades of them — places the manage- ment in the syndicate managers. It limits the time and method of selling and controls the security. It makes the buyers able to pay a fair price, because they know the security isn't going to be thrown pell mell, promiscuously on the market, and it makes the advantage in purchasing, the controlling the securities, very great. Q. Now what compensation do the syndicate managers, who devote their time to this matter, get? How do they get it, 245 Testimony of Frederic Cromwell rather? A. That is a banking question? They generally get a half per cent. Q. How does it come in? A. They charge a half a cent after they have sold it. Generally they have the distribution, the selling of the securities. Q. Selling to whom? A. To the public. Q. Oh, to the public. A. A syndicate is formed to buy these bonds and the same syndicate sells them. For instance many of these syndicates will find their greatest market in Europe, their greatest market in Europe Q. The intention is, then, that the syndicate managers shall sell to the public a portion of the issue? A. Or make a public offering. Q. Or make a public offering, and then the difference between what the syndicate managers have to pay for the securities, taking them on a block, and what they realize on a public sale, constitutes the profit ? A. A profit. Q. And if there is a syndicate back of those managers they share in the profit on the agreement? A. Yes, sir; there have been. If we get in a syndicate we withdraw our bonds if we can. Q. What do you mean by "we withdraw our bonds?" A. If they are a sterling kind of bonds we would much rather withdraw them at the price we put them in our books? We don't want to sell. Q. When you say withdraw, you mean keep them as an in- vestment? A. Yes, keep them. Q. Isn't that the normal object when you make an agreement of this sort? A. They won't let us very often. Q. Won't let you what ? A. They won't give us a share in the syndicate if we do that because they wish to make their profit in selling too. Q. So very often it is contemplated that the parties entering into the syndicate will be responsible for a certain proportion, 246 Testimony of Frederic Cromwell their allotment of the securities, in case the public do not take them, but the intention is that if the public will taken them that they shall be sold? A. Yes, but with us if we don't withdraw them — in the vast majority of cases we buy as many as we sub- scribe at the price. Q. Taking your place in the market? A. Yes, but we buy them. Q. Let me stop a moment there. I understand then that when you enter into a syndicate it isn't regarded as quite in good form that you should withdraw your syndicate allotment for inves- ment? A. Well, the bankers don't want us to. Q. They want to make their money on the re-sale, and the money that is made on the re-sale of course, is distributable among the members of the syndicate according to their respective par- ticipations. Now then, when the syndicate managers sell to the public, then you come in and buy, so that you occupy in the transaction two different capacities, first as member of a syndi- cate who underwrite the issue and agree in any event to take a certain amount at the original syndicate price and also you come in later as a part of the public taking a portion of the investment from the syndicate managers on the public offering, is that right ? A. Frequently. Q. But as a rule the acquisition of the securities by your com- pany which are floated through a syndicate is in taking them through a public offering, as you do not as a rule take your allot- ment in case they can be sold to the public by the syndicate man- agers ? A. Yes ; I should say as a rule we try wherever we can to withdraw them. It makes the same as to price, except the com- mission of one-half per cent. It is the same thing, but we try to withdraw them from the market. We have now — if you will allow me to decline to tell — I won't tell you the bond— but we have a bond in which we are trying to withdraw a large block from 247 Testimony of Frederic Cromwell the offering, and they want us to wait and buy generally, but no, we want to withdraw from the offering. Q. Why should you do that way; why should you want to in one case and not in another? A. Because we want to withdraw them for this reason, if we have underwritten the bonds and then buy separately and the bonds, good as they may be, should not be taken, we might get more bonds than we choose, than we wished. I want to accentuate that this morning. An institution like ours is limited in its purchases even if they are government bonds. We are limited. We try to hold with great care that balance between the securities, and that has been the feature with us. Our trans- portation securities, by the purchases of that class, we have sold many many millions of bonds when they got to a very high sav- ings bank rate, where they paid 3% per cent., and buy what is equally safe for us, bonds that pay 4 per cent. Q. To put it in a homely phrase you don't want too many eggs in one basket? A. No. Q. So you try not to invest too heavily in one security. Now, if you are in as a syndicate participator and have to take a num- ber of bonds if sold and then go into the market before the public sale has been determined or its result obtained and buy more, you might have too many of them? A. Exactly. Q. So you favor not going into a public sale? A. But they always want us to. Q. And you do as a rule? A. As a rule, because we are hang- ing fire on this now. Q. Then the profits that are made by the syndicate man- agers as a result of the sale are distributed and you get your share of those profits? A. Yes. Q. And the others in the syndicate get their share of the profits? A. If we remain so as to get profits on the syndicates we credit them to the cost of the securities. That is why I say we have a million of those Cuba bonds at 85. 248 Testimony of Frederic Cromwell Q. Then in any large location it is an understanding, is it not, to make it a success that large insurance companies shall take a substantial protion of the securities? A. That helps. We never buy — Mr. Hughes I will say this — not to interrupt — we never buy securities except with the sole consideration of its absolute safety. I will say to-day that in the last two years we haven't had a bond in default of all our $243,000,000 securities. Q. When you don't withdraw the securities and trust them all to public sale, do you arrange to make sure of a certain amount of the securities by saying to the bankers that you will buy such and such an amount, or do you take your chance? A. Take our chance. They might always be glad to sell us. Q. You might get into a syndicate where they were all sold? A. They might always be glad to sell us. Q. Does it ever happen that you get into a syndicate and don't take any of the bonds at all, that is, don't actually invest in any? You usually do? A. I don't think I know of such a case. No, we don't go into a syndicate for the profit. I wouldn't state that as an absolute fact but I am absolutely safe in stating that. Q. Do you go into any syndicate where the company is not willing to take the bonds whether the public does or not? A. Where the Mutual Life is not willing ? Q. Yes. A. Never. Q. How have you found the result of your syndicate opera- tions so far as the company is concerned? A. Well, if you will allow me to look at that sheet again which I showed you Q. Well, I have a separate sheet here which you may want to examine? A. This is our syndicates? Q. Yes. A. Pardon me. That I guess is not it. This is it (handing paper to witness.) A. That is it, yes, sir. Q. You might take the list of securities owned by your com- pany, Mr. Cromwell, and tell us which of them you have ac- 249 Testimony of Frederick Cromwell quired through syndicates? A. Well, I don't think, Mr. Hughes, I could do that offhand. Q. Well, I don't mean in a complete way so that it would be final, but so far as your present recollection goes? A. Well, go over a number of them. Q. Yes. A. Here is the National Atlantic. Q. Give the amount of the bonds you hold? A. Five mil- lions of that bond; two millions of the Monon bonds. This will be very rough Q. Yes. MR. BECK: Is there any objection to the witness stating what the profit is on each ? MR. HUGHES: I have no objection to his saying whatever he desires to as he goes along, in the way of explanation. I would be very glad to have your company prepare for me a statement which would show just what syndicates it has been in in the last five years, say commencing with January, 1900, and what bonds or stocks have been withdrawn and what have been taken on public sale and what profit or loss has attached to the transaction, and then we can see just what the effect of the matter is. THE WITNESS: The profit in the last ten years has been- MR. BECK: Keep your voice up. THE WITNESS: I don't like to memory state this, but in the last ten years it has been nearly ten millions. BY MR. HUGHES: Q. On syndicate operations? A. No, not at all. 250 Testimony of Frederic Cromwell Q. That is what we are getting at? A. Not on the syndicate operations. You mean on the securities which we bought through syndicates. Q. Put it in any way you please. A. If you said syndicate operations you would perhaps define it the earning on the opera- tion. If you put it on the securities we bought we will take the market value to-day and take them at the price we purchased them at when we went in. Is that what you meant? I only want to know what you meant. 0. Of course you could look at them either way or both ways, but I was after more directly the profits you made by syndicate participation, the syndicate profits? A. Those amount to gen- erally, I might say, two or three per cent, at the time, but when the bonds are marketed, the market value is enhanced and you make in the end very much more. Q. Would it be fair to assume that these syndicates are gotten up for the purpose of profit to the managers? A. Oh, yes, with- out question. Q. Without question? A. Entirely. Well got up by them — the men who manage syndicates are men to place large blocks of securities. Take a house like Q. That is their business? A. Mr. Morgan. That is their business. He takes twenty or thirty millions at a time. Q. Of course it is important to houses in those operations and floating large securities that the holders of large sums of money should be available for that purpose? A. Yes, sir. Q. Now, you said a while ago that the trust company could be used as a channel. Just what did you mean by a channel? A. Well, in the first place in this way, I think you will — I am not in a position there to solicit business or follow up business of banking of that kind. Q. Pardon me. A. I say I am not in business myself to solicit banking business or to look for it but simply to invest. Now 251 Testimony of Frederic Cromwell these trust companies, that is their business to look for invest- ments in securities, also to find loans which might be acceptable and particularly to Q. That is your business too isn't it? A. No; they come to us ; we never solicit. Q. But it is your business to have your funds invested? A. Yes, but it is to our advantage to have a trust company in which we are largely interested. Q. Why is that? You can make a direct investment of your funds, can you not? A. Never make them otherwise than by ourselves. Q. That being so of what possible aid to you can a trust com- pany be? A. Because many railroads and corporations of that kind go into trust companies to try and get loans that don't come to us. We don't make up loans. Q. Well, you don't want them, do you? You don't want that business? A. Certain ones. For example, the Norfolk & West- ern made a loan about six months ago through the Guarantee Trust Company. I think it was the Norfolk & Western. We took some of the loan. Q. You can get what you want in the way of loans? A. But we don't hear of them, Mr. Hughes; we don't hear of them. They are brought to us by our own trust companies and by others. Q. But your standing and the amount of money that you have at your disposal and the necessity of its investment are well known facts so that applications are constantly made to you, are they not? A. Oh, well, but not by that class of borrower. It takes a trust company to take hold of that. Q. What class of borrower have you in mind now? A. I mean a railroad, for instance, that wants to borrow four or five million of dollars or wants to issue a bond on its branch line. Q. Isn't that handled through a syndicate in the manner you 252 Testimony of Frederic Cromwell have just described? A. Yes, it is, and the trust companies assist in making up those syndicates and bring them to our in- stitution. Q. Then that is the necessity of a trust company as a channel in aiding in making up syndicates? A. And bringing them to our attention. Q. Putting you on the line of them? A. But the best has been on the profits. Q. That is the statement you made a while ago, that vou made a great deal of money by investment in the trust company stocks, and I was wondering to what extent there was a different advan- tage in connection with trust company investments, as I thought you expressed it in the using of the trust company as a channel quite apart from the profit you derived on the investment in the stock. Have we got now everything you have to say on that? A. I think so. Q. Do you mean a trust company can engage in a business which would be profitable and on which you can make money through your stock interest that your company could not directly engage in? A. Yes. We can take a portion of things sometimes where we wouldn't want to take the whole. Q. That would be true if you didn't own any stock in the trust company, wouldn't it? A. They wouldn't work so hard for us. Q. But you wouldn't be responsible for that part of the in- vestment? A. We are the largest owners. We follow that up on that account. It all reverts, Mr. Hughes, back to that; we are the largest stockholder of the company. Q. Were you in the Japanese syndicate? A. Yes. Q. To what extent was the Mutual in that? A. We have been in each issue of bonds the Japanese have issued. I ought to have some figures here. Q. Have you got any available on that point? A. I haven't here. 253 Testimony of Frederic Cromwell Q. You remember the fact that you are in to a considerable extent? A. I will tell you we went in, Mr. Hughes, to the Jap- anese syndicate and we sold out as the new issues were made, and we have to-day a million of the old four and a half's and three million of the new four and a half's and we made a quarter of a million dollars out of the old issues; that is about the result. Q. Were you individually in that syndicate, or any of them? A. I guess after we got in I think all of the people did. Q. Who are all the people? A. I mean by that those I have enumerated. Q. Mr. McCurdy? A. Mr. McCurdy, yes. Q. And Mr. Juilliard? A. Yes; but not until the Mutual had had gotten entirely out. Q. Just explain how they were in and when they came in and just what was done? A. Well, I will explain it perhaps by illus- trating in this way, that once — oh more than once; several times when it is found that our interests were not as large as we ex- pected that the individual interest has been immediately with- drawn, it being a pre-conceded fact, a concluded fact that the Mutual Life — we have nothing to do with the Mutual Life's hold- ings. The Mutual Life could get all it wants, but all of those men as well as myself, I might say, are investors, always having money to invest, as I did long before I came to the Mutual Life. I never could hold office in the Mutual Life if I wasn't allowed to invest my money. But never any under circumstances has any investment been made by an individual which has affected the subscription or interest of the Mutual Life so far as I know. It has been watched as closely as that. Q. I didn't understand what you said a moment ago about the withdrawal of the individual subscriptions if the Mutual Life was not in as largely as it had been anticipated. Perhaps I misunder- stood your remark. A. Well, I had in mind — I can't tell the bond now — of one not very long ago. I know I did that when I 2 54 Testimony of Frederic Cromwell sent down to Kuhn, Loeb & Company and said I would like twenty -rive or fifty of the bonds and they sent up word 'reducing ours. Q. You are speaking of individually? A. Individually. And I immediately withdrew my subscription. Q. Why? A. Because if the Mutual Life couldn't get~all they wanted we didn't want it. That is the spirit of every man here. Q. So you wouldn't want in any way by your individual sub- scription to affect or limit the amount which the Mutual Life would take? A. Yes. Q. Of course you understand that the subscription of the Mu- tual Life to a large amount of securities that the syndicate is bringing out will greatly aid the success of the venture ? A. Yes Q. And that all of the participators in the operation will profit by the success of the venture? A. Oh, yes. Q. And you frankly recognize that? A. No, there is no doubt about it. Q. And you justify it, I understand? A. Yes, if the individ- uals didn't allow it to affect their original judgment of the invest- ment. Q. You mean if you didn't allow what to affect your invest- ment? A. If you didn't allow the fact that the investment of the Mutual Life would increase the value, if you don't allow that to affect your original judgment as to the price of the invest- ment Q. You mean if you don't allow the fact that the Mutual Life is going in — I mean if you don't allow the fact that you are to benefit by the success of the venture to affect your judgment of the advisability of the Mutual Life going into it, it is all right? A. Yes. Q. Of course if you do allow it to affect your judgment it wouldn't be quite as desirable, would it? A. No. Q. And that would be for what reason? A. Well, chiefly in 255 Testimony of Frederic Cromwell the first place, in considering a security I don't think our com- mittee considers anything but its intrinsic value as an investment, and nothing else could be considered with propriety . If it did it might affect the relationship of a man to his own investment. The fact that these individuals have gone in — I can say frankly — others may differ with me — I can see no impropriety. It is a thing I have thought over very seriously for some time. I de- clined myself to go into any of these syndicates after we got in. Q. You were afraid it might affect your judgment or be con- strued A. No; I was afraid it might be construed that way. And then after thinking it over I conceived it was a very foolish thing to do and I couldn't afford to do it. 0. You knew others were doing it? A* I am an awfully busy man and I have a perfect right to invest my own funds if I do it conscientiously . I enlarge on that because I knew the syndicate matter would come up and I want to tell all I know about it. That is what I mean. 0. It is suggested that I ask you whether the Mutual Life ever conditioned any subscription to a syndicate upon the participation of any individual officer or person connected with the Mutual Life in the syndicate? A. It never came within a mile of sug- gesting such a thing. Q. The point is, as I understand it, if you as an officer use your judgment and discretion conscientiously with regard to the Mu- tual Life investments you don't think there is any impropriety in you at the same time making money out of the transaction which the Mutual Life's participation in helps to succeed ? A. No. Q. That is it in substance, isn't it? A. That is it ; that is it. Q. Now, you said all these people were in the Japanese syndi- cate. You meant the members of the finance committee of the Mutual Life largely? A. No, I mean those three or four. Q. Who are the three or four? A. Mr. McCurdy and Juilliard, and Haven and Mr. Iselin often and myself. 256 Testimony of Frederic Cromwell Q. They were the persons ? A. Mr. Iselin goes in through his firm. Q. Well, those are the persons with whom it rests to determine whether or not the Mutual Life shall go into the syndicate or not? A. They are part of them. Q. They are the Finance Committee? A. No; they are the sub-committee . Q. Well, they are the people who make the investment in the first instance? A. Yes; but if it is not absolutely endorsed by the full committee and unanimously, of course Q. What will happen ? You are bound ; your company has al- ready gone in, hasn't it? A. Well, when it comes to a Japanese bond that is talked pretty well all over the committee, every man. Q. You mean they all know about it in a general way? A. They all know about it; it is discussed. Q. As far as any formal action is concerned it is done by the sub-committee, isn't that so? A. Of course that is a thing of twenty-five millions. Q. As far as any formal action is concerned it is done by the sub-committee, isn't that so? A. Yes. Q. And if the finance committee upon learning of it does not like it it has got to do the best it can to undo it but it may be it can't be undone? A. That is very seldom done. Q. Well, seldom or otherwise. A. It couldn't in the Japan, ese bond. Q. Suppose the sub-committee had sold to somebody and then reported to the full finance committee and the finance committee doesn't think it ought to have been sold, what are they going to do with it — buy it back? A. The sub-committee is appointed with power to buy and sell. Q. I understand that, but suppose they sell and the finance committee doesn't like the fact. What are the finance committee to do about it? A. They have to accept it. 257 Testimony of Frederic Cromwell Q. Suppose they have bought, what are the finance committee to do about it except to order the re-sale when it can be and if it can be judiciously made, and suppose the sub-committee has gone into a syndicate participation, that is, has pledged the Mutual Life in a syndicate participation, made a binding agreement, what can the finance committee do when it has heard about it? A. Well, the finance committee — knowing all it — our company, as a matter of fact, is very peculiar in that, because the finance committee and its members are in our office so much we don't do anything really Q. You mean it is informally talked of? A. Every one of the finance committee knows about it. Q. I am talking of the formal action of that committee which meets statedly and that committee, as I understand it, merely has produced before it the record of what has already been ac- complished by the sub-committee? A. That is true. Q. And it is left, if it does not like it, to undo it when it can? A. Yes. Q. Or if it can ? A. Allow me as a matter of form to state that the action — the entire action of the sub-committee — or the en- tire company's finances since the last meeting of the finance com- mittee is presented to the finance committee and read and then it is signed, approved by one of the committee. We have filed away Q. As a matter of fact they always approve ? A. Oh yes, they always do. But we have filed away the statement of every trans- action during each week and the approval of the finance com- mittee signed by one of its members. Q. Did you ever know of a case where the finance com- mittee disapproved what the sub-committee had done A. No, I don't. Q. They always unanimously approve what the sub-committee has done? A. Yes. 258 Testimony of Frederic Cromwell Q. And as a matter of fact the members of the sub-committee are generally themselves investors in the projects to which the Mutual Life becomes a party through a syndicate participation? A. Very largely ; they are apt to be. Q. Does the secretary of the finance committee sign the min- utes of the finance committee ? A. He does not. Q. Does anybody sign them? A. He does not. That is my impression. Now, I don't keep those minutes, but the finan- cial record of the finance committee is contained, as I say, in the filing of those sheets which are signed by one of the members of the finance committee as to the securities. Then as to the other part which takes up the major part of the finance com- mittee, the actions upon bonds and mortgages and everything in relation to that, each one of those is signed — the order is a record book on which one member of the committee keeps the record, and a sheet, and goes to that one of the committee who signs on the back of each application the approval of the committee or the declination. Q. You are speaking now of the sub-committee? A. I am speaking now of the general committee. So when the general committee rises it has approved of every transaction of the week on this sheet which we say Q. Those sheets are not a part of the minutes, are they? A. They are kept on file by us. If you would allow me to bring one of those sheets here you would see it was a complete record. Q. I would be very glad if you would. But, however, com- plete the record may be it is a record of an approval of a trans- action which has already been consummated prior to the meeting of the committee? A. Yes. And the other part, the bond and mortgage, is all certified to in the present meeting. I didn't know the minutes were not signed, but when you speak of it I don't think they are; they are at the other end of the table and I haven't had any cognizance of that. 259 Testimony of Frederic Cromwell Q. I understand that the members of the finance committee have participated in those syndicates where the Mutual Life has gone into the market and bought bonds from the syndicate man- agers? A. I don't say that, and I don't know that they have. Understand we are not talking about a general disposition or frequent occurrence, so I don't think — I know that th?t is right. Q. I don't want any injustice to be done or anything to be left that is not fully explained. I want to know just what this par- ticipation of the members of the finance committee in syndicate operations is. Do they go into the syndicate, participate in the syndicate? A. Well, I will tell you exactly, if this will illustrate exactly. I took fifty of these last Japanese bonds and with- drew them. Q. When you say you took fifty, you were a member of that syndicate? A. Yes. The company subscribed for four millions ; I wasn't here and I sent word to Messrs. Kuhn, Loeb & Company to give me fifty of the bonds. Q. That is to give you a syndicate participation for fifty bonds? A. And I paid for it, and he is calling on them now. Q. Then those were withdrawn by you as an investment, taking your syndicate proportion? A. Yes. Q. Then subsequently did the Mutual Life buy from Kuhn, Loeb & Company some of those Japanese bonds that were sold by them as managers of this syndicate? A. Yes, they bought those three millions. Q. And did you get your statement of profits on that trans- action? A. I haven't had any statement of profits. Q. You expect one? A. I suppose what I shall get will be the cost of such bonds as I keep, but I can't tell. Q. You will get a statement of your profit on your participa- tion, on your allotment of fifty bonds? A. If I don't buy the bonds. 260 Testimony of Frederic Cromwell Q Well, if you do buy the bonds there is a general profit made on the public offer? A. Yes. Q. And you will have your share of that? A. Yes. Q. Well, that is true of the other gentleman of the finance committee, isn't it? A. That is true. Q. Who took part in this syndicate? A. That is true. Q. In other words they will get their share of the profits made through the syndicate managers on the public offering? A. Yes. Q. And the Mutual Life is a part of the public buying part of the securities from the syndicate managers? A. Out of the purchase of twenty-five millions, they as individuals. Q. Was the Mutual Life a purchaser of Atchison, Topeka & Sante Fe" convertible 4's? A. Well, you will have to — I think you will have to let me get the records. Well, you have got them there, but any further Q. I don't find that particular issue so I don't think that I can be sure of it. A. I really can't remember. Q. I wish you would just see. A. Now, Mr. Hughes, our largest interest in Atchison is first mortgage 4's five millions, but I don't remember the details of their purchase. Q. Was the Mutual Life a participator in the Atlantic Coast Line syndicate? A. We got five millions of that, sir. Q. Was that the amount of the Mutual Life syndicate par- ticipation? A. I am trying to locate — it is five millions, isn't it? Q. There is a five million item here of Atlantic Coast Line collateral 4's, Lousiville & Nashville collateral trust bonds? A. Yes, we were interested five millions in that and withdrew the bonds. Q. In that syndicate? A. And withdrew the bonds. Q. And you withdrew the bonds? You didn't buy in the market? A. No, sir, we took that interest in the syndicate and withdrew the bonds. 261 Testimony of Frederic Cromzvell Q. Was there a profit made by you upon the syndicate trans- action, that is by the Mutual Life? A. I am only stating from recollection. I think that syndicate was about thirteen millions and we were offered an interest at the price and said we would take five millions if they would let us take it out at the price, and they said they would, because it lessened the amount for them to place. It was a syndicate of Mr. Morgan's. Q. Were you a participator individually in that? A. I was not. Q. Was Mr. McCurdy? A. I don't think so; I don't know. Q. Any of the officers of your company ? A. Not that I know of. 1 have given you a wrong impression of the amount in which we are to participate, because I haven't tried to state it at all. Q. I understand. You have been very frank indeed about it. But to supplement your testimony and in order that there may be no misapprehension I would like to have a list of the syndicate operations and you can, of course, properly give the syndicate operations of the company, when they withdrew bonds, when they bought bonds in the market, and prices, and you can also state what your individual participation has been in any of these syndicates, and I should like to have, if you can give it — if not we will have to get it otherwise, what the participation of other officers of your company may have been. Oregon Short Line 4's last November, or in the course of 'last fall. Was the Mutual Life a participator in that syndicate? A. I think, Mr. Hughes, you will have to let me — I carry so many things in my head — I know we got two millions of bonds, but whether we got them through a syndicate or not- -and I don't know just where they come from. O. How long a time will it take to get up such a statement as I ask for? A. wive us a day and we will get it all up. We have everything ready about I think except these syndicate operations will take longer. 262 Testimony of Frederic Cromwell Q. I think we had better deal with that when you are in a position to give the exact figures. A. Yes. Q. We have pretty fully, I think, the modus operandi? A. Yes. 0. And you don't care to add anything to that? A. No, I don't think so. Q. There is one question though that I wanted to ask about, the syndicate agreement Mr. Fleming reminds me of. Do you have normally written agreements relating to those transactions? A. Printed agreements. Q. Printed agreements. Invariably do you have a printed or formal syndicate agreement? A. I think invariably. The rea- son I hesitate is I am not sure whether we — this case or the one you just spoke of, the Atlantic Coast Line did or not, because that was a clean balance ; they wanted to clear up the balance and we took five millions from them ; but we must have a syndicate agree- ment in every one. Q. It is not customary then for allotments of syndicate par- ticipation to *be made orally? A. Not at all. Q. Not at all? A. Not as a general rule. Q. Have you heard of that being done at all ? A. Never knew of it in our case. Q. Well, is it done with individuals? In other words, some- times will an individual be informed he can have a certain allot- ment in such a syndicate and have it understood as a matter of honor? A. No; I think not. This time I took the Japanese bonds I got a letter from Kuhn, Loeb saying I should have it. I wrote a letter. Q. And the agreement in that case consisted of the letters ? A . Of the letter saying he would set aside fifty of those bonds. Q. What was there to show the terms of the syndicate ? A. Oh, his letter showed that. Q. Showed it perfectly? A. Oh, yes. 263 Testimony of Frederic Cromwell Q. Was the contract all by letters with the participator or were there agreements with some of the others? A. I think I must have had a printed syndicate agreement sent me afterward. Q. Your name was not in the syndicate agreement, was it? A. Oh, those syndicate agreements are many in number; they are not made in duplicate or triplicate, but each man signs his own and that forms a part and parcel of the agreement. Q. I understand. That is, you have them manifolded so that there are as many originals as there are signers? A. As there are signers. Q. And they are all in duplicate ? and the parties would have to become such by signing one of the blanks? A. Yes, sir. Q. Now I should like to have in connection with the list of syn- dicates and the information that has been asked for, copies or the originals of the syndicates, agreements to which the company or yourself has been a party within the last five years. And leaving that until we can get the data I would like to go on with a subject from which for the moment we were diverted by this interesting topic, to wit: your interest in other companies. N&w take the United States Mortgage & Trust Company. What is the capital of that company? A. Two millions of dollars. MR. BECK: Mr. Hughes, before you turn off from the subject of the Morton Trust Company, will yuu ask the witness what in- terest was paid on the five hundred thousand dollars deposit. MR. HUGHES: I will ask him. Withdraw the last question. Q. What interest is paid to the Mutual Life Insurance Com- pany upon this bank balance of five hundred thousand dollars with the Morton Trust Co. ? A. I thought I had that. Two per cent. I am very safe in saying that. Q. Always has been 2 per cent? A. Unless with the possible variation of 2*4 sometimes. 264 Testimony of Frederic Cromwell Q. You haven't had any special deposits with that company for particular purposes such as the one you mentioned with the Guarantee Company ? A. We have not. Q. The United States Mortgage & Trust Company you say has a capital of $2,000,000? A. Yes, sir. Q. And you have how many shares? A. Fifty shares. Q. Individually? A. Individually. Q. How many shares has your company, the Mutual Life? A. That paper which we sent up will show it. 10,736 shares. Q. Of a par value of? A. $1,073,600. Q. So your Mutual Life controls that United States Mortgage & Trust Company ? A. Has the majority of the stock. Q. Well, you don't mean to take exception to my remark.that it controls it? A. Sometimes we boss it when we haven't a majority. Q. You don't need an absolute majority to control in all in- stances, do you? A. No, sir. Q. Now, that is carried on your books according to this state- ment at a book value of $1,665,191.04, or at the rate of $155.10 a share, that is correct, is it? A. That is correct. Q. That is the actual cost to your company of those shares? A. Yes, sir. Q Were they all acquired at the same time? A. They were not. Q. How many were acquired in block at the time when you first took an interest in the United States Mortgage & Trust Company? A. That I could not tell you. Q. Well, can you give it to me approximately? A. The in- vestments in the United States Mortgage & Trust Company have varied somewhat on account of the effort that was made, and successfully, to interest a Western, another clientele; we took some of the stock. 265 Testimony of Frederic Cromwell Q. You have disposed in other words of some of your holdings? A. Yes. Q. From time to time? A. Yes. I am not a director of that, so I don't know it, but the valuation— it is paying five per cent, on its valuation. Q. That is five per cent, on the book value? A. No; on the market value. It is paying 20 per cent. now. Q. Twenty per cent on the par value ? A. Yes. Q. Paying twenty per cent on the par value, and how much on its cost? A. That I couldn't tell you. Q. Well, how long has it paid 20 per cent, on its par value? A. I won't even quote the sum, 20 per cent, because I would rather you wouldn't take these things. Q. The market value on that is stated here to be $4,294,200. A. Valued at 410. Q. That is the flat value at $4,241,706. Do you now what transactions there have been in the sale of that stock within the last year? A. I know there have been several transactions, many over 500. I don't know them, no. Q. Over 500 what? A. At over 500. Q. Were the sales transactions in small lots? A. I don't think it has sold this year under 500, and I think sales have been made in considerable lots, and all that I can find, Q. Were those transactions in small lots? A., Not veiy. I think they have been in considerable lots, but I am not Q. You are not posted on that? A. I am not posted on that; I may be wrong. One lot they sold to an important man who wanted to take an interest in it, of 150 shares. I think he paid 500, but I may be wrong. I would rather get the figures. Q. Have any shares of the United States Mortgage & Trust Company owned by the Mutual Life been disposed of at less than the book value to any persons? A. That I can't tell you. 266 Testimony of Frederic Cromwell Q. Have any shares of the Guarantee Trust Company been sold at less than the book value to any persons ? A. At less than the book value of neither of the companies. Q. Or at less than the quoted market value as you have it here? A. That I don't know; that I would have to look up. Q. Now, you say you are interested to a small extent in this Company. To what extent was that ? A. Fifty shares. Q. Is Mr. McCurdy a stockholder in the United States Mort- gage & Trust Company ? A. He is. Q. Do you know to what extent? A. I do not; I don't know anything about the ownership in that Company. Individually, Mr. Hughes? Q. Well, is Mr. Baker or Mr. Henderson a stockholder in that Company? A. Mr. Henderson is. Q. Mr. Juilliard? A. He is not. Q. Mr. Haven? A. I think not. Q. Mr. Iselin? A. No. Q. Mr. Jarvey? A. No, I think not. Q. Or Mr. Granniss ? A. Mr. Granniss is. Q. Mr. Robert H. McCurdy? A. I think so, but then I don't know. My assistant Mr. Timson is much better informed with regard to the United States Mortgage & Trust Company than I am. He is on that Q. You would prefer not to go into detail about that? A. I would prefer not to. He knows all about it and I don't. Q. I find here the Bank of California. You recently acquired a large interest in that stock, I believe. When I say you, I mean the Mutual Life Insurance Company. A. Yes. Q. 5,000 shares? A. Bank of California 5,000 shares. We paid 380 about. That is right. Q. You paid 380? A. Yes. Q. Or a total of $1,904,016.79? A. Yes. Q. Was that block of stock bought at once, bought at once? 267 Testimony of Frederic Cromwell A. Yes, that block of stock. The way it was brought to our attention was this. We have a trustee out in San Francisco Q. Oh, you have a trustee who is interested in that bank? A. A director, Mr. Q. What is his name ? A. Mr. William Babcock. Q. What connection has he with the Bank of California? A He is one of the directors ; has been for a long time. Q. Explain how he interested you in that bank. A. Mr. Bab- cock is a man of exceptional prominence and exceptional charac- ter, a member of the firm of Q. Any relation to the late Samuel D. Babcock? A. No, I think not; very distant, if at all. And he has been an active trustee with us for many years and one of the trustees that never recommended anything to us that didn't improve in value. I have often told him — he is a very bright man, and he wrote to us saying that the Bank of California proposed to increase its capital stock and that they had felt out there that if the Mutual Life would become interested largely that it would help in both wavs. Q. What both ways? A. That we could help them in their eastern connection and that they could help us out there through all of our western connections, our bank accounts, &c, through the northwest, and particularly at this time California is coming in touch with the east, we getting a large interest in an institution like the Bank of California would be of large value. The increase of capital I think came because another interest withdrew from that and went to the Bank of Nevada. Well, we finally agreed to take it up. I wish I knew — but the bank pays t6 per cent, but they will pay more. Q. On the par? A. On the par, and their surplus is very large. Q. What was their capital before they increased it? A. I don't carry that in my mind. I have the whole thing in corre- spondence. 268 Testimony of Frederic Cromwell Q. What was their increase ? A.I couldn't tell you. Q. Did you take it on a direct subscription to the increased stock or buy from stockholders ? A. Yes, took it by withdrawal of a large number of stockholders in our favor, and in the other thousand shares we got more. We started to pay 375 and had to pay 380 in order to get the 3,000 shares. Q. Did you take it from other stockholders? A. Buying rights. Q. You bought the rights of stockholders? A. Yes. Q. Who were they? A. They were western stockholders. Q. Was Mr. Babcock one of them? A. Oh no; he didn't sell any of his stock. Q. Well, any of his rights? A. No. Q. Quite sure of that, either he or his associates? A'. No, un less he did to accomodate us by giving us a lower price. I am very sure of that. Q. What was the price at which the stockholders who didn't sell their rights got the increased stock? A. It was either 350 or 375; I don't remember. I have that all in letters. Q. I should be very glad to have the exact information about that? A. I will bring all the papers. I am afraid to mention these things. Q. Certainly. We don't want anything we can't rely on as absolutely correct. But your recollection is you paid some- thing more for the rights than the stockholders paid for the rights who didn't sell their rights ? A.I know we did. It is not a large sum. I might say this that above 400 that is always good stock. At the time it was only the determination of those people to get us interested in the bank. Q. What value would it be to the Mutual Life Insurance Com- pany to be interested in that bank? A. Well, it would become the correspondent of both the National Bank of Commerce and the Guarantee Company probably. 269 Testimony of Frederic Cromwell Q. So that your interest in the Bank of California would aid your interest in the National Bank of Commerce and the Guar- antee Trust Company? A. Yes. Q. And extending the prosperity of those two companies? A. Yes. Q. Was that the main motive that influenced you in the pur- chase? A. I think the main motive was in the success we had had in San Francisco and the belief that is a very valuable prop- erty, the Bank of California, and that would enhance very much in value. It is a very strong bank. Q. Did you have banking relations there prior to the acqui- sition of that stock? That is, did you have banks there in which you kept deposits in ? A.I don't remember, we may have . I don't remember the banks. We did have. Q. Do you now keep a regular deposit in the Bank of Cali- fornia as you do in some of the other trust companies that have been mentioned? A. No, we don't. Q. I don't find under the statement of your bank balances of September ist, 1905, a mention of the bank of California. Was that statement limited to the Greater New York? A. No. Q. That is general? A. We have no balance there, but I guess we will have to if we are going to have any peace., Q. They are after you to put one there ? A. Oh, yes, they are" Q. By the way, what did you pay for your stock in the United States Mortgage and Trust Company, your individual stock? A. When that stock was — the Mutual bought that stock; it was distributed at a fixed price and I paid that price. Q. Do you remember what it was? A. I am very sure it was 125, but I won't be sure about that. It was a number of years ago. Q. What price did you pay for your stock in the Guarantee Trust Company? A. Paid 125 for that. 270 Testimony of. Frederic Cromwell Q. Well, what did the Mutual Life pay? A. Paid the same. Q. I see it stated here that the price is 146. Does that mean an average price for a lot of acquisitions? A. They must have bought afterwards then. Q. 146 it is stated there. A. Well, we will give you a tabu- lated statement, Mr. Hughes, and show that we have bought other stock. That I don't know. Q. The fact is you paid 125 and it is your recollection that the Mutual Life paid the same? A. Paid the same; I know that. Q. And is the same true with regard to the United States Mortgage & Trust Company? A. I think that was the price and I know they all paid the same. Q. It is put down here at 155. Then they bought later at a higher price? A. They bought later undoubtedly. Q. I would like to have a statement which shows the different lots purchased. I suppose, by the way, that would come in the general list of transactions in securities so it would avoid the ne- cessity of a separate statement. A. Of course the values of those had to be created. The Guarantee Trust had no business and to-day it has sixty millions on deposit. Q. You mean it didn't have the value represented by the cost when they got it but it was because you wanted it for the pur- pose you have stated? A. It was not at all difficult to get 125 for it. Q. That was a good fair value at the time ? A. Yes sir. Q. When you say the value had to be created, what do you 'mean ? A. I mean the business had to be created ? MR. HUGHES: I will offer in evidence the statement which has been furnished of the bank balances of the Mutual Life In- surance Company on the beginning of the months January to September, 1905, inclusive. Marked Exhibit 36. 271 Testimony of Frederic Cromwell MR. HUGHES: It is quite proper it should be stated of record, as has been suggested, that the Mutual Life has furnished the committee or its counsel with a list of stocks or bonds owned by the Mutual Life Insurance Company of New York, June 30th. 1905, which contains most of the data called for by our subpoena, and that we are promised further lists which will show the trans- actions in these securities for a considerable time, and we desire to give full credit to the companies for the information they have supplied. THE CHAIRMAN: The Committee will stand adjourned until 10:30 o'clock sharp to-morrow morning. All witnesses who have been subpoenaed for to-day are re- quested to be present to-morrow. Adjourned to Friday, September 8th, 1905, at 10:30 o'clock. 272 ALDERMANIC CHAMBER, City Hall, New York City. September 8, 1905. The Committee met pursuant to adjournment. MR. HUGHES: Will Mr. Randolph take the stand? EDMUND D. RANDOLPH, called as a witness, being duly sworn, testified as follows BY MR. HUGHES: Q. Mr. Randolph, you reside in the city of New York? A. I do; that is, at Mount St. Vincent, on the Hudson, which is within the city limits. Q. And you are an officer of the New York Life Insurance Company? A. I am the treasurer of the Company at this time. Q. How long have you been treasurer? A. I have been treas- urer since the death of Mr. Gibbs in 1898, when I succeeded to his office and position of treasurer and chairman of the Finance Committee, which he held. Q. You have prepared a list of the salaries of executive officers of the New York Life Insurance Company from 1877 to 1905, inclusive. (Handing paper.) That is a correct list from the books? A. This was prepared by the secretary. My own knowledge only covers back to 1898, when I became the treasurer. 273 Testimony of Edmund D. Randolph Q. Well, I merely want to be assured that that is a correct copy? A. Oh, yes, undoubtedly it is a correct copy. Did I say I had been treasurer since 1898? I should have said since 1900; prior to that I was chairman of the executive committee from 1898. MR. HUGHES: I off er that list in evidence. Admitted and marked Exhibit 37. Q. I see from 1877 to 1894, there are no figures given as to the salaries of any officers except the President and Vice-President. Is that because you have not such figures on your books ? A. I shall have to refer you to the secretary, who prepared the list, for that, Mr. John McCall. MR. HUGHES: I will read this statement. From this it appears that President Morris Franklin received, the following: 1877, $31,250; 1878, $31,250, 1879, $31,250; 1880, $31,250; 1881, $35,000; 1882, $15,000; 1883, $15,000; 1885, $15,000. Vice-President W. H. Beers, 1877, $31,250; 1878, $31,250; 1879, $31,250; 1880, $31,250; 1881, $35,000; 1882, $35,000; 1883, $35,000; 1884, $3S,ooo; 1885, $35,000. In 1866, President W. H. Beers received $50,000; 1887, $50,000; 1888, $50,000; 1889, $50,000; 1890, $75,000; 1891, $75,000. In 1 89 1, President John A. McCall, first six months, $40,000; second six months $50,000 ; 1893, $50,000; 1894, $50,000; 1895, $50,000; 1896, $75,000; 1897, $75,000; 1898, $75,000; 1899, $75,000; 1900, $75,000; and from 1901 to 1905, both inclusive, $100,000, the last year of course being at that rate for the entire year. 274 Testimony of Edmund D. Randolph 4 The figures are given for the Second Vice-President, Henry- Tuck, 1885, $15,000; 1886, $20,000. Vice-President Henry Tuck, 1887, $25,000; 1888, $25,000; 1889, $30,000; 1890 to 1904, inclusive, $30,000. Second Vice-President A. H. Welch, 1885, $4,000;' 1886; $6,000; 1887, $9,000; 1888, $9,000; 1889 to 1892, inclusive f $15,000; 1893, $17,000; 1894, $17,000; 1895 to 1897, inclusive, $25,000. Q. Mr. "Welch died at that time? A. Mr. Welch died early in 1898. Q. AndMr. Tuck in 1904? A. Who? Q. Mr. Tuck? A. Dr. Tuck died within the last year, yes. MR. HUGHES: Vice-President W. F. Ingersoll, I note the re- mark in parenthesis, "Paris" after his name. What does that indicate ? THE WITNESS: He is the Company's representative, or the head of the entire European Department, and resident in Paris. Q. How long has he been such? A. Oh, for a great many years, prior to my connection with the Company. Q. I find his salary given for the last three years, 1903 to 1905, inclusive, $20,000 a year? A. He only became an executive officer within that period. MR. HUGHES: Third Vice-President G. W. Perkins from 1893 to 1895, inclusive, $20,000 a year; 1896 and 1897, $25,000; George W. Perkins, Second Vice-President, 1898, $25,000; 1899 and 1900, $30,000; 1901, $75,000; 1902, $25,000. Q. Can you explain the decrease in the salary of Mr. Perkins from $75,000 to $25,000 at that time? A. Well, if I may speak 2 75 Testimony of Edmund D. Randolph of Mr. Perkins' personal affairs, there was a very tempting offer extended to him by Messrs. J. P. Morgan & Company, of a partner- ship in the firm, which he declined ; and his services were of vast value to the New York Life Insurance Company, and it was recog- nized in* the increase of salary. Mr. Perkins, the following year, upon the renewal of the invitation, accepted it, retaining, how- ever, his connection with the New York Life Insurance Company and his salary was then reduced to $25,000, 1 may say, at his own suggestion. MR. HUGHES: And as Vice-President George W. Perkins for the years 1903 to 1905, inclusive, received $25,000 a year. Third Vice-President D. P. Kingsley, 1898, $20,000; 1899 and 1900,125,000; 1901, $30,000; 1902, $35,000. D. P. Kingsley, as Vice-President from 1903 to 1905, inclusive, $35,000. Fourth Vice-President P. A. Buckner in 1898, $15,000; 1899, $20,000; 1900, $20,000; 1901, $25,000; 1902, $35,000. P. A. Buckner as Vice-President, 1903, $35,000 ; 1904, $40,000; and at the same rate for 1905. Q. I understand Mr. Kingsley is Mr. McCall's son-in-law? A. Yes. Q. And is Mr. Buckner a relative of Mr. McCall? A. No. MR. HUGHES: Secretary C. C. Whitney, 1892 to 1900, in- clusive, $12,000; 1901 to 1903, inclusive, $14,000. Secretary J. C. McCall, 1903, $10,000; 1904 and 1905, $14,000. Secretary S. M. Ballard, 1904 and 1905, $10,000. Treasurer F. N. Gibbs, 1892 to 1894, $20,000; 1895, $25,000 1896 to 1900, inclusive, $30,000. Q. Mr. Gibbs died at that time? A. Mr. Gibbs died then and I succeeded him. 276 Testimony of Edmund D. Randolph MR. HUGHES: Treasurer F. D. Randolph, 1901 to 1905, inclusive, $30,000. Second Vice-President R. W. Weeks, 1903 to 1905, inclusive, $18,000. Second Vice-President F. R. Perkins, 1903, $25,000; 1904 and 1905, $30,000. Q. Is Mr. E. R. Perkins a relative of George W. Perkins? A. A brother. Q. Had he been connected with the company prior to 1903? A. I think he had always been connected with it, from early boy- hood. Q. For many years ? A. Oh, yes. Q. In what way? A. I really don't know in what way; Mr. George W. Perkins and Mr. E. R. Perkins were connected with the company in the West, in Cleveland, and their father before them; they had grown up with it. There is only one inaccuracy there; it is the omission of a part of my salary. I came into the company in 1898, succeeding Mr. Welch, the Second Vice-Presi- dent, and immediately succeeded to his salary of $25,000. At the death of Mr. Gibbs, the treasurer, I succeeded to his position as treasurer and chairman of the Finance Committee, and his salary. I have had no increase of salary. The change was merely a change in position. Q. In 1898 and 1899, succeeding Mr. Welch, you had a salary of $25 ,000 ? A. ' Yes ; I succeeded to his duties and his salary, but as chairman of the Finance Committee, that was my title. Q. Is Mr. Ballard, the junior secretary, a relative of Mr. Mc- Call? A. I don't think he is. I cannot state for certain, but I have never known of his being a relative of Mr. McCall. MR. HUGHES : If you will step aside for a moment, I will ask Mr. Claflin to take the stand. 277 Testimony of John Claflin JOHN CLAFLIN, called as a witness, being duly sworn, testi. fied as follows : BY MR. HUGHES: Q. Mr. Claflin you are a director or trustee of the New York Life Insurance Company? A. Yes. Q. And how long have you been such? A. I should think twenty years. Q. Have you ever been an officer of the Company? A. I have not. Q. You have served simply as a director? A. Only as a di- rector. Q. And as a director you have been a member of the Finance Committee of that Company ? A. I have. Q. And you are? A. I am now. Q. For how many years have you been on the Finance Com- mittee? A. More than 10 years I should think. Q. The membership of that Committee I understand is as follows, Messrs. G. W. Perkins, Claflin, Randolph, L?ngdon, Mor- rison, Kennedy and Orr? A. Right. Q. For how long a time has the Finance Committee been composed of those gentlemen according to your recollection? A Well, Mr. Orr and Mr. Kennedy came on to the Committee two or three years ago as I remember it. THE CHAIRMAN: Speak a little louder, Mr. Claflin. THE WITNESS: I think Mr. Orr and Mr. Kennedy came on to the Committee two or three years ago. Of course I haven't this latter specially in my mind ; I am not sure about the times. Mr. Langdon has been on for a much longer time, and Mr. Morri- son for somewhat longer time. Testimony of John Clafiin Q. You are also a director of many other companies, Mr. Claf- iin? A. lam. Q. Will you state in what companies, particularly banks and trust companies? A. I am a director in the American Bank, the Bank of Commerce, United States Trust Company, the New York Life Insurance & Trust Company, which is an institution entirely distinct from the New York Life Insurance Com- pany, though it bears a somewhat similar name, nor has it in any way any affiliation with the New York Life Insurance Com- pany; the Van Norden Trust Company, the Home Insurance Company (fire). The German-American Fire, the Commercial Union of London, the Pallatine and some others I don't know at the moment Q. Are you a director of the New York Trust Company ? A. I am not. MR. HUGHES: Will you, Mr. McCall, produce the minutes of the Finance Committee, please? MR. McCALL: Mr. Randolph. MR. RANDOLPH: Of any particular date? MR. HUGHES: The last volume that you have. (Minutes produced.) Q. How often does the Finance Committee meet? A. Twice a week. Q. What is the practice with regard to the supervision of in- vestments, who proposes the making of investments, as a rule? A. As a rule the investments are proposed by a great number of firms and institutions, not by any particular person, but by prac- ticallv the whole financial community. Those investments, if 279 Testimony of John ClaHin they come on days when the Board — when the Finance Commit- tee isn't in session are usually considered first by a sub-committee of the Finance Committee. That sub-committee eliminates such offerings as are obviously undesirable. It presents to the full Finance Committee all the offerings which seem at all attractive. If the offerings come in on a day when the Finance Committee is sitting, then all of the offerings come before the Finance Com- mittee. Q. Who are the members of the sub-committee of the Finance Committee? A. The members of the sub-committee are Mr. Langdon, Mr. Perkins and Mr. Randolph. Q. Has the sub-committee authority to conclude transactions in a dvance of their report to the full committee? A. None what- ever. Q. Does the sub-committee ever buy securities in advance of the authority of the Finance Committee? A. Never, unless it has been authorized theretofore to buy some particular security wherein it may be given some latitude in price. Q. But it has no general authority? A. It has no general authority whatever. Q. Doss the sub-committee make sales in advance of the action of the full committee? A. No; it does nothing except under the Q. So that while from time to time an authority may be given leaving some latitude to the sub-committee ia the purchase or sale of a security your practice is to have the full Finance Com- mittee definitely determine any investment or disposition? A, It is. Q. Investments in or dispositon of securities ? A. Yes. Q. Do you attend the meetings of the Finance Comicittee regularly? A. Yes; pretty'regularly. Q. Twice a week? A. Yes. Q. How long are these meetings in session? A. Well, these meetings run all the way from 1 5 minutes to two hours or more. Testimony of John Claflin Q. Yes. And who on behalf of the sub-committee presents transactions to the Finance Committee for their action? A. There is no definite rule in that regard. Anyone who happens to be present. It is entirely informal in regard to the sub- committee. Q. Well, the members of the sub-committee are usually present, are they not? A. Well, they are likely to be and yet quite often they will not be. Q. Mr. Perkins is usually there ? A. Is usually there. Q. Mr. Randolph is usually there? A. Usually there, yes. Q. Now, who presents, Mr. Perkins or Mr. Randolph, the pro- posals for investments to the Finance Committee? A. Mr. Per- kins would present the proposals — well, that is not quite true either. I think — it would be done quite indefinitely. Q. Yes. A. I don't know as there is very much difference. Every one of the sub-committee would make the proposals be. cause the sub-committee is entirely an informal expedient of the Finance Committee to practically sift out the things that are un- desirable, but not to make any commitments on account of the finance committee. Q. Who is the chairman of the Finance Committee? A. Mr. Perkins. Q. And has the sub-committee a chairman ? A. I don't know. Q. Does the sub-committee keep records? A. I don't know about that. Q. The minutes of the Finance Committee, are you acquainted with them, whether or not they are full and complete statements ? A. Yes. Q. Of the transactions of the sub-committee? A. Yes. Q. Does the New York Life Insurance Company from time to time enter into syndicate agreements? A. It does. Q. And are those transactions brought in the first instance to the attention of the sub-committee ? A. Yes — all, I don't know. Testimony of John Claflin not necessarily to the attention of the sub-committee ; they come first to the general committee . Q. Well, usually? A. Well, it would depend entirely on what date they come up. If they came up on either of the days when the full committee was sitting they would come first to the full committee . Q. And if they do not? A. If they do not they would go first to the sub-committee. Q. And there are from time to time undesirable offerings? A. Undoubtedly; many are turned down. Q. And it would be the function of the sub-committee to sift out the undesirable from the desirable? A. Very likely it would present all. I think very likely they would present all of the syndicate proposals because they usually are of importance and they would be likely to be presented, even if they were pre- sented with an adverse opinion. Q. What is the quorum of the sub-committee — of the full com- mittee, the Finance Committee? A. Pardon me. Q. What is the quorum of the Finance Committee? A. A majority. Q. Have you any special rules as to that? A. A majority. Q. Following further the question of syndicate participations, do you as a rule enter into written or formal agreements for such participations? A. Yes. Q. And by whom are they executed? A. I suppose they are executed by the treasurer. Q. Mr. Randolph? A. Yes sir. Q. And where they are authorized are their terms stated in the minutes of the Finance Committee? A. Well, they are a matter of record. Whether they are written out at length in the Q. I don't mean a copying of the agreements but whether it 282 Testimony of John Claftin is the practice to state in condensed form' the purport A. Yes. Q. — of the agreements into which the company is entering? A. Yes; in a sufficiently definite way so that public documents would show what the a'greement was? Q. Yes. A. That is to say, these matters, you know, are all matters that are practically public, and there would be such ref- erence made as would be sufficient to identify them. Q. Does the New York Life Insurance Company enter into syndicate operations where it does not itself take the bonds. That is to say where it simply takes its profits as a member of the syndicate without actually taking any allotment of bonds, or withdrawing them, as it is termed? A. It never enters into a syndicate agreement except with the intention of taking the bonds. It may, however, allow those bonds to be sold if it seems practicable to sell them at a profit; it may realize the profit. In other words, it never enters into a syndicate agreement unless it is satisfied that it is a good thing for the New York Life to have the securities which the syndicate acquires. Q. Yes. Well, does it usually obtain those securities by pur- chasing on the public offering or by withdrawing the securities to which it is entitled under the syndicate agreement? A. It usually withdraws. Q. Usually withdraws ? A. Yes. Q. It does not, as a usual thing, acquire by purchase? A. Usually withdraws. Q. I have received a statement of syndicate participations of the New York Life Insurance Company for ten years last past, which has been furnished me by the officers of the company, and for convenience I will have it marked for identification. (Marked Exhibit 38 for identification.) Q. You recall a syndicate relating to the Japanese bonds, first 283 Testimony of John Claflm series in May, 1904? A. I remember there was such a syndi- cate. Q. Do you remember the participation by the New York Life Insurance Company in that syndicate? A. I do not. Q. To the extent of one hundred thousand pounds? A. Yes, now that I refresh my memory I know that it was as much as that. I didn't remember what the amount was. Q. Now I find noted under the column headed "Payments. New York Life carries bonds" and opposite the entry of Japanese 6's first series the statement " No call." That means, does it not that the New York Life Insurance Company did not withdraw any of those Japanese bonds? A. Yes. Q. Under the syndicate agreement? A. It means that it didn't pay for any and didn't get any under the syndicate. Q. So that whatever of those bonds it obtained it got by pur- chase on the public offering? A. I don't know that it got any. Q. Well, perhaps it didn't get any? A. Perhaps it may or may not. Q. You don't recall as to that? A. No; I don't recall as to that. Of course it would be quite evident that if it had made a profit in that way on those bonds, it thought the bonds were a desirable investment; it might have gone in and bought them later. I don't remember about that, whether it did nor not. Q. There is further stated here opposite the entry of Japanese 6's first series and under the heading "Profits" $9,760. How was that profit made? A. Doubtless — that I understand to be one of the syndicate participations? Q. Yes? A. That was doubtless from the fact — we see here ''No call" and then we see the profit. Q. Yes. A. Now what result it was, the New York Life put up no money, the syndicate sold the bonds, and the New York Life received a check for that amount. 284 Testimony of John Claflin Q. That is, the syndicate managers sold the bonds? A. The syndicate managers sold the bonds. Q. And who were the syndicate managers? A. I don't re- member who they were. Q. Were they Kuhn, Loeb & Company? A. I think they were Q. Yes. The syndicate managers sold the bonds, and then the profits which were realized by the sale at a price over that at which the syndicate managers had acquired the bonds was divided among the members of the syndicate according to their respective participations? A. Exactly. Q. Now I find that in 1904 there was a participation in the Wabash, Pittsburg Terminal to the extent of $500,000. Do you recall that? A. I recall the fact there was such a participation. Q. And there was no call, no withdrawal of bonds, for invest- ment? A. Yes. Q. Under that? A. Yes, apparently. Q. That is correct, is it not? A. That is correct. Q. And there appears to have been a profit of how much? A. $24,463.47. Q. Derived in the same manner as the profit in that case of the Japanese 6's first series? A. Exactly; the New York Life put up no money and received that profit. Q. Due to the advance in the price on the public sale over the price paid by the syndicate managers? A. Yes; yes. Q. Do you recall whether the New York Life bought any of those bonds? A. I do not. Q. I find that in November, 1904, there was a participation by the New York Life Insurance Company in the syndicate managing the Oregon Short Line 4's to the extent of $500,000 and that there was no call and there was a profit of $10,018.98? A. Exactly. Q. That profit was derived in same manner? A, In the same manner. 285 Testimony of John ClaHin Q. Did the New York Life acquire any of those Oregon Short Line 4's on the public sale? A. I can't really tell you; I don't remember. Q. In ascertaining the profit to be divided among the members of these syndicates what is the practice with regard to the charg- ing of a commission for their services on the part of their syndi- cate managers? A. The syndicate managers always charge profit. Q. Well, is there any rate of profit which they charge? A. No. Q. Do you recall what it was in the case of the Oregon Short Line 4's? A. I haven't any recollection whatever with regard to that. Q* Do they charge the members of the syndicate or against the fund for distribution an amount for interest? A. They would undoubtedly charge interest on such advances as they made. Q. That is to say, in the case of the Japanese 6's first series in figuring out the profit of which the share of the New York Life Insurance Company was $9,760 would the syndicate managers in that case charge interest for the advances that they had made in taking the bonds in the first instance? A. Doubtless any money which they had to advance on which they didn't receive interest in the way of collecting the coupons on the bonds, of course they would charge interest. Q. As to whether or not interest was charged in that particular rase you are unable to say? A. I am unable to say. Q. You can't go further than to say that it is the practice to charge interest on such advances as the syndicate mangager have added? A. Yes. Q. So if the syndicate managers have taken up in the first instance a security and advanced a certain amount of money, and then have sold the security to the public and realized a certain 286 Testimony of John Clatlin amount of money, and there is a balance for distribution, there would be charged against that balance interest on the advances made by the syndicate managers and a commission? A. Un- doubtedly. 0. Now I notice Japanese 6's, second series, under date of November 14th, 1904, the New York Life Insurance Company participated in that syndicate? A. Yes sir. Q. To the extent of one hundred thousand pounds? A. So it seems. Q. And there was no call? A. No call. Q. In other words they took nothing, took no bonds by with- drawal, and if they acquired any of those bonds they acquired them in the open market? A. Yes. Q. Do you recall a purchase of those bonds, the second series of Japanese bonds, on November 14th, 1904, that is, a purchase by. the New York Life Insurance Company? A. I should have the minutes of the finance meetings in order to be sure about it, because of course I cannot speak offhand about those things. Q. Now I find an entry in the minutes of the Finance Com- mittee under date of November 10th, 1904, as follows: "The sub-committee reported that it had taken a participation of a hundred thousand pounds in syndicate formed by Messrs. Kuhn, Loeb & Company for the purchase of six million pounds 6 per cent, bonds to be issued by the Japanese government and to be a second lien on the customs of that country, the price to the syn- dicate being 85^ and interest (83^4 and interest New York) all ls set forth in letter of Kuhn, Loeb & Company to the chairman dated 9th November, 1904. On motion of Mr. Claflin it was voted to authorize the sub-committee in its discretion to buy in addition to the company's present holdings of a hundred thous- and pounds Japanese 6's which are a first lien upon the customs of the country, two hundred thousand pounds more." Referring to that you observed that with regard to the second series, so- 287 Testimony of John Claflin called, the participation of the New York Life Insurance Com- pany was a hundred thousand pounds and the price to the syndi- cate was 83% and the interest New York. The subsequent mention of an additional purchase of Japanese bonds had refer- ence to the first series, did it not? A. Yes. Evidently the — this purchase was of first lien bonds. Q. And the mention of the syndicate — was the second lien. Q. Was the second lien bonds? A. Yes. Q: Now referring to these second lien bonds in which the com- pany had a participation of a hundred thousand pounds in the syndicate, equivalent to $500,000, 1 find no mention of a purchase of those bonds in the market. The reference here apparently being to the purchase of the first series of Japanese bonds. Is that right? Well, passing the matter of the second series of bonds for the moment I note that under date of May 12th, 1904, an entry in the minutes of the Finance Committee with reference to the first series as follows: "The treasurer reported that he had secured from Messrs. Kuhn, Loeb & Company participation in a hundred thousand pounds as per authorization contained in min- utes of 10th of May in the syndicate which that firm is forming to take up the five million pounds of the new Japanese loan at 93 K less 2 per cent. He stated further that he had asked in addition for a hundred thousand pounds of bonds at 93/4 ? He further re- ported that up to date he had not been able to arrange to his satis- faction a participation in the syndicate in Paris which is forming to float the new Russian loan." Now, it was that first series, was it not, in which you had the participation stated in the syndicate that the purchase, was made in the subsequent November of a million at 92 and 6 from W. S. Fanshaw & Company? A. I pre- sume it was. Q. And last May had 91,000 at 91.67 and interest from Kuhn, Loeb & Company. Q. In other words, the New York Life Insurance Company was 288 Testimony of John Claftin a considerable purchaser in the market of these bonds entirely apart from its syndicate subscription? A. Yes. THE CHAIRMAN: A little louder, Mr. Claflin. THE WITNESS: Yes. Q. So that while, as stated in this list, Exhibit 38, there was no call on the members of the syndicate and it had to pay nothing under the syndicate to get a profit through its syndicate par- ticipation A. Yes. Q. — it was in the market buying a much larger quantity of bonds than its syndicate allotment, and in that way furnishing a part of the profit which was divided among the members of the syndicate? A. That may or may not be true. I am not sure when the purchases were made. You have the dates there. I don't know whether the purchases were made immediately — whether the purchases were made from the syndicate or whether they were made afterwards. Q. Oh yes, they might have been made at a later time, after the syndicate had realized its profit. A. Exactly. Q. On its first public offering — quite so. A. It must be re- membered that the Japanese bonds varied very much in value as the Japanese arms were successful. Q. Now, here is another statement in Exhibit 38 under date July 6, 1904, "Atlantic Coast Line $2,000,000," opposite which under the column "New York Life carries bonds" I find $1,870,- 000. In that case apparently the members of the syndicate were called upon to take the bonds. You recall that fact? A. Well, really can't recall any of these facts with accuracy. I should have — you see there are a great many transactions, and of course this is onlv a very small part of my business. Q. Certainly; I appreciate that and it is very natural 289 Testimony of John Clailin you should A. And I don't trust my memory in these matters, but I should say the record you have before you of the Finance Committee is perfectly reliable, and I am perfectly willing to be understood as corroborating that record, because that record was read to me at subsequent meetings. Q. Yes. Well, you recall the fact without having the particu- lar figures in your memory, that the New York Life took the Atlantic Coast Line bonds? A. Yes. Q. And did also buy Atlantic Coast Line bonds in the market? A. I can't tell you about that without reference to the minutes of the Finance Committee. Q. I find this entry on page 7 of book 9 with reference to the Atlantic Coast Line bonds, under date of July 1st, 1904. " The Chairman announced that the Managers of the Atlantic Coast Line, Louisville & Nashville purchase money syndicates in which this Company has a participation of $5,000,000 are expecting at an early date to put the bonds on the market at 94. He stated that a plan had been formed to sell to a syndicate to be composed of some of the leading banks of New York and the New York Life Insurance Company ten millions of these bonds 94 less % and later on less one per cent when the balance of the bonds are sold, making the cost 92^. The treasurer was authorized to make a participation of $2,000,000 in the syndicate on that basis. The treasurer was also authorized to take on joint account with Harvey, Fisk & Sons $2,000,000 additional of the same bonds on the same basis." You are familiar with the history of the At- lantic Coast Line bonds ? A. Yes. Q. You are aware of the nature of the collateral which under- lies those bonds ? A. Yes. Q. What is it? A. I couldn't state it accurately enough so as to be — to make it a matter of record. It is a matter of general knowledge. Q. Well, it is Louisville & Nashville stork, isn't it ? A. Yes. ?<)0 Testimony of John Claflin Q. In other words I understand that the Atlantic Coast Line Railroad Company bought about thirty millions in par value of Louisville & Nashville stock and issued about thirty-five million of bonds against that stock as collateral. That is right, isn't it? A. Something of the sort is my recollection. Q. There is no other collateral for those Atlantic Coast Line col- lateral bonds other than Louisville & Nashville stock, is there? . A. And the — there is no other collateral but it is an obligation of the Company, it is a debenture of the Atlantic Coast Line. Q. It is an obligation of the Atlantic Coast Line, but looking at the security behind it you find that security is simply the Louisville & Nashville stock? A. Carrying the control of the road, as I remember it. Q. What is that? A. Carrying as I remember it a control of the Louisville & Nashville road. That is my recollection. Q. Yes, carrying the control of the Louisville & Nashville road ? A. Yes. Q. In fact a syndicate was formed to take that Louisville & Nashville stock and manage the transfer to the Atlantic Coast Line of the Louisville & Nashville road, wasn't it? A. I think there was. Q. It was then arranged that against the stock of the Louis- ville & Nashville which was thus acquired by the Atlantic Coast Line Railroad Company the bonds of the Atlantic Coast Line to the extent of thirty-five million in par value should be floated? A. Yes. Q. And there was a syndicate to float those bonds? A. Yes. Q. And the New York Life Insurance Company participated in that syndicate to the amount of $10,000,000 or $5,000,000 ? A. Whatever the record is. Q. Well, I find here the statement under date of July 1st, 1904, "The Chairman announced that the managers of the Atlantic Coast Line, Louisville & Nashville purchase money syndicate in 291 Testimony of John Clafiin which this company has a participation of $5,000,000 are ex- pecting at an early date to put the bonds in the market at 94." A. Yes. Q. That refreshes your memory so that you can say that in the first place that relates to these bonds secured by the Louisville & Nashville stock? A. Yes. Q. And to their flotation ? A. Yes. Q. And the participation of the company referred to is a par- ticipation in that syndicate ? A. Yes. Q. If the Atlantic Coast Line did not pay those bonds or should default upon them and it were necessary to realize upon the col- lateral, that collateral would be stock, and a buying in of the collateral and acquisition of the stock of the Louisville & Nash- ville? A. Undoubtedly. Q. So far as the lien upon the stock of the Louisville & Nash- ville is concerned, looking at the Atlantic Coast Line bonds with reference to the character of the collateral we find that it is a limited interest in the stock and does not even have the rights as extensive as the stockholders themselves, isn't that so — for example? A. I have forgotten. Q. The New York Lite Insurance Company as the holder of Atlantic Coast Line bonds secured by Louisville & Nashville stock cannot vote on that stock, can they? A. No; not unless they should acquire it. They have primarily the obligation of the Atlantic Coast Line. Q. Exactly. A. That seems to be partly ignored. Now the ■obligation of the Atlantic Coast Line in itself might be a good security. A debenture bond of a railroad, if the railroad is suf- ficiently prosperous, without any other security, without any security beyond its own debenture is often a very desirable obligation indeed. For instance, some of the debentures of the Pennsylvania sell at a very high price. Some of the debentures of the New York Central and of other roads have sold at a very 292 Testimony of John Claflin high price without any specific lien on anything whatsoever. Now, in addition to what value these bonds have as debentures they have also the value of having as security to them the con- trol of the Louisville & Nashivlle road, which in my judgment is a very valuable property, a very valuable security, and in my judgment those bonds are better secured by that collateral of stock than many bonds are by a lien on a road which hasn't the strength of the Louisville & Nashville. Q. Well, without going into the question whether or not it is well secured, my object was more to ascertain the nature and the character of the security. What you have said for example with regard to the advantage of a control of the Louisville & Nashville road through an acquisition of its stock and of the advantages of investing in stocks and the comparative advan- tages between such investments and investments in ordinary mortgage bonds would apply to a great variety of stocks, would it not? A. It would, but this isn't an investment in stocks. Q. I understand? A. It is only something, which if it became an investment in stocks, it would be sold. It is an investment now in debenture bonds. Q. I understand that and will come to it in a minute. I am not disputing the justness of your observation, but what you have just said with regard to the advantages which you hav-- from a lien on the collateral of stock independent of the advan- tage which you have from an ownership of the debenture, and calling your attention to the fact that that would also exist in the case of many other stocks? A. Undoubtedly. Q. Now so far as the debenture is concerned, does the New York Life loan on unsecured debentures? I mean does the New York Life invest in the unsecured debentures of railroad compa- nies? A. If it thinks these debentures are good it does. Q. What debentures of that character do you hold now? A. I think we hold some of the Pennsylvania debentures. 293 Testimony of John Claflin Q. Those are practically a part of the floating debt, are they not? A. A part of the floating debt. Q. And while of course, as you said, they may be a very good investment in many cases it is obvious that they should be very closely scrutinized, is it not? A. They should be very closely scrutinized. Q. It is a sort of an investment that you would not favor as an ordinary one to make? A. Well, it depends entirely. The de- bentures of the United States government, for instance, are pretty good security, but it is only a debenture. Q. I might add your own. A. Yes, I should consider my own perfectly good also, and so I should consider a high class deben- ture very much bi. .tcr than a low class first mortgage. Q. But as a rule in making investments in bonds, investors contemplate having something more than the obligation of the person issuing the bond and the investment is really made on the strength of the collateral behind it ? A.I think that is partly true and partly not true. O. I am speaking now of the ordinary case of investments? A. Well, I think it is hardly safe to make any rule or to draw any inference of that kind, because as I said before a first class debenture — the debenture of the English government, or of the United States government or of a very rich road is vastly better than a mortgage bond, whether first mortgage or other, of a weak road. Q. Well, that is quite obvious, but these first class securities where you can depend on the simple obligation of the person issuing them are comparatively rare, are they not A. They are not very numerous. Q. No. There are in the aggregate a great many; there are a great many. Q. For example, if you take the mere debenture of a concern you are liable in the event of hard times or disaster to find your- Testimony of John Claflin self competing with general creditors and persons who may have loaned money, and a variety of floating indebtedness, are you not ? A. It depends entirely on how strong the institution is. Q. Well, I am speaking now of a contingency where strength has proved weakness and things are tested. Now, in such a case if you have a mere debenture you are on the same footing with all the people who may be mere creditors of the concern ; is that so? A. Well, I think that statement is misleading. It is just exactly as it is with the United States government. Now, the United States bonds are pretty good and they are considered a first-class security, although the United States all the time has a very large amount of floating debt ; but it is a debt which it is so amply able to pay that there can be no possible danger about the goodness of the debenture. Q. The contingency that I suggested is hardly within the range of contemplation in that case? A. No, it is not. Q. But if you brought your attention to a situation where my suggestion would not be wholly improbable, you would recognize the possibility of the debenture holder being on the same footing with the general creditor, and in a less better position than the man who had a fixed prior lien on substantial assets? A. Un- doubtedly that is true, but I must reiterate the fact that a good debenture is a far better thing than a doubtful first moitgage or a second-class first mortgage. Q. Undoubtedly. Most of us would rather have the notes of certain individuals than the mortgage of others. A. Yes. A distinction must be made between individuals and corporations. Individuals die and are subject to contingencies, but while cor- porations have a standing which is known and which is public and there is no likelihood — no human likelihood of such things happening as you have suggested. Q. Corporations don't die; they sometimes resign. So such contingencies have to be contemplated. Well, without stopping 2 9S Testimony of John Claflin on that further now, taking this Atlantic Coast Line transaction, you will note the date of this, July ist, 1904, a participation of five millions and a statement that the managers are expected to put the bonds on the market at 94 at an early date; who are the managers? A. I think, J. P. Morgan & Company; I am not sure about that. Q. Now, on July 7th, 1904, 1 find a minute "Treasurer reported payments of $1,884,666.07 to Messrs. J. P. Morgan & Company, and $942,333.33 to Harvey, Fisk & Sons for syndicate participa- tions in Atlantic Coast Line Railroad-Louisville & Nashville collateral four per cent, fifty-year gold bonds due 1954, at 94 and interest, less yi per cent, commission, with additional one per cent, commission later, as authorized at Finance Committee meeting of July ist, 1904." I find it stated in this particular list, exhibit 38, that the New York Life carries bonds of $1,870,000. Apparently, the amount paid under the syndicate was $1 ,884,666. That is correct, is it not? A. I think it is. Q. Now then, what was the purchase of Harvey Fisk & Sons or what was that syndicate participation? A. I presume that was a participation for the purpose of having some of the bonds sold through Harvey, Fisk & Company at a profit. Q. So there was a second syndicate? A. I don't — well I think it is hardly a syndicate. I think that is simply a partici- pation with Harvey Fisk on joint account with the same syndicate. Q. This minute of July ist, 1904, states, after referring to the participation of five millions, that a plan had been formed to sell to a syndicate to be composed of some of the leading banks of New York and the New York Life Insurance Company, ten millions of those bonds at 94, less one half, and later on, less one per cent, when the balance of the bonds are sold, making the cost 92^. In other words, the New York Life Insurance Company joined with others to take on the public offering certain of those bonds? A. Yes, sir. 296 Testimony of John Claftin Q. And that syndicate was a purchasing syndicate? A. Yes. Q. Simply? A. Yes, simply a purchasing syndicate. Q. Purchasing from the syndicate manager of the original floating syndicate? A. Yes. 0. In other words, the New York Life took out on its syndicate allotment on this participation, that is to say, of $5,000,000, two millions of the bonds? A. Yes. Q. Direct? A. Yes. Q. And for those, two millions paid one million eight hundred and eighty four thousand dollars to J. P. Morgan & Company? A. Yes. Q. It didn't take any more of the bonds under its syndicate participation, but it joined with others in purchasing bonds from J. P. Morgan & Co. the public offering, and the managers of that purchasing syndicate were Harvey Fisk & Sons to whom the New York Life paid on July 7th, 1904, $942,000; am I correct in that? A. I presume you are. What is the difference in date between the two transactions? Q. "Well, the mention of both the participations in the earlier syndicate and the arrangement for a sale is in the minute of Julv 1st, and the payment is in the minute of July 7th ? A. It is per- fectly obvious that by a joining of interests in that way, the dis- tribution to the public would be expedited and there would be a profit, as I have no doubt there was on the second syndicate s<-- well as on the first. Q. Well the participation of the New York Life in syndicate aggregating $10,000,000 for the purpose of purchasing those bonds would support the market, would it not? A. I don't think the market Q. When you said expedite the public sale, just what did you mean ? A. Well, I meant if there were a large number of interests that were joined together that there would be a greater number of purchasers of the bonds, because it is quite evident that every 297 Testimony of John Claftin large institution has a certain clientele to whose attention it would call — it would direct the attention to these bonds. Q. Yes. A. I think that it will apear that in every case where the New York Life Insurance Company has bought bonds in that way in the open market it either has sold them to ad- vantage in the open market or the price has subsequently some- what improved. Q. Is that so of the Atlantic Coast Line bonds? A. Well, I don't know; I really don't know without looking at the Q. What is the market for Atlantic Coast Line bonds? A. I am sure I don't know. Q. Have there been any dealings in the market to any extent? A. Well, I really don't know about that. I don't follow the quotations. Q. Do you recall whether it is a fact at the end of last year there were no bids? A. Oh, I don't know anything about it. Q. Well, is your acquaintance with the general subject such that you can say that these bonds to a very large extent are held off the market and the price asked is maintained in that way? A. No, I don't think that is at all the correct way of stating it. A. I think a more correct way of stating it is that these bonds have largely gone into investment and that nobody is trying to sell them; nobody wants to sell them. They are held largely — that should be said really of all bonds. Now, it is not in- frequently the case that the very best bonds that can be found, as the very best stocks, when they have gone largely into invest- ment hands and are not dealt in from day to day, might find on any particular day no offering whatever. Some of the choicest things that can be found there is no offering for them, because nobody customarily wants to sell them, and there is no reason why anybody should offer them. And that is the case now you will find in stocks. Stocks that are of fluctuating value are dealt in very largely. When they become of very great value, 298 Testimony of John ClaMn when they sell at three or four hundred or higher prices, fre- quently the case will be there will be no quotation in them for weeks, neither bid nor offered, because thev are out of the market ; they are in investment hands. Q. What effect would it have on the market if the New York Life should put on the market two or three millions of the Atlantic Coast Line or any other security which it might hold to a very large extent? A. Well, that is a purely hypothetical question.' Most anybody could break most any market if he went at it as a speculator and tried to do so. On the other hand if the New York Life were to dispose of its holdings slowly and deliber- ately, carefully, as any private individual would dispose of his holdings if he wanted to sell, I haven't any doubt whatever that the whole holdings of the New York Life could be sold for an aggregate equal to the aggregate at which those securities were taken on the first of this current year. I haven't any doubt about that, not the least. Q. Well that of course I assume, because these are your sworn reports? A. But any kind of security — for instance, if you want to sell government bonds (and they are considered a pretty good security) but if anybody had a very large amount of them and tried to sell them in one day or in two days or to make an attack on the market, why, he could bring them down very largely and it would take them some time to recover. Q. Well, now for that very reason is it not customary in some of these large operations, where blocks of great extent are taken, to have some understanding that securities will not be put upon the market, but will be held? A. There is a general under- standing of that kind, that it would not be a fair thing for anyone who got the bonds at a favorable price to throw them off and ask the people who sold them to buy them back. But there is no written agreement in regard to it. Q. I find such an entry as this for example under date of 299 Testimony of John Claiiin November 7th, 1904, in the minutes of the Finance Committee of that day: "The treasurer announced that the sub-committee had taken from Messrs. Harvey Fisk & Sons a participation of $2,000,000 in the purchase of $6,200,000 New York Central & Hudson River Railroad Company debenture 4 per cent bonds due 1934 at 99^6 and interest, such participation being taken with the understanding that this company can withdraw its two millions at the price paid for the entire lot or leave the bonds for sale by Messrs. Fisk & Son with the further condition that if the company withdraws its $2,000,000 it will keep them out of the market for 1 2 months, and in any case the sales must be made through through Messrs. Fisk & Sons." Well, that of course is a partichiar agreement. I meant in a general way. Of course, you might make any individual agreement of that kind. Q. Well, you recall that agreement and what was the purpose of making an agreement that a security to the extent of $2,000,- oco should not be sold for 12 months and then shall only be sold through a particular house. A. Why obviously so that it might be distributed to the best advantage. It is perfectly evident that if there is a. large number of sellers they may bid against each other in selling the bonds, or in selling anything, and it greatly facilitates the distribution. Q. Well, what interest has the New York Life Insurance Com- pany in such matters? A. It has this interest very clearly, if it buys a bond at a certain price it doesn't want to have the price broken; on the contrary it wants to see if practicable that the price shall go up, that is, that it shall be distributed Q. Exactly. A. Just as it does when it buys government bonds, wh n it buys English consols or things of that sort. The members of the Finance Committee feel very much disappointed if the price goes down. We can't tell but it may, but we don't want it to go down, and we feel ourselves when we buy any of these things that we buy them cheap . Now we feel that • Testimony of John Claflin Q. "What do you mean by distribution? Pardon the inter- ruption. A. A distribution there, for instance, by Harvey Fisk & Company, if we buy a considerable part of an issue, now if the rest of the issue is sold to investors and not put on a specu- lative market it will gradually, the whole issue will go into in vestment and the price will be maintained at its full value . But if you take any kind of a security and scatter it around among a lot of people and let them sell promiscuously, one can't tell what will happen. Q. Well, the real point is that in such an agreement it is sought to prevent the New York Life securities, a large amount, from coming upon the market so as to interfere with the sales that are being made by those who have the sale of the other securities of the same class in charge ? A. Undoubtedly. Q. So that the New York Life by selling would not affect the market and will enable in this way the managers of the operation to put out the bonds to advantage? A. That isn't entirely — that of course is true incidentally, but it really is a statement by the New York Life that it takes those things contemplated as nvestments, that it is not taking them speculatively; that it t akes them intending to hold them, that it is perfectly willing to hold them for 1 2 months. Q. Exactly. A. And they are taken with the belief of the Finance Committee that they are worth considerably more than they were taken at and they will show a profit. Q. Of course the New Life Insurance Company, represented by its Finance Committee, without making any agreement at all about the matter, would make sure that it would not deal with those stocks in such a way as to hurt its own interests, would it not? A. Yes. Q. It is hardly necessary for the New York Life Insurance Company to make an agreement with Fisk & Sons,|or arybodv 301 Testimony of John Claftin else, that they will not sell their bonds in order to protect the New York Life? A. Yes, it is. Q. They can protect themselves? A. No. Here is what you lost sight of: they can protect themselves in selling, but they will get a lower price on the bonds by making the practical agreement that they are taking them for investment, and they are not taking them to resell. Q. So that the consideration to the New York Life is a lower price? A. Yes. Q. And the consideration to the other party to the transaction for giving that lower price is a definite assurance that the bonds will not come into competition with public offerings? A. For a certain time. In other words, the New York Life feels assured that it will hold those bonds for a year anyway — probably it will hold them for many years, but it is willing to give that assurance in that particular case in order to get the lower price. Q. What was the price at which these were put up on the market? A. I don't know. Q. Are such agreements frequently made? A. Very fre- quently. I do not at the moment recall any other of those. Very likely there may be a number, but I do not recall them. Q. There is nothing peculiar to the practice of the New York Life in that respect ; that is a very common practice ? A. It is a common practice. Anyone who takes a thing for investment, where it is known to go into investments, will get it on more favorable terms than the one who takes it expecting to sell it again. Q. He can get a lower price if he will say he will fetter himself for a certain time in its disposition? A. And even if he does' not fetter himself, if it is understood that he is going — that that is the intention- — if he has a good reputation for living up to his inten- tion, there will be some benefit accruing on that account to him. Q. Aside from the lower price paid for the security is there 302 Testimony of John Claflin any advantage to the New York Life in this transaction in agree- ing that it would not sell for a year? A. Neither advantage nor disadvantage. Q. Apart from the disadvantage there was no advantage but the saving in price ? A. No. Q. Dp you remember what that saving was? You do not have those facts in mind? A. No, I do not. Q. Don't you think — I do not intend in any way in this ques- tion to import a conclusion, but I want your judgment — there- fore I will change the form of the question. Do you regard it as a serious matter that the New York Life Insurance Company should put itself in a position where it cannot dispose of large blocks of securities, or any part of them, for a period of a year ? A. Not in the least. Q. And why not? A. Because the New York Life is very un- like any institution whose liabilities become due in the near future. The liabilities of the New York Life Insurance Com- pany must become due gradually through a series of many years. There is no possibility that the New York Life Insurance Com- pany could wish to convert as much as a quarter of its entire assets into cash within any one year. It is not conceivable that it could need to do that. Now, therefore, it could with absolute safety tie up three quarters of its securities, leaving only this proviso, that it should tie them up in things that it is confident are solid. Anyone of them, for that matter, it thinks, pretty much tie them up. All of the companies do when they take large real estate loans. It may be said that those real estate loans could be turned over at any time, but suppose all the holders of them shovdd wish to realize on them at the same time, and I am taking an extreme contingency, as you have in some cases ; what would happen? real estate loans or any securities would be ab- solutely unsaleable if the attempt were made to sell all of one thing at one time; it cannot be done. So the New York Life 303 Testimony of John Claflin would be perfectly safe if it tied up three-quarters of its secvrities for a year absolutely. Q. The New York Life Insurance Company is one of the largest investors in the market, is it not? A. Yes. Q. Is there, with the exception of some insurance companies perhaps, any concern in the market that is in a position to take as large blocks of securities? A. No, except the insurance com- panies and except the individual investors. Q. When you are in a position having large amounts of cash available — by the way have we here a statement of the average cash balances? A. I think you have. MR. HUGHES: The statement is produced showing the cash balances in banks and trust companies in the United States and Canada of the New York Life Insurance Company, from Septem- ber, 1900, to August 31st, 1905, inclusive. I would have these marked for identification. (Statements together marked Exhibit 39 for identification.) MR. HUGHES: I offer in evidence the statement of cash bal- ances from January 31st to August 31st, 1905. (Statement admitted and marked Exhibit No. 40.) Q. From this it appears that the New York Life Insurance Company had a cash balance on January 31, 1905, of upwards of ten million dollars ; about the same amount at the end of Feb- ruary and March, 1905; a little over thirteen million dollars at the end of April, 1905 ; upwards of twelve million dollars at the end of May; upwards of thirteen million dollars at the end of June ; upwards of fourteen million dollars at the end of July ; and upwards of eight million dollars, nearly nine million dollars, at 304 Testimony of John Claflin the end of August. With these large amounts of cash on hand the New York Life Insurance Company is in a position to deal to great advantage with questions of investment in securities, is it not? A. It is beyond a doubt. Q. Do you think it is necessary for the New York Life, whether otherwise advantageous or not, to enter into an engagement not to sell the securities that it buys in order to get them at as good terms as anybody else can get them? A. No ; it can get them at as good terms as anybody else gets them. It does not make any other application, but anybody, whether a private investor, or whether a corporation, who states that he is going to take those things for investment and hold them for a time, that is under many circumstances, many times will get a slightly better price, and as I look at it, there is absolutely no harm, no possible dis- advantage to the New York Life in making a promise of that kind where the security is absolute, no more than it would be harmful for the New York Life to loan five millions or ten mil- lions or fifty millions of dollars, or one hundred millions on real estate, where it felt the security was absolute, but where it was so tied up that it could not get the money for three or five or even ten years. In other words, I wish to emphasize this fact, that the New York Life with absolute safety could tie up three- quarters of all of its assets for a period of ten years. Q. You have emphasized that very fully. What I wanted to get at particularly was why it was that the New York Life, with the large amount of cash at its command, could not make as good a bargain as anybody standing free from any promise to hold, securities purchased for any particular time whatever? A. It expects to make a little better bargain than any one. Of course, this must be borne in mind: the Finance Committee of the New York Life could save itself a great deal of trouble by investing all the money of the Company in New York City bonds and Government bonds and the prior lien bonds of roads which 3°5 Testimony of John Claflin have been long earning a very large surplus. In other words it could invest in securities that would pay from two to three and a half per cent.; say an average of three per cent, and it could have investments that nobody could possibly criticize unless some of the policy holders should come to the Finance Commit- tee and say "Why are you earning us only three per cent, on our money?" We remember the servant in the Scriptures who very carefully hid the talent in a napkin, and he was not com- mended for it when he brought it back to the Master. The Finance Committee of the New York Life feels this way: it feels that it is not its duty — it would not be fair to the policy holder — and I am one of the policy holders for instance myself — I would not feel it would be fair if we bought Government bonds and Municipal bonds and other things which would give us no trouble at all, and which would yield on the average, we will say, to the policy holders of the New York Life a return of three per cent. That would be easier. We invest in things every one of which every member of the Finance Committee believes is good, and every member of the Finance Committee would be willing to make a purchase for himself on the same terms at which he buys for them. Q. That is quite clear? A. And we realize on the Company without risk practically, because it will show in Q. That is quite clear? A. And we realize on the Company without risk practically, because it will show in all these trans- actions for ten years we have made no loss whatever, except some trifling loss, a mere bagatelle as compared with the profits, and we have shown even in these latter years when the interest rate has gone down and it has been difficult to get as much as four per cent, on ordinary securities. We have been able to show more than four and a half per cent, and the difference between three per cent, and four and a half per cent, which you see is fifty per cent, more in income, that fifty per cent, more comes Testimony of John Claflin from using discretion in making investments, and investing for the whole body of policyholders exactly as any one of the mem- bers of the Finance Committee would invest any trust estate that was put into his hands. Q. Now let us come back for a moment to the point of de- parture. What I want to get at is this: it is an obvious ad- vantage to the people that are floating these securities that you should not sell them, isn't it? A. The advantage is divided. Q. That object is clear; it is an advantage to the people who are selling them that you should not compete with them? A. Perfectly. Q. The advantage to your company that you say also exists is that you get these at a cheaper price? A. We get these at a cheaper price. Let me add this: There is no advantage. We are buying in at the terms in the market ; we only need to buy to-day and sell to-morrow. We are in for investments, but we are in also to make a profit, and times when we see that any security has largely increased in the course of years, and we are verv likely to sell, if we think we can buy anything else to better advantage. Now, about the distribution of any lot of securities of which we had a portion, a market will gradually develop so that if at the end of a year we wish'to sell our bonds, we could get more for our bonds at the end of a year than we could have gotten if we had in anyway been interfering with the market in the meantime. Q. That is very true in many cases, indeed, but that advan- tage you can get without binding yourself. That you can get if you reserve the option to deal with the securities as you please ? A. Possibly not, and when one consider — you must look at the other side. The buyer of these bonds, if he is going to distribute, we will say, half of his holdings at a low price, and he expects to market the rest of them at a fuller price, he could not afford to tie up his money in those securities. He could not afford to 3°7 Testimony of John Claflin make this market which the New York Life wishes m~de. It is to its advantage that there shall be a large market for all its securities. Q. I understand it is to your interest that a number should agree not to sell for a particular time ? A. Certainly. Q. Do you make your agreement not to sell for a particular time contingent in that way, or do yoii agree with the persons who are bringing out the securities that you won't sell, and that they shall have a market free from your competition? A. We tyke it for granted usually, and if the party who is selling is making the same agreement with us that he is probably making some kind of an, agreement with other people Q. Aren't you quite aware of the fact that such an agreement is not made very usually with those who buy from the syndicate managers ; they are free to sell and you are not free to sell; is that not so? A. Sometimes it it so and sometimes it is not so. But whenever it is so, whenever we are not free to sell, we have two things; in the first place we have a concession in price in the beginning; in the second place we have the reason- able assurance, an assurance which works out in time and again and almost always, that the people who are selling them will create a market which will enable us a year or two hence to sell our securities at a profit, if we wish to, and nothing, it seems to me, can be more striking than a comparison of the figures carefully of the whole transactions of the Finance Committee, and the exhibit of profits that have actually been realized by this method of investment. Q. I would like very much if you would present a statement which will show us jdst how much you have saved in buying bonds by making holding greements; that is, a statement when you have made such holding agreements, and the price at which you got the bonds, and the prices at which they were offered to others who took on like terms, or who took on the same public 308 Testimony of John Claflin offerings. I am not, of course, referring to where you withdrew your syndicate participation in the first instance and got a saving by virtue of your being members of the syndicate, but where you bought on public offering, had you yourself partici- pated in syndicates? A. I do not. Q. You never have done that? I mean you do not make a practice of doing that? A. No, sir, I do not make a practice of doing it. Q. Have you in the last five years been a member of any syndicate, directly or indirectly? A. I may have been; I don't know; I have no doubt that I have been, sometime within five years. Q. Within the last year ? A. No, I think not; I don't remem- ber any. Q. It is necessary that I should ask you whether you have ever been a member of any syndicate where the syndicate managers have sold bonds to the New York Life Insurance Company? A. I have not. Q. Do you know the participators in the syndicates where you yourself — that is, where the New York Life Insurance Company becomes a member or participator; do you know who your co- members are? A. No. Q. You simply have s copy of the syndicate agreement or a duplicate original of the one that the New York Life Insurance Company itself signs ? A. That is it. Q. Does the New York Life Insurance Company hold or con- trol in any way the New Orleans Railway Company's four-and- a-half Sinking Fund bonds? A. I think it has an interest in those. Q. Can you refer me to the minutes of the Finance Committee relating to that transaction? A. Can I refer you to it? Q. Yes; do you know where it is? A. I have forgotten. If you give me the last list of securities I will. Have we sold those ? Testimony of John ClaMn MR. RANDOLPH: I don't think so. THE WITNESS: I was not sure whether we did or not. had rather a notion that we did still have some of them. Q. Did you have them at one time? A. The record will show just what we had. We loaned on them just exactly — I would have to refer you to the minutes there for the facts. Q. Mr. Randolph knows all about that transaction apparently and you haven't it fresh in your mind. A. I haven't it all fresh. I would suggest that a subpoena was served upon me yesterday afternoon as I was about leaving my office. Q. We are greatly indebted to you for coming, and very much obliged to you for your very full statement upon these matters in which we are so much interested. A. I wanted to say that I came here without the least expectation of being called. I thought probably you would want to appoint some future time when you would ask me questions, so my memory is not very accurate. Q. And we do not expect you to carry all these figures in your head, and we are very much obliged to you for your freedom in answering the questions that have been put. A. I have take 11 the liberty of expatiating on the excellence of the securities and what I believe to be the good record of the Finance Committee- This committee has been thoroughly conscientious in its work. They never made one cent out of the New York Life in any way, except the fees at meetings, and I cannot help feeling a little bit annoyed, perhaps, that the suggestion should sometimes seem to be thrown out that we were not exercising our best judgment in these matters when I know that every member of the committee did his level best. Q. It is not our desire to throw out any suggestion or make any reflections, but it is our desire to get at the facts, and we have 3io Testimony of John Claflin to do that by inquiry. A. I appreciate perfectly your position in the matter. Q. And I hope that you will understand that while we intend to get out the facts, if we can get at them, we desire to do it in as agreeable a way as possible. A. You are doing it entirely agree- ably, and I was only rather apologizing for what might seem undue elaboration on my part, but I simply wanted to present the thing as it is. Q. Anything you say on a financial question is of great interest to us all. We appreciate your being here. I want to ask you particularly with regard to a few matters so that your general statement will be properly amplified without, of course, implying the slightest doubt. Did you participate in any way in the International Mercantile Marine Syndicate? A. I did. Q. Were you a member of that syndicate? A. I was a mem- ber of that syndicate. Q. The New York Life Insurance Company was also a member of that syndicate? A. It was. Q. Who were the syndicate managers? A. J. P. Morgan & Company. Q. What was the extent of the New York Life Insurance Company's participation in that syndicate ? A. I have for- gotten. Q. $3,200,000, wasn't it? A. I think it was. Q. What was your participation in it? A. Well, it is curious that I am not quite sure; I think it was $100,000, but I am not quite certain about that. Q. That syndicate is still in force? A. It is still in force. Q. The bonds have been allotted to the syndicate members. Have you uaken them? A. I think not; I have done nothing a bout my subscription, and never sold it ; I still own it, or I have forgotten really what has happened there . I think there has been no distribution made in any way, as I remember it. 3" Testimony of John ClaHin Q. I find in the New York Life Insurance Company's last re- port a statement that they carry $3,200,000 of International Mercantile Marine Company? A. Yes, but that is participation in the syndicate. I don't think we have the bonds in hand. Q. That amount has been called ? A. That is the amount that has been called; that is the amount we paid. Q. And there has been no distribution as yet? A. There has been no distribution. Q. That syndicate was formed in April, 1902, or about that time ? Do you recall what the profit was to be to the members of the syndicate? A. I do not. Q. In many of these cases of syndicate participation there has been no call, but in that case the full amount of the subscription was called for? A. The full amount was called for. Q. Why is it that the bonHs subscribed for and paid for have not been delivered? In what respect, in other words, is the syn- dicate still in force? A. The syndicate is still in force, so that the syndicate managers ma.v sell the bonds if they have an oppor- tunity. Q. Sell the bonds to the public? A. Sell the bonds to the public. Q. And the time for that purpose has been extended to 1907 or 1906? A. That I have forgotten. Q. That International Mercantile Marine Company was a combination brought about by the acquisition of the stocks of various steamshio companies was it not? A. Yes. Q. These bonds for which the syndicate subscribed are bonds amounting in all — that is, the authorized issue — $75,000,000, is it not? A. I think so. Q. And they are subject to a first mortgage on several steam- ships and shares of stock in the International Navigation Com- pany? A. Yes. 312 Testimony of John Claflin Q. And they are a first lien upon certain other stock of other transportation lines? A. Yes. Q. Do you remember the extent of the International Mercantile Marine Syndicate; that is, how many subscribed? A. I do not. Q. Was it $50,000,000? A. I suppose it was all taken up, whatever the amount was — $75,000,000. Q. The $50,000,000 issued and $25,000,000 of authorized issue to be reserved? A. I don't remember. Q. Do you recall whether or not there was to be a bonus to the members of the syndicate of $2,050,000 in preferred stock? and $25,000,000 in common stock? A. I think something of that sort was the agreement. Q. So that the underwriting syndicate, that is, each subscrip- tion calls for 100 per cent, in bonds, four per cent, in preferred stock and forty per cent, in common stock? A. Something of that sort. Q. The preferred and common stock being the bonus that goes, with the number of the purchase price of the bond ? A. Yes, sir ; I think so. Q. And then if the bonds are ultimately sold to the public, the profit, if any, realized by the syndicate managers will be distrib- uted — I mean the cash profit will be distributed among the mem- bers of the syndicate ? A. Yes. Q. And the New York Life Insurance Company, and yourself as a member of the syndicate, are awaiting that public disposi- tion of the securities? A. Exactly. You see, Mr. Hughes, that is not a case at all where the securities are sold from me to the New York Life. The New York Life is a subscriber, and so am I, but the bonds are not sold to the New York Life Insurance Com- pany. Q. They have not been sold at all as yet? A. No, they have not been sold at all. Q. It frequently happens, however, that the New York Life 3i3 Testimony of John Claflin Insurance Company does go in and buy from the syndicate man- agers when there is a-public offering, but there has not been any such purchase in this case? A. To the best of my knowledge and belief it never has bought where any member of the Finance Committee has had any interest in the syndicate; not to my knowledge; I don't know. Q. So that where any member of the Finance Committee has had an interest in any syndicate, the relation of such member to the New York Life Insurance Company has simply been that of a co-adventurer in the enterprise? A. Yes. Q. A partner in that particular enterprise? A. Yes. Q. But so far as you recall, there has been no purchase by the New York Life Insurance Company of bonds where there has been such an interest? A. I never have seen such a case. I would say this: There has been — so far as I know, there has never been any advantage to any member of the Finance Committee in any syndicate, by reason of his ownership, by reason of his being a member of the Finance Committee of the New York Life . Q. You mean he could go into it just as well if he was not a member of the Finance Committee? A. Yes; this particular subscription in the Navigation syndicate was not made at all through the New York Life; it was made directly to J. P. Morgan & Co. Q. You did not subscribe through the New York Life ; you did not subscribe individually as an officer of the New York Life ? A- No, I did not apply in my own name for it ; I did not make appli- cation for it. Q. It was made through somebody's else's name? A. Yes. Q. Was it requested or was it allotted to you? A. I don't know ; I may be wrong about that ; I may have made application there in my own name ; I don't know. You see I am simply re- calling these things as I best can. I am not entirely sure about 3i4 Testimony of John ClaMn the facts when you ask me these things that I have not thought of for years, we will say. Q. I would want you to be at perfect liberty at any time to correct anything where you are not sure. We do not want any- thing but what is definite and certain. A. I should say right here, to the best of my knowledge and belief that the Navigation syndicate is the only one in which I was interested, in which the New York Life Insurance Company was interested at all ; although there may have been others that I have no knowledge of now, but I do not recall any. I had quite forgotten that at first. At any rate, I am perfectly willing — I would emphasize this — that in no case have the bonds been sold to the New York Life Insurance Company in which I as a member of the syndicate was interested, as I said in the beginning. Q. You made that same statement a moment ago with regard to all the members of the Finance Committee? A. Yes, that is my belief. Q. You do not profess to be conversant with the . A. No, I say to the best of my knowledge and belief. Q. I do not mean to imply that the contrary is the case, but you do not have any absolute knowledge of that one way or the other? A. No, I have not any absolute knowledge about that. Q. You know in regard to your own relationship? A. Yes. Q. This syndicate operation, or what was termed Navigation Syndicate, is carried in the reports of the New York Life at the market value, $3,200,000, to the syndicate subscribers. What is the basis for that? There is not any market, is there? A. I think there is. Q. For that subscription? A. I think there is. Q. Are these subscriptions dealt in on the market? A. The securities that one would get. Q. The bonds are not dealt in on the market that you sub- scribed for because there has not been the public flotation that 315 Testimony of John Claflin was anticipated? A. I think they are dealt in; I think I have ■seen them. MR. RANDOLPH : There are very few of them. Q. There is no established market? A. No. Q. The fact is that that is carried at par, or peculiar value of your subscription on anticipations? A. Yes. Q. That ultimately the securities will be disposed of so that that amount can be realized? A. Yes. Q. That is it, isn't it? A. Yes; it bears 4^ per cent interest. The interest is promptly paid, 4^2 per cent, and the thing on which the interest is promptly paid is presumably worth par. Q. As a matter of fact, in the year 1904, the operation of the steamship companies whose stocks are covered by mortgage securing these bonds showed a very large deficit? A. The last year? Q. Yes, in 1904? A. It did. That was due to the extreme competition, which was a very unusual feature. Q. In other words, you mentioned the fact, which led me to speak of that, that the bonds had regularly paid the interest? A. Yes, they had regularly paid the interest. The year before they earned their interest. Q. Yoti mean by that that the bonds are in the hands of the syndicate managers for sale, the coupons are collected by those managers and turned over to the Company? A. Yes; the par- ticipators in the syndicate get their interest regularly. Q. As though they had the bonds in their possession ? A. Yes. Q . Practically these bonds subscribed for by the syndicate are in the possession of the syndicate managers as if agents to sell them? A. Yes, sir. I think, Mr. Hughes, as I recall the matter now, that practically my subscription there was $75,000. I said I thought it might be $100,000. I am not quite clear there, but 316 Testimony of John Claflin it is somewhere between $75,000 and $100,000. I am not sure of the exact amount. Q. What you said in regard to the interest being promptly paid indicating the satisfactoriness of the security leads me to call your attention to the fact that after paying such interest, as I am informed, the International Mercantile Marine Company last year showed a deficit of $2,000,000. Was that correct? A. That was last year. I presume it was. Q. And the year before it showed a surplus of $3551°°° A. It was hardly a fair year. An average year would probably do better than that, which made it show the $300,000 surplus. There seems very little doubt that the bonds will earn their interest. | Q. They did not in 1904? A. No, they did not that year. Q. They have only earned their interest one year, haven't they? A. You must remember that these industries have all been established for a long time, and for a period of years beyond question they have much more than earned their interest. This is of course a new enterprise, only in its aggregation, not in itself. It is not a new project, simply a new aggregation of old com- panies. Q. Just refresh your memory to be sure that you are perfectly accurate. Were you in the syndicate of the New York Central and Hudson River fours last November ? A. No. Q. Or in Pennsylvania Railroad convertibles? A. No. Q. Or in Oregon Short Line? A. No. Q. Or the New York Collieries? A. No. Q. Or any of the Japanese Syndicates? A. No. Q. So we may take the International Mercantile Marine as the only one ? A.I think it was the only one ; it is the only one that I know of. Q. I think I have already asked you about the Atlantic Coast Line? A. Yes; I was not in. 3i7 Testimony of John Claflm Q. Or the Wabash or Pittsburg Terminal? A. No. Q. I see a mention here of a syndicate of Pennsylvania Railroad convertibles at three and a half per cent, $3,000,000, $2,741,500 having been paid to the New York Life Insurance Company and still in force. Just what is meant by that being in force. A. That is the three and a half Pennsylvania? Q. Yes. A. The bonds have not all been sold yet. The bonds are in the hands of the syndicate managers for sale. Q. Who are the syndicate managers? A. J. P. Morgan & Company. Q. Of course there has been no distribution of profits upon that transaction ? A. No. Q. Has the New York Life Insurance Company owned any ■United States steel bonds? A. Yes; it at onetime owned some of the underlying bonds; the Carnegie bonds as they call them. Q. Has it owned directly or indirectly any of the bonds which were issued for the purpose of replacing preferred stock? A. I don't think it has. I don't remember of its owning any of those . Q. Do you recall the Chicago & Alton refunding bonds? A. Yes. Q. Do you recall the participation of the New York Life in that syndicate? A. That was a long time ago, was it not? Was that a recent Q. I was just looking to see how recent it was. What would be your recollection? A. I should think it was a good many years ago. Q. Four or five years ago? A. As long as I think of; perhaps more than that. Q. Do you recall that the participation of the New York Life, or the purchase of the New York Life, was some five millions of dollars? A. I remember it was a large amount; I should think probably it was that. 3^3 Testimony of John Claiiin Q. Were you interested in tint in any way yourself. A. No, I was not. Q. I understand that was not a participation, but a purchase? A. Yes. I have forgotten exactly what the fact was. Q. It seems to have been a participation to the extent of $500,- 000 and a purchase of about $5,000,000. MR. RANDOLPH: I don't recollect that we ever had a par- ticipation. MR. HUGHES: Apparently it is so here. Q. Five millions by purchase, that is quite clear, isn't it ? The New York Life was interested in the Chicago, Burlington & Quincy purchase, was it not? A. Yes. Q. And to what extent? I find the figures here $2,500,000 in the syndicate. A. That is doubtless right. Q. That was the syndicate formed for the purpose of protecting the Chicago, Burlington & Quincy stock, and against which the collateral trust bonds were issued known as the Northern Pacific, Great Northern? A. Yes. Q. And to what extent did the New York Life buy those bonds ? A. I should have to refer to the record. I really have no re- collection in regard to it. Q. Well the New York Life still has on hand that $12,500,000 of them, has it not? A. It has a lot. Q. (Showing paper). Look at this paper. A. Yes, that is right. Q. Did it ever have any more than the $12,500,000? A. I don't believe it did at one time. My recollection is that it bought those at various times. Q. I think you will find the opposite item, the detail of it which I did not look at when I handed it to you. For example we find here, August i, 1901, $7,498.51 interest New York Security & Trust Company? A. Yes. 3*9 Testimony of John Clafiin Q. That means the purchase of this amount? A. Yes. Q. From the New York Security Trust Company? A. I think so. Q. Then on August 7, 1901, $500,000 at 100^ and interest from W. S. Fanshaw? A. Yes. That is December, isn't it? Q. 12 / 01 ? A. Yes, probably December. Q. At a later date, perhaps December, 1901. $300,000 at 96.30 to 96.51, and interest, stock exchange, and then we have later purchases in June and July, 1902. Apparently the initial purchase on original flotation of those was $7,400,000? A. Yes. Q. From the New York Security & Trust Company? A. Yes. Q. To which addition was made from time to time? A. Yes. Q. Do you remember how much of those bonds issued against the Chicago, Burlington & Quincy stock were taken by the New York Security & Trust Company? A. I do not. Q. Large blocks of those stocks were taken by other insurance companies, where they not? A. Undoubtedly. Q. And there was taken apparently under the syndicate $562,500? A. Yes. Q. Is there any special reason why you should go into a syndicate for $2,500,000, or for only $2,500,000, I might say, when you contemplate a purchase of many millions more, and in a ft_w days do make such a purchase ? A. There would not be if those two things were coincident and contemporaneous, and the syndicate were open for an unlimited amount. In the first place, in very many syndicates, the amount that the New York Life can get is limited. In the second place, we may at first think we wish only a certain amount. We may find then that the security is very much in demand, very largely over-subscribed, and it may seem very certain that it is going to enhance very much in value, and it may be wise for us to take a considerably larger amount. Recess until 2 P. M. 320 AFTER RECESS. WOODBURY LANGDON, sworn and examined, testified as follows : BY MR. HUGHES: Q. Mr. Langdon, you are a member of the Finance Commit- tee of the New York Life Insurance Company? A. Yes, I am. Q. How long have you been such member? A. Eight or nine years. Q. Are you a director in any other financial institutions in this city? A. Yes, quite a number. Q. Will you please state what they are? A. I am director in the Bank of Commerce, the Citizens Central National Bank, the New York Trust Company, Hudson Trust Company, the German-American Insurance Company, the German Alliance Insurance Company, and one or two others. Q. Are you an officer of any institutions other than the New York Life Insurance Company? A. Nothing more than a director in various institutions. Q. You are not an officer of any financial institution ? A. No, never have been. Q. Have you been in recent years? A. Never have been. Q. Do you have any special supervision of securities of the New York Life Insurance Company apart from your work as a member of the Finance Committee ? A. No. Q. Do you ever serve as a member of the Auditing Committee? A. Yes, I did, I believe, a year or two, some years ago. Q. Did you ever have anything to do with going over the 321 Testimony of Woodbury Langdon securities and counting them? A. The province of the Finance Committee is to count the securities every month. Q. Who does that? A. Certain members of the Finance Committee. Q. Do you do it? A. I do it in connection with three or four others ? Q'. Do you do it frequently? A. We do it once a month. Q. Personally? A. Personally when I am in town. Q. So you are conversant with the securities held by the New York Life Insurance Company ? A. Yes. Q. Have you yourself ever been a member of any syndicate of which the New York Life Insurance Company was a member? A. I did have an interest; I have an interest now, in the Naviga- tion Syndicate ; that is the only one. Q. The syndicate floating the bonds of the International Mer- cantile Marine Company? A. Yes. Q. What is your interest in that syndicate? A. I think it is $75,000 — two or three years ago. Q. It is still in force ? A. It is still in force. Q. And you paid $75,000 for your subscription? A. I did. Q. And the bonds are in the hands of J. P. Morgan & Com- pany for sale as syndicate manager's? A. Yes. Q. Are any other of the members of the Finance Committee of the New York Life Insurance Company members of that syn- dicate? A. That I cannot answer. Q. Have you participated in any other syndicate of which the New York Life Insurance Company is a participator? A. No, in no instance. Q. You mean that you do not recall any, or that you can state absolutely that there is none ? A. I think I can state absolutely that there is none ; I certainly do not recall any. Q. Have you ever been a member of any syndicate the bonds 322 Testimony of Edmund D. Randolph to which the syndicate had relation were purchased by the New York Life Insurance Company? A. In no case. Q. In the case of the International Mercantile Marine Com- pany, did you have to do with the valuation of the participation in that syndicate? A. No. Q. Who makes that valuation for the New York Life Insurance Company? A. I presume it is the treasurer in consultation with the vice-president. Q. Do you have anything to do with the carrying of these bonds at par? A. Nothing. Q. That did not come before the Finance Committee in any way? A. Not to my recollection. Q. The Finance Committee has nothing to do with the valua tion of securities for the purpose of annual reports? A. I think not. Q. Were you in the Chicago, Burlington & Quincy syndicate, or the Union Pacific, Northern Pacific, Great Northern trust bonds sold by the Chicago, Burlington & Quincy? A. I was not Q. Or the purchaser of those bonds? A. No. EDMUND D. RANDOLPH, recalled. BY MR. HUGHES: Q. You are the Treasurer of the New York Life Insurance Company? A. I am. Q. And you have been such treasurer for how many years? A. Since 1900. Q. And as such Treasurer you are ex-ofScio a member of the Finance Committee? A. I am an actual member; I have been a member of the Finance Committee ever since I became a Trustee of the Company in 1892. Q. And as Treasurer you have direct custody of the securities of the Company? A. Jointly with the other officers of the Com- 323 Testimony of Edmund D. Randolph pany. There is no one officer who has the custody of the securities literally speaking. < Q. As Treasurer what are your particular duties ? A. Well, as the name implies, it is with the monetary investment interests of the Company. Q. Applications are made to you for loans? A. Applications are made to the Company; sometimes they are addressed to me, sometimes to the Company; sometimes addressed to Mr. Perkins as Chairman of the Committee. Q. They do not come to you necessarily in the first instance? A. Not necessarily, but usually they do. All addressed to the Company come tome, and all addressed to me, and I might say that Mr. Perkins hands over to me those addressed to him. Q. I understand that the New York Life Insurance Company makes very few collateral loans? A. Yes, comparatively few collateral loans. Q. To what extent has it collateral loans outstanding at present? A. Oh, at this time the aggregate shows in the figures there. Q. I have not a list. I have asked for a list of collateral loans. Do you happen to have that ready yet? A. Yes, I have given you a list, but it is not in the aggregate. I gave you one tem- porarily. Q. You were having it printed? A. There is still that much of it to come from the printers. That part of it is in type. Q. Does that come down to a recent period? A. What is the last year there? Q. 1901. A. That is including the year 1901, and here is 1902. Q. I will take this, and then you can supplement it with the Test as soon as you have it ready? A. I expect it every minute. Q. Can you tell me what amount you have loaned upon col- lateral now? A. I think we have less than a million dollars. 3*4 Testimony of Edmund D. Randolph Q. Has the New York Life Insurance Company any stocks which do not appear there, in view of the policy that is adopted on its ledger assets? A. At this time? O. Yes. A. Only one stock of any moment. Q. What stock is that? A. One thousand shares of Southern Railway Preferred. Q. How long have you had that? A. We have had — if you have the syndicate list there I can show you exactly how long we have had it. I am sorry to say that my syndicate list has disappeared since I came here this morning. Q. I understad about that, that I have it by mistake. Mr. Fleming has it here. I will return it to you. This is my list and you can use that. (Handing witness paper). A. We acquired that in connection with the reorganization of the Memphis & Charleston Railroad. Q. When did you acquire it? A. I will see in a moment. My eye has not lit upon it yet. It must be there. Q. I do not see it there? A. This was the transaction: it may not have been regarded as a syndicate. I do not know whether it was a syndicate or not, but this was the transaction: The Memphis & Charleston Railroad, whose bonds we held for a certain amount, went into reorganization in connection with the Southern Railway, and we were given new bonds, and in addi- tion to that we were given these one thousand shares of stock — preferred stock, which was intended to equalize the difference in value in bonds. The bonds afterwards rose and became more than good for the whole amount of our investment, and we then wrote off this stock entirely, and have carried it ever since as a non-ledger asset that we had in one kind and another, a million or more. Q. What are non-ledger assets ? A. Non-ledger assets are stocks that we have acquired and carry at no cost whatever to us. 325 Testimony of Edmund D. Randolph Q. What are they? I do not find any such thing on this list. A. There must be a list of that kind somewhere. Q. I have no list of your stocks here? A. I can read them to you. Q. Yes , if you will I shall be glad to have you. A. At least I think I have a list here. This gives it, Mr. Hughes. Q. If you have a list there I will put that in. A. Well it has other things on it. I will give it to you in another form : Erie Preferred, 2,100 shares, which was a bonus that cost us nothing at all. Q. Do you hold those still? A. Those were sold. Q. How do you deal with those if they are on the non-ledger assets? A. We call that a non-ledger asset. Those are in accord with the Comptroller's and Accounting Departments, and eac.h month when the examination is made in reports to the Board, one of our Finance Committee — well, all the Finance Committee make the examination, and it is delegated to one of the members of the Finance Committee to then make the proof accurate, and a non-ledger asset always enters into that proof by the separate statement of each one. Q. Have you a record by month of those non-ledger assets? A. Yes, we have it permanently. Q. Do you have a book in which they are kept? A. No, these proofs are on a sheet. Q. And are they filed together ? A. Yes ; I can get you a file of them ; they are not filed together ; they are filed separately. Q. This statement that you have here of non-ledger assets is of what date? A. This is just a statement — they took them out; it covers everything. It will tell you the whole story. The next one is Southern Railway, and that I have explained. The most notable one is Union Pacific Preferred 5,000 shares. Q. Without comparing them, just give the complete statement. A Union Pacific Preferred, 5,000 shares ; Wisconsin Central, 30 326 Testimony of Edmund D. Randolph shares; Evansville & Terre Haute, 3133V&; Mackay-Nesbitt, 350 shares; Coal, 1,500 shares. They represent a par value of some- where about a million dollars, more or less, and we carried them for nothing at all. Q. The Pacific preferred was how much? A. 5,000 shares. Q. When did you acquire those? A. The date shows on the syndicate list ; it is some time ago. Q. Is that on the syndicate list? A. Yes. Q. Union Pacific purchase money, that is the bond issue, isn't it? A. Yes. Q. Then, if I understand it, on December 3, 1897, The New York Life Insurance Company went into a syndicate, subscribing for a million dollars of Union Pacific purchase money bonds which it took? A. The bond is the first mortgage; the Union Pacific first mortgage bond. Q. I was describing it as I found it described here. A. It is practically the same as a purchase money syndicate. Q. And the bond was a first mortgage bond? A. Was a first mortgage bond. Q. And you took — that is, the New York Life Insurance Com- pany — took its allotment of a million? A. Yes. Q. And paid for it nine hundred and ninety-seven thousands seven hundred and twenty-two dollars twenty-three cents ? A. We got, if I remember, $50,000 commission, and whatever it relates the price to. Q. What do you mean by a $50,000 commission? A. Accord- ing to the term of the syndicate there was a $50,000 deduction. Q. That was a profit? A. No, that was not a profit; I think that was for those who put up their bonds. Q. Where did the $50,000 come from? A. In payment from the profits ; they came from the syndicate. Q. That came from the success of the syndicate operations? 327 Testimony of Edmund D. Randolph A. I don't think it did. I think we get that because we withdrew our bonds. Q. You think it was a rebate on the bonds ? A. I think it was. Q. It is put down here as profit? A. That is all profit. We call as profit everything. Q. Did you pay $997,000 and then get back $50,000, or did you pay $937,000 ? A. We paid $997,000 and we got $50,000 in cash and $5,000 in preferred stock 99 $5,000 shares. Q. The 5,000 shares was a profit on the syndicate operation, was it not? A. No. Q. Or a bonus given to the subscribers? A. Bonus given to the subscribers. We derived no profit from the wind-up of the syndicate. We withdrew our bonds. Q. How long did you hold the 5,000 shares of preferred stock? A. We first sold 2,000 shares very shortly after that time ; I have not the date ; and we sold three thousand shares some time in well, we held that until very recently ; last year, I think, some time. Q. How long ago ? A. I can't give you the dates. Q. Well, approximately ? A. Oh, approximately I think within the last year. Q. You realized upon that same a substantial sum? A. Oh, yes. Q. What amount? A. I can't say how much. The stock has been worth approximately pretty close to par all along. Q. That is, the 5,000 shares have been carried since you changed your policy with regard to stock investments as a non-ledger asset. A. They were always carried as a non-ledger asset. We never claimed there was a benefit for a non-ledger asset. They stood in that shape with the exception, as I explained, the Southern Railway here, for a while — that was held as an asset to even up the difference of value between the bonds. When the bonds came up to replace the value in this, the other was then charged on. 328 i Testimony of Edmund D. Randolph Q. What object is there in having any desirable asset carried in that way, as a non-ledger asset ? A. I don't know. I found it to be the practice of the Company before I assumed the reins in that department, and it has been continued. I have been accus- tomed to the same thing in the bank of which I was president; carried a banking house for Half what it was worth. Sometimes there would be a surplus — some assets in reserve. Q. Do you commonly keep an asset in reserve which does not appear as a ledger asset which is really an asset of substantial value? A. In that case, absolutely; that is exactly the state of the case. Q. You had it in other companies? A. Yes, in all the com- panies that I have read here, every one of them. There is but one remaining now. Q. That 5,000 shares of Union Pacific preferred as a matter of fact you held for six or seven years ? A. Oh, yes, quite that. Q. You have mentioned 2,100 shares Erie Preferred? A. Yes. Q. How long did you hold that? A. As to those I would have to refer to the records. I would be very glad to produce the records for you. I absolutely cannot tell from memory. Q. Was it for a considerable time? A. Yes, quite a time. Q. That had a substantial value ? A. Yes. Q. And has it recently been sold ? A. Not very recently. The same answer applies as. to the other; I think it was sold within the year. Q. I have no record of any of them. A. If you will give me that Purchase and Sales Book I can tell you. Q. I do not find it there in the statement of securities now held. A. No, it was sold before this year. Q. But this record of purchases and sales that I have — you will have the other printed ? A. Yes, I gave it to you. Q. Yes, but I gave it back to you to have it printed. Have you 3 2 9 Testimony of Edmund D. Randolph got it complete? A. I can tell from this. I am sorry that the printer has not completed it all. Q. Of course, I understand it is a matter of some difficulty and magnitude, and I do not want to be— I do not imply that you are at all reluctant. You have given me everything I have asked for. A. Haven't you the rest of those? Q. This is all I have. A. That comes down to where, 1901 ? Q. 1898. A. This list includes 1901. Q. Does that show the stock operations as well as the bond operations? A. Everything; every purchase and sale of every kind that the company has ever made within that time. Q. Go on and state the rest of the non-ledger assets. A. I think I have stated them all to you. Q. If you have stated them all you know what you have stated. A. Yes. Q. Describe the others you have not described. You have described the Erie Preferred and Union Pacific and Southern Pacific. What are the others? A. Wisconsin Central. That is only thirty shares. We had a very small holding of bonds, and that went into the re-organization syndicate, and it yielded this little thirty shares of stock. We called it nothing and sold it finally. The'Evansville and Terre Haute and Mackay-Nesbitt Company's stock — those really had nothing to do with it — we had a loan to Mr. T. J. Mackay, who is President of the Terre Haute Railroad, and was also one of the firm ofMackay-Nesbitt & Company. That loan — Mr. Mackay failed and went all to pieces. We had to fore- close the loan, and we acquired the securities, and we applied in- stead of the interest that we collected the Mackay paid dividend, and we applied whatever we got in to the face of the loan, and sold some of the securities, and finally we were released from the loan, and they then became of their own operation non-ledger assets ; they were surplusage. All of the loan on our books had been liquidated. 33° Testimony of Edmund D. Randolph Q. You mentioned 1,500 shares of Continental Coal Company, didn't you? A. Yes. Q. Will you explain what that was? A. And in along with it the Kanawha & Hocking Q. What was the Continental Coal transaction? A. That and the Kanawha & Hocking transaction, strange to say, were two syndicates that were apparently got into without knowing it. Q. How did that happen? A. Mr. Fairchild had taken some for the Security & Trust Company, and in doing so he had put us down for the option of a participation and forgot to mention it to us. In the outcome of it there was a payment of money came with it and a bonus of this much stock, which we accepted. Q. What was that syndicate or syndicates? A. Well, I would have to inform myself about that, from the fact that it scarcely originated with us. I could not say offhand. Q. Hasn't anything to 'do with this $1,500,000 of Hocking Valley participating of June 29, 1903 ? A. I don't think it had any con- nection with it. Does it show as the outcome of that? Q. Do the syndicates you have referred to appear on this list I have? A. AH syndicates appear. Q. Which of the syndicates you have just mentioned? A. Oh, those two. Q. Yes. A. I don't think they do ; no. Q. If they do, I would like to have them identified. A. Yes, here they are. Q. What are they? A. Here is the Continental Coal; it was a no call, $2,235 cash and 1,000 stock. Kanawha & Hocking, no call, $1,450 cash and 1,000 shares of stock. We never paid any- thing, and really it was a singular case, where the thing had reached its fruition before we were aware of our interests in it. Q. Was that brought before the Finance Committee — I under- stand it was ? A. It had not, because it had not been brought be- fore any of us ; it was a windfall so to speak. 33i Testimony of Edmund D. Randolph Q. Who signed the syndicate agreement ? A. There was none signed to my knowledge. It is very often the case that they are not, in syndicate agreements. Q. That is a matter I have inquired about of some of the wit- nesses. As a matter of fact it frequently happens that these syndicate participations are allotted without any formal agreement? A. Almost every house has its own method, and different meth- ods. Some, for instance, notably, you take the case of Kuhn, Loeb & Company, I heard you refer to them, in singling them out, they are very largely embarked in syndicate negotiations, and I think, as I remember it, their customary method is to address you a line saying we beg to extend to you participation of so much in a proposed purchase of so many bonds at such a price. Be kind enough to signify your acceptance of same. And we acknowledge the letter and accept it with thanks, and that is all that transpires until the next step is, if they require money they send us a call and give us a syndicate certificate for partic- ipation representative of the amount of money we have paid in. If there is no call we probably hear nothing of it until the end, and when we receive their check ; the check brings' no detailed statement of anything with it. That is their method. Q. It brings a detailed statement of the profits and the way they are arrived at, doesn't it ? A. Not a bit. Q. How do you know you will get your right share? A. We have no means of knowing. That is the modern syndicate method. Q. Well, it is not a blind pool, is it ? A. Very much like it, I assure you. Q. Well, in what way? A. I mean as far as this. You confide yourself to a house of known standing and to associates in a syn- dicate. Of course you don't know who your associates are al- ways. 332 Testimony of Edmund D. Randolph Q. You don't know who your associates are? A. No, not al- ways. Q. In what sense do you confide in them? A. In a sense of when you do it you know you are not going to receive an account- ing or any details of the transaction. Q. Don't you take any steps to assure yourselves that a proper accounting is made ? A. I have to admit to you that we do not, nor does anyone else, Mr. Hughes. Q. Is that the practice of any other house, say of Kuhn, Loeb & Company? A. I think it is the method in more cases than not. Q. Is it so with J. P. Morgan & Company ? A. J. P. Morgan & Company send you over an agreement which you sign. Q. A formal agreement? A. A formal agreement. Their method is more exact in that particular than most of the other houses. Q. Then do you get from them at the final conclusion of the matter a detailed statement showing what profits have been made ? A. No, I don't know of any house, any of the syndicate — any of the houses who are syndicate leaders — that furnish a detailed statement at the conclusion of the syndicate. Q. In fine, you trust to the well-known reputation and stand- ing of the houses with which you deal? A. That is absolutely the fact, Mr. Hughes. Q. Arid you assume that when they divide up the moneys that are the profits that they divide them up properly? A. That is ex- actly the case. Q. And as you understand it, nobody in the syndicate asks for or receives anything except the amount which is distributed as the proportion of the amount due him by the syndicate managers ? A. I know they do not receive it. I think if they ask for it they get it, but it is not usual. Q. It is not regarded as good form? A. It is not usual, and 333 Testimony of Edmund D. Randolph I do not think you would be in the syndicate again ; it is not re- garded as good form, you have expressed it much better. I would like to eliminate the expression "blind pool"; that was joking. Q. That is all right; we will eliminate it. We do not wish to characterize. Leave but any such characterization and we will get at the fact. A. Well, you said blind pool and I assented to it. Q. I should withdraw it and am very glad to do so. Now, the fact is that as you say you might not get in a syndicate again if you indicated by your inquiries any distrust ? A. That is exactly it. If you intimated distrust I think that would end it. Q. And you regard it as a good thing to keep in such position that you will have an opportunity to get in such syndicates? A. Well, the figures at the foot of the list which you have been fur- nished record whether it is a good thing or not. Q. I mean you regard it, from the figures showing the profits made good policy to stand in well with the banking houses so you will be allotted your participation? A. It has been a source of great profit to our policyholders. Q. Don't you think that as the New York Life Insurance Com- pany you are in a strong enough position to dictate terms to bank- ing houses rather than to wait on their favor? A. I always have felt myself that it would be most impolitic in us to attempt to invade the field of banking houses by trying to be bankers our- selves. Q. I mean as possessing large sums of money available for in- vestment are not you in such a strong position that you can make you own terms with those who are in the business of selling such securities? A. They are the ones in the business of selling mainly ; it is the banks. Q. And you are largely supplying the demand? A. We are largely purchasing from them necessarily. 334 Testimony of Edmund D. Randolph Q. And largely in a position to make terms ? A. Yes, we cer- tainly are. Q. Then, why should it be for your advantage, to wait, as I expressed it, to wait on the favor of these banking houses in the allotment of syndicates, rather to stand aloof from the syndicates and purchase, as you see fit, when securities are offered ? A. Be- cause we are enabled to make purchases cheaper in that way, decidedly cheaper. Q. Through the syndicate? A. Yes. Q. As opposed to the public offering? A. Yes. Q. But as a matter of fact, in a great number of these cases, you take the bonds when they are publicly offered, that is, you buy the bonds largely in excess of the amount that you take in your syndicate allotment? A. Where we are not permitted to with- draw. Q. How is that? A. They acquire all the syndicate holdings, and do choose to allow the bonds to be withdrawn and marketed competitively by their holders. Q. When you say they you mean — the syndicate managers. Q. Is that a stipulation in the agreement, that they shall not be withdrawn ? A. It has to be a stipulation distinctly in the first case. Q. And is that usually done ? A. To stipulate whether you will withdraw or not? Q. Yes. A. After that it is a matter of favor entirely if they allow you to withdraw any of the bonds? Q. As the rule it is stipulated that you shall not withdraw? A. It is determined and stated whether we will or will not ; that does not appear by agreement, it is generally by agreement with the managers. Q. It is not a part of the formal agreement? A. No, if we withdraw our bonds we forego all profits in the results of the syndicate. That is to say, we get them at the syndicate price, plus 335 Testimony of Edmund D. Randolph a stipulated commission, which is usually half a per cent. If they allow you to withdraw the bonds you do so at the original syndi- cate price, that is, the price at which we go into the syndicate, the ground floor, so to speak, plus half a per cent ' commission, which is usually the rate, to the syndicate managers, but then we forego all profits beyond that from the marketing of the bonds, and no matter how much they make we get nothing beyond that ; but of course in that case the question of competitive selling arises, and in order to guard against that, that is the reason the stipula- tion is made that you were discussing with Mr. Claflin. In taking the bonds at this low price, they propose to make a profit, perhaps, of four or five per cent in offering them to the public. Q. Do you mean the syndicate managers? A. The syndicate managers, and if they were to force us to take them at 4 or 5 per cent, less and turn them out at a much less profit it is per- fectly correct business for them to say all right; if you withdraw your bonds the general form is that you are not to put them on the market for a given time unless through the parties who are the managers of the syndicate or else Q. So they can control the market? A. Yes, or else unless the syndicate closes sooner. In the event of the closing of the syndicate, for instance, if they would give themselves six months in which to complete the syndicate, and under your agreement not to sell, if they sell them in one month, you are at once notified and released from your obligation to hold. Q. Now, you have spoken of withdrawing bonds and its con- sequences. In common practice do you withdraw bonds, or do you not withdraw and take what bonds you choose upon the public offerings? A. Our general practice is where we can withdraw the bonds, to do so, and if we cannot withdraw the bonds it then becomes a matter of adopting — of course if we with- draw them it is at a low price, and it is for us to consider them in Finance Committee whether we want them at the higher price 336 Testimony of Edmund D. Randolph they are selling to the public for. Not infrequently we go in and buy them. Q. But in common practice how does it turn out, that you are enabled to withdraw them, as you prefer to, or the reverse? A. Well, I think that perhaps — I should think oftener we were not permitted to withdraw them. You will see the reason, they don't want them to go into competitive market. Q. They don't want any competition until they have offered them? A. No. After that we are free to do what we please. Q. You have spoken of an agreement to be made in case you are permitted to withdraw, you shall not come into the market until a particular time? A. Yes. Q. Is it not a fact that an agreement is made that when you go into the market to buy the bonds and do not withdraw them, that you will not dispose of the bonds within a given time ? A. No, not often. Q. That is the kind of a case we were dealing with with Mr. Claflin this morning? A. Yes. Well, he explained that very clearly. It is a kindred reason. In that case it was not a syn- dicate but was more of a secondary syndicate. Q. You mean purchasing of New York Central bonds ? A. Yes. When we went in for these Atlantic Coast Line bonds we clearly wanted to withdraw the bonds. Q. I think you have another matter in mind. The matter that Mr. Claflin was referring to this morning was the agreement of the New York Life and other purchasers to take ten million dollars of the New York Central and not dispose of them for twelve months, and then only through a certain house. Now, you are referring to the Atlantic Coast Line, which was a separate transaction ? A. I thought that conversation had reference to the Atlantic Coast Line. Q. Which was it, in fact ? A. Well, you had the minutes. I Testimony of Edmund D. Randolph would like to see them again. Can I read from the minutes what it was? Q. Yes. A. You were speaking of both of them to him. Q. Yes, you are quite right. That was Atlantic Coast Line. A. That was my recollection of it. Q. You say you wanted to withdraw the bonds. What bonds did you want to withdraw? A. We had an investment of five million dollars of the Atlantic Coast Line bonds. Q. But your participation in the syndicate was only two million? A. But we wanted to get five millions of dollars and to have them apply towards it. Q. But you could not get five millions by the withdrawal? A. I know we could not. Q. And those you did subscribe for through the syndicate you did withdraw as a matter of fact? A. The two millions, yes. Q. That was all you subscribed for? A. Yes. Q. And then you went to a purchasing syndicate to get five millions? A. Yes. Q. And then you made an agreement not to dispose of the five millions for twelve months? A. We came into that purchasing agreement after the First National Bank and some others had made their purchase of the bonds, and the opportunity was then extended to us to participate in their purchasing, and it was a similar case there. We were made a concession on the bonds which they were unwilling to give us, except in consideration of our holding them off the market for a time. Q. Does the New York Life Insurance Company own stock in any trust company? A. We do not. Q. It formerly did, I believe, prior to the time when you changed your policy in that regard ? A. Yes, the New York Security & Trust Company. Q. When was the New York Security & Trust Company or- 338 Testimony of Edmund D. Randolph ganized ? A. Well, I will have to turn to the papers for that. I was not in the company at the time of its organization. Q. Well, it was sometime prior to 1899, wasn't it? A. Oh, yes. Q. Now, as your relations with that trust company have been made a subject of comment, I would like to have you state quite fully just what the transactions are; and you have been good enough to furnish me with a brief statement which I will use as the basis of the examination. A. I have the statement here. Q. You can refer to it as you please. Now, I understand that in 1899, after an investigation by the Prussian Insurance Bureau, you were readmitted to transact business in Prussia? A. Yes. Q. And one of the requirements was that you should cease to make investments in or loans upon stock, irrespective of the laws of the State of New York? A. Yes. Q. Then you adopted a new by-law which provided for the class of investments which should be entered into subsequently? A. Yes. Q. And that by-law is By-Law 27? A. It was then. In the by-laws I think the number is -changed. At that time it was By-Law No. 27, as adopted at that time, it was By-Law No. 27. Q. Is it in the same form — it is now By-Law 32 ? A. Yes. M-R. HUGHES : I will read that by-law in evidence : The funds of this company shall be invested and kept invested in the following interest or income-bearing securities among those permitted by the provisions of the insurance laws of the State of New York, viz. : In bonds of the United States or of the State of New York; in bonds of any county or incorporated city in the State of New York; in bonds and mortgages on improved, un- encumbered and income producing real property in the State of New York, worth fifty per centum more than the amount loaned 339 Testimony of Edmund D. Randolph thereon; in bonds of any solvent institution incorporated under the laws of the United States or any State thereof ; in bonds issued by any city, county, town, village or school district of the State of New York ; in bonds of any of the States of the United States. They may also be invested on the pledge of any of the above securities. The company may furthermore invest the funds required to meet its obligations incurred in other States, of the United States or foreign countries, and in conformity with the laws thereof, in the same kind of securities in such other States or foreign countries as are provided in the laws of the State of New York. The company may also loan on the pledge of its own policies of insurance a sum not to exceed the reserve which it then holds on any such policy. But this company shall not purchase, hold or grant any mortgage loans on unimproved or non-productive property or on farms, hotels, theatres, churches, breweries, factories, or mining enterprises of any description whatsoever. Neither shall this company make any loan on or investments in what are commonly known as industrial enterprises, nor shall this company invest in or loan on stocks. Pursuant to the law of the State of New York, the company shall not acquire by purchase or otherwise, any real estate except for the accommodation of its business or in satisfaction of debts due the company. Q. Now, that by-law, as I have just read it, is the by-law as it now stands. Originally, however, the by-law as adopted — when was that adopted, in 1899? A. It was adopted in 1899. Q. Yes. As adopted in 1899, m the last clause, reads as fol- lows: "Neither shall this company make any loan on or invest- ment in what are commonly known as industrial enterprises, nor shall this Company, notwithstanding the permission to invest in or loan on stocks, contained in the insurance laws of the State of New York, hereafter increase its holdings in such securities, but 34o Testimony of Edmund D. Randolph instead it shall annually reduce both the amount of stocks owned and the amount of stocks held as collateral security (to be evi- denced by the Annual Statements to be rendered by this Com- pany) until, in the Company's Annual Statement to be rendered in 1902, no item of stocks owned or of stocks held as collateral shall be included amongst its assets. Pursuant to the law of the State of New York, the Company shall not acquire, by purchase or otherwise, any real estate except for the accommodation of its business or in satisfaction of debts due the Company." Q. Now, on January 1st, 1899, your Company held the stocks which are stated in this statement (handing paper) ? A. Yes. Q. Will you please read those upon the record? A. Chicago and Northwestern preferred $1,350,000 New York Security & Trust Co 943,250 This is cost value I am reading, cost price. Chicago, Milwaukee & St. Paul, preferred 850,000 Valley R. R 502,500 Atchison, Topeka & Santa Fe 307.500 Fort Wayne & Jackson 168,656 Central National Bank 140,000 Pennsylvania Railroad Co 111,708 Chicago, Milwaukee & St Paul, common ". 85,387 Southern Railway Co., preferred 22,500 American Ex. National Bank 10,000 Merchants National Bank 1 1,000 Evansville & Terre Haute R. R ",333 Bank of America 4>8oo Mackey Nesbitt Co - ".55° National Bank of the Republic 9°° Real Estate Exchange Membership 5°° Q. Making a total of cost price of-—? A. $4,532,084. There 34i Testimony of Edmund D. Randolph must be an error there. Evansville & Terre Haute Railroad and Mackey Nesbitt Company, we acquired without any cost at that time. They may not have been written off, I don't know. Q. These are the stocks which appeared upon your public reports and which were included in your ledger assets? A'. Yes, at that time. Q. At that time, January i, 1899? And in addition to those, you had of stocks the sum to which you have recently referred? A. And also some of those which appeared there as ledger assets were afterwards converted into non-ledger assets by the process I have told you. Q. Yes, you had this time the five thousand shares of Union Pacific Preferred? A. No, we only had three thousand at that time. Q. And you had twenty-one hundred of Erie Preferred at that time? A. No, we had not then acquired the 2,100. Q. And you had not then acquired the 1,500 Continental Coal Company? A. We did not have the Union Pacific Preferred among our assets here; it was non-ledger assets at that time. Q. That is just what I am getting at. There were some of these stocks which were non-ledger assets ? A. Yes. Q. But not to the full extent, as you have stated, because some of those were acquired subsequently? A. The only ones I see there that afterwards became non-ledger assets are the Southern Railway Preferred, the Mackey-Nesbitt Company and the Evans- ville & Terre Haute, which I described a while ago. Q. Among the stocks you held thus on January 1, 1899, was New York Security & Trust Company $943,250, cost price? A. Yes. Q. What was the par value of that stock ; that is, how many shares were there? A. Five thousand and five shares — 5,040 shares, I think it was. Q. 5,130, isn't it? A. Yes, 5,130. 342 Testimony of Edmund D. Randolph Q. Now, pursuant to this change in policy, you proceeded to take steps to dispose of the stocks? A. Yes. Q. Included in your public report between that date and December 31, 1901 ? A. Yes. Q. And you did so dispose of them? A. We did. Q. Now, among the stocks you so disposed of, was this stock of the New York Security & Trust Company? A. Yes. Q. Down to January 30, 1901, you continued to own that stock? A. Yes. Q. And January, 1901, it stood on your books at $899,500? A. Yes. Q. I don't understand the difference between that and the $943,250 previously given. A. I don't know how that was. There was some sold from time to time to qualify directors ; my own stock, but not at that time, was sold to me, ten shares, for the purpose of qualifying, and Mr. Perkins bought ten shares to qualify as a director ; I don't know whether that may account for a difference. Q. There was not any writing off? A. No. Q. This I understand was to stand for the actual cost, not of valuation but of actual cost? A- Yes. Q. So, as I understand it, the actual cost on January 1, 1899, was $643,250, and that was reduced by application of proceeds of sales of some lots to qualify directors to $899,500, on January 1, 1901 ? A. That is my supposition. Q. You mentioned the sale to Mr. Perkins; that took place on January 5, 1901, ten shares sold to Mr. Perkins to qualify him as a director? A. Yes. Q. That was at 750? A. Yes. My own was bought some time before that. Q. Now, you took into consideration the question of the best means to dispose of the 5,130 shares of New York Security & 343 Testimony of Edmund D. Randolph Trust Company stock? A. Yes, and found it a very difficult problem. Q. Why was it a difficult problem? A. Well, I may say that our laudable policy of publicity had acquainted the whole com- munity with the fact that we had to sell all our stocks, and also that we had three very big lots of stock, that it was thought might be gotten from us on terms of forced sale. Q. Now, during the year 1901, there had been several bids made for a few shares of that stock at 900? And 950, hadn't there ? A. Well, I don't know ; I assume that is true. Q. That appears in one of the answers to questions put to you by Commissioners Folk and Probe? A. Well, this undoubtedly is correct. Q. But you did not regard . A. If those are the answers I made, I will swear to them; yes, sir. Q. But you did not regard the price which could be obtained on the offer of a small lot as at all indicative of value of a block of 5,000 shares when you came to put them on the market? A. Well, it never is any criterion, of course. Q. In other words, it is a very different proposition to market several thousand shares from what it is to market fifty shares or a hundred shares of the stock of a trust company? A. Yes. Q. Or of a bank, or or any sort of a concern? A. Yes. Q. So you were somewhat put to it, do I understand you, to devise some means of complying with your new policy to get rid of the 5,000 and odd shares of the New York Security & Trust Company which you held? A. That is really the case. Q. And you finally entered into an arrangement with a number of persons to form a purchasing syndicate ? A. Yes. Q. Upon the terms of an agreement? A. I cannot say I per- sonally Q. Oh, I don't mean you personally, when I say you ; I mean the company or through its officials ? A. Yes. 344 Testimony of Edmund D. Randolph Q. And I suppose that is a matter that the Finance Committee dealt with ? A. Yes. Q. It was within its province? A. Yes. Q. And the whole committee dealt with it? A. Yes. Q. The result was an agreement, of which you have furnished me a copy, made December 9, 1901, between the New York Life Insurance Company and certain trustees for the disposition of this stock ? A. Yes, that is right. MR. HUGHES : I offer that agreement in evidence. (Admitted and marked Exhibit 41). MR. HUGHES : I will read this agreement : Q. I understand that this is a correct list of the subscribers who formed the purchasing syndicate ? A. It undoubtedly is ; I recog- nize it. MR. HUGHES : I offer it in evidence. (Marked Exhibit 42 and read by Mr. Hughes) . Q. This received the approval of the Finance Committee, and the final resolution after the matter had been discussed appears in the minute of December 12th, 1901, does it not? A. Yes. Q. And is as follows — just read it if you will. A. "Resolved, that Edmund D. Randolph, Treasurer of the New York Life In- surance Company, be and hereby is authorized, to sell, assign and transfer all or any part of 5,005 shares of the capital stock of the New York Security & Trust Company, now standing in the name of the New York Life Insurance Company, on the books of the said Trust Company." 345 Testimony of Edmund D. Randolph Q. I note that this number of shares was 5,005. What did the New York Life Insurance Company do with reference to the 125 remaining shares that it owned? A. I think you have that list. They were sold. There were 10 shares sold to Mr. Perkins to qualify him as director, and there were 10 sold to, I think, Mr. Woodbury Langdon and Mr. George W. Morrison each, and 3 shares to Mr. Schwab, I think. Q. You can perhaps supply me with a statement showing what was done with them? A. Yes; and there were a few left from which we retained half and put them in with nominal assets. Q. You have mentioned Mr. Perkins. He had already bought his before ? A. Oh, yes, to be sure ; he had already bought his. Q. Perhaps you didn't have 12 left at that time. Whatever that is, if you will ascertain and give me the figures. A. I will ascertain that exactly. Q. Now, under this agreement of trustees Charles S. Fairchild, John A. McCall and George W. Perkins were to have the option to buy the stock on the termination of the trust? A. Yes. Q. That option still continues? A. Still continues. Q. That is an option to buy the stock at the price fixed by the committee appointed in the manner set forth in, the agreement? A. Yes, sir. Q. And that purchase is contemplated to be made on behalf of the New York Life Insurance & Trust Company, if made? A. There is a separate agreement that covers that. Q. I was about to refer to that? A- Oh, yes. Q. That is the fact, is it not? A. That is the fact, yes. Q. Well, it says in the agreement that the trustees, Mr. Fair- child, Mr. McCall and Mr. Perkins, are to have the option to purchase individually, jointly. In fact that option is to be exer- cised by the New York Life Insurance Company ? A. Oh, yes ; not at all in their personal interest. Q. And to make that clear, there was a separate agreement en- 346 Testimony of Edmund D. Randolph tered into at the same time. And is that the agreement (handing paper to witness) ? A. That is the agreement. MR. HUGHES : I offer that in evidence. (Marked Exhibit 43 and read by Mr. Hughes) : Q. Then as a matter of fact the New York Life Insurance Company sold 5,005 shares through the medium of this trust agreement through the members of the syndicate subscribing this agreement at a price of $500 per share? A. That is it. 0. With a provision that the shares should remain in trust until January 1, 1907, or until the death of the survivor of two young men, in case that event should earlier occur, that being intended to comply with the law of the State of New York as to the duration of trusts? A. Two lives. Q. That no suspension of absolute ownership shall last more than two lives in being at the time of the creation of the trust or of the execution of the instrument creating the suspension? A. That was the sole purpose, of course. O. Now if when the time arrives for the termination of this trust — and it hasn't been terminated, has it? A. No, it hasn't. Q. It is still in force? A. It is still in force. 0. And when the date fixed in 1907 arrives there is to be the valuation of the stock and the trustees, Messrs, McCall, Fairchild and Perkins, have the option in the first instances to buy at the price fixed. In case they buy at a price more than $800, which these various subscribers have already paid for the shares, then the trustees are to pay one-half of the excess to the subscribers and one-half, or the remaining half of the excess to the New York Life Insurance Company? A. Yes. Q. That means in effect that the New York Life Insurance Company has an option to repurchase the 5,005 shares at the ter- mination of this trust on paying the agreed value and on giving 347 Testimony of Edmund D. Randolph to the extent of $800 per share and one-half of the excess of that fixed value over $800 per share, retaining for themselves the other one-half in the excess on the value over $800 per share t A. The option of repurchase in that I think you refer to the first clause. Q. I refer to the option to the trustee to repurchase. A. No, the first clause; that was simply to guard against an undervalu- ation by appraisers. Q. Well, I don't know exactly what you mean by the first clause, but I am referring to the case where there is a valuation of more than $800 per share? A. Oh, yes. Q. In that case if the trustees, on the request of the New York Life Insurance Company, elect to purchase the stock the New York Life Insurance Company is to furnish the funds ? A. Yes. Q. And those funds will go to the extent of $800 per share and one-half of the excess of the value as fixed over that $800 per share to the subscribers and the New York Life Insurance Com- pany will retain for itself, of course, whatever advantage there may be in the stock ; if they put up the additional one-half of the excess they will get it back? A. The aim in both places, or the purpose, if you merely speak of that, was as I said to guard against what you might say would be an under appraisal. Q. Yes. A. If they saw a way to realize more than that out of the property that they should have the command of it so as to achieve it. Q. The New York Life Insurance Company has a call upon this stock? A. That is it, exactly. Q. Upon paying at the termination of the trust $800 per share or one-half of the excess of the value over $800 per share fixed as the value provided for in the agreement? A. That expresses it in one way. I mean one side of the transaction. The other side is 348 Testimony of Edmund D. Randolph Q. Now, if the New York Life Insurance & Trust Company does not see fit to avail itself of that option and prefers to have the stock pass entirely beyond its control, then it will get, if the stock is disposed of or if the value is fixed at a price higher than $800 per share, one-half of the excess? A. They get that much in addition to the $800 at which they sold it. Q. Precisely. In the meantime and until the termination of the trust the trustees vote the stock? A. Oh, yes, assuredly so. I have no knowledge on the subject, but I assume they would, of course. Q. And the majority of the trustees, are entitled to vote the stock? A. I should say so. It is provided in the agreement. Q. So that in effect the New York Life Insurance Company, through the" action of its officers who constitute a majority of the trustees, control the voting power of 5,005 shares of the New York Security — or did until the change — of the New York Secur- ity and Trust Company ? A. I assume that they did, yes. Q. You don't assume that the voting power given to the major- ity of the trustees was to be exercised by them as individuals apart from their duties as officers of the New York Life Insurance Company ? A. As officers of the New York Life Insurance Com- pany, oh, no. Q. In other words they are trustees . A. I don't think they are voting as officers of the New York Life Insurance Com- pany at all ; they are simply trustees in their individual capacity. Q. Undoubtedly. But, in the execution of that trust, they would act in accordance with the wishes of the New York Life Insurance Company, would they not? A. I think as a matter of natural inference, but really Q. You don't think they are bound to? A. Really, they have no connection with the New York Life Insurance Company under that trust ; they are simply individual trustees, as I understand it. Q. My question was suggested by the fact that inasmuch as 349 Testimony of Edmund D. Randolph the New York Life Insurance Company had an option through the action of the trustees to take the stock at the termination with the voting power vested in the majority of the trustees, which could be exercised by the officers of the New York Life Insurance Company would not be exercised contrary to the wishes of the Company? A. No, I think it would not be; I think it' would not be. Q. But you don't understand they are under any obligation? Oh, not at all; they are simply acting in an individual capacity, but naturally they would consider the surroundings of the case. Q. Yes. Now, the New York Security & Trust Company at this time had a capital of how much? A. A million dollars. Q. And this 5,005 shares or that lot, was a majority of the stock? A. Yes. Q. Subsequently, the stock of the New York Security & Trust Company was increased, was it not? A. Yes. Q. Do you remember when that was ? A. That was a year ago ; somethting more than a year ago ; in the beginning of last year. Q. It was increased to 3,000,000? A. Yes. Q. What was the purpose of the increase? A. Well, consoli- dation seemed to be the fashion. Q. It was an increase made for the purpose, among other pur- poses, of acquiring the stock of the Continental Trust Company? A. Yes. Q. And the capital of the Continental Trust Company at that time was how much ? A. Also a million dollars. Q. And that was acquired by issuing stock of the New York Security & Trust Company. Q. Do you remember on what basis the Continental Trust Company's stock was taken over? A. I think they just issued stock for stock. Q. Share for share? A. Share for share in that case. Q. So that by that means the New York Security & Trust Com- 35s Testimony of Edmund D. Randolph pany became the owner of all the capital stock of the Continental Trust Company? A. Yes, sir. Q. And then, under the statutes referring to such a case, being the owner of all the stock, proceedings were taken to merge the Continental Trust Company as a separate corporation into that of the New York Security & Trust Company? A. You express it very much better than I could. That is undoubtedly it, though. Q. So that, after these proceedings, instead of the New York Security & Trust Company holding all the stock of the Continental Trust Company, the stock was wiped out by the merger, and the New York Security & Trust Company became the owner of the assets of the Continental Trust Company? A. Yes, sir. Q. Now, there was in this increase of stock another million dollars, was there not? A. Yes. Q. And what was done with that million of stock? A. That was sold to the stockholders at $500 a share and was added to the surplus fund of the company? Q. That was taken up by the — that right to subscribe for that amount of the increased stock was given to the stockholders of the New York Security & Trust Company pro rata? A. Yes. Q. Did the trustees, Messrs. Fairchild, Perkins and McCall, elect to take the shares to which they were entitled ? A. I think that question was left entirely to the individuals represented under the trust. Q. Well, as a matter of fact, what was the result? Did the proportionate part of the increased million go to the trustees who held the legal title to the 5,005 shares of the original stock? A. Well, I am not a lawyer to exactly locate the interest. Q. Well, I am not inquiring as to any legal matter. I merely want to know as to the fact, how much of the stock of the New York Trust Company, which is the present name of the company, is owned now by these three trustees? A. I really 3Si Testimony of Edmund D. Randolph could not answer the question. I have not the knowledge, Mr. Hughes. Q. But at all events it being left to tile subscribers who had furnished the money for the purpose of the 5,005 shares to deter- mine whether the option to take their pro rata part of the in- creased stock, in some way that was settled, and if the stock was issued it would be issued of course to those who held the legal title to the shares entitled to the option ? A. Oh, of course. Yes, it followed the ownership ; there is no doubt about that. It was a question submitted to each one. But just as to what each one did I am not able to state. O. That is a fact you can readily ascertain? A. That can be ascertained. Q. As to just what amount of stock the trustees now hold in the present company. After this merger . A. You mean the trust? Q. In the trust company? A. Persons represented in the trust, you mean? Q. As I understand it, the persons represented in the trust hold certificates of beneficial interest? A. Yes. Q. And the certificates representing the stock itself stand in the name of the three trustees, Messrs. Fairchild, McCall and Perkins? A. Yes. Q. And these certificates redeposited with the trust company. Now I want to know how many shares of the trust company are held by the three trustees, whether they have any additional allot- ment through the increase of stock? A. That I would have to ascertain. I have no accurate knowledge, Mr. Hughes. Q. Has there been any agreement executed by the trustees or has the question of any agreement been before the Finance Com- mittee with reference to the acquisition of a right to acquire the increased stock— that is a right on the part of the New York 35* Testimony of Edmund D. Randolph Life Insurance Company to acquire the increased stock? A. On the part of the New York Life Insurance Company? Q. Yes. A. Never. Q. The New York Life Insurance Company having an option to get the 5,005 shares . A. Yes, I understand. Q. It came to my mind that possibly they might have some arrangement with regard to that portion of the increased stock which those others were entitled to subscribe for? A. I can't recall any action of the kind or any suggestion of the kind or any action in the interest of the New York Life Insurance Com- pany. Q. Now after this merger proceeding the New York Security & Trust Company changed its name, did it not? A. Yes, sir. Q. And its name is now the New York Trust Company? A. Yes. Well, no, not at the time of the merger. Q. No, not at the time of the merger. A. But shortly after. Q. But subsequently. A. It desired to do it at the time, but they could not, the name had been preempted and for a while they couldn't do it. 0. So that the New York Trust Company is the same corpora- tion ? A. The same. O. But with a new name? A. Yes. Q. Now you are a director in the New York Trust Company? A. I am. 0. How many directors are there in the New York Trust Com- pany ? A. Well, the present company's board is increased. Upon my word I forget the exact number. Q. What is the size of the board? A. Well, I frankly don't remember the number. It was increased at the time of the con- solidation and I should remember the number, but I do not. Q. What persons connected with the New York Life Insurance Company as officers or directors are directors of the New York 353 Testimony of Edmund D. Randolph Trust Company? A. Mr. McCall, the president of the New York Life is, Mr. Perkins and myself also — and directors you say also? Q. Yes. A. Mr. Langdon. Q. Is that all ? A. That is all. Q. Were any loans made to any of the subscribers to this pur- chasing syndicate by the New York Life Insurance Company or by the New York Security & Trust Company to furnish the means for the acquisition of the stock? A. I can speak for the New York Life Insurance Company. We did not. And I don't re- member its having been done in any case by the New York Secu- rity & Trust Company. They may have done so. I don't mean to say they might have done so on the stock, because that they did not do, of course. Q. Do so on what? A. On the stock. Of course they couldn't do it legally. Q. Not on the stock, but on the certificates of interest? A. There is no doubt about that: Q. I was referring to the loan on the certificates of interest? A. Oh, no; they couldn't have done that. Q. They couldn't have done it? A. No, not legally. Q. It wasn't done according to your understanding? A. No, according to my knowledge ; as far as I know it wasn't done. Q. Now, if you will refer to your copy please of the bank bal- ances? A. Of what date? Q. Well, refer first to 1900. I observe that in 1900 the New York Life Insurance Company had three accounts with the New York Security & Trust Company? A. 1900, pardon me. Q. The first sheet. Known as accounts i, 2 and 3? A. Yes. Q. The first account in September, September 29th, showed a balance of $38,337.97, at the end of October it is $808,870.08, at the end of November $1,702,302.87, at the end of 1900 $3,823,- 739.16. . Then there are two other accounts which show small 3S4 Testimony of Edmund D. Randolph balances ranging from $77,561.25 at the end of September to $212,931.19 at the end of December in account No. 2, and from $44,660.05 at the end of September to $120,223.77 at the end of December in account No. 3. What was the purpose of having three accounts? A. The first account was — well, we might say at that time was our principal bank account, was the one in which we collected money paid for investments. Q. That was an active account? A. That was an active ac- count. They were all three active accounts, sir. Q. Was there any special reason for having three accounts? A. Yes, for the convenience of the bookkeeping department. For instance, we pay certain classes of payments out of that, and different classes out of No. 2 account, and still different out of No. 3 account. Q. What different classes ? A. No. 2 account I think we paid annuities and dividends and payments of one class of that kind; all insurance payments, and No. 3 account still another class of insurance payments. It was for convenience in the Comptroller's department up at the home office. Q. Now, referring to the balance sheet for 1901, I find that account No. 1 ranges from a balance at the end of January of $2,212,163.44 to $3,700,933.79 at the end of August, and then comes down to $1,605,143.59 at the end of September and goes up again to $2,490,960.92 at the end of December. That was the ordinary active account? A. Yes, in which we paid for our investments, and, of course, subject to large fluctuations, that par- ticular account, at that time. Q. Then account No. 2 and account No. 3 ran about as they did during the months of 1900 to which we referred — small amounts? A. Yes. Q. Then it appears on January, 1901, you opened a new account with the New York Security & Trust Company known as account No. 4 for three million dollars, and for three months, 355 Testimony of Edmund D. Randolph January, February and March, the balance seems to have been maintained at $3,000,000. What was that account for ? A. That account was an account opened by special agreement with the company for the purpose of reaping a better rate of interest when rates of interest in the market were higher. Q. How do you mean reaping a better rate of interest? A. Why, it was a movable allowance of interest. The agreement was this Q. What? A. Pardon me. Q. Go on. A. The agreement was this, that they were to allow within one half per cent per annum of the rate that they were to earn in the market upon their own loans. Q. Did you agree to maintain any particular amount on deposit for that purpose ? A. Not at all ; it was a fluctuating amount. Q. Well, it didn't fluctuate within those three months ; it was a flat three million ? A. If you follow it along you will see it fluc- tuates. Q. I understand, but was there an agreement? A. No agree- ment at all, it wasn't tied up. Q. What interest did you get on accounts Nos. 1, 2 and 3? A. Accounts 1 , 2 and 3 one per cent. Q. And what interest did you get on account No. 4? A. Within one half per cent of the current rate of money ; never less than 2 per cent to us, and ranging from that up to 5V2 per cent, that is, within a half per cent of 6 per cent, which was the maxi- mum rate of interest. Q. In the month of April, 1901, account 4 shows a balance of $6,264,917,98, and that goes up to $8,664,917.98 in May, and that is the same in June, and rises to $10,816,404.05 in July, and drops to $3,502,221.69 in August, rises again to $5,386,956.18 in Sep- tember, $5,236,787.13 in October, $8,000,000 in November and $6,905,167.82. Was that account maintained through that year for the same purpose ? A. For the same purpose in this way — — 356 Testimony of Edmund D. Randolph Q. Well, it was not an active account in the same sense that accounts i, 2 and 3 were active accounts? A. It was an active account in this way : Every day when they would be making the deposit, they say in which of the accounts shall it go. In fact, all three accounts — or only one account being deposited in No. 1 if 1 was the 2 per cent account, and if the other account admitted of a higher rate I would say deposit in the No. 4 account. Of course, that didn't apply to small amounts ; it was only large accounts. Q. But accounts 1, 2 and 3 were maintained at the same amounts that they had been? A. Well, that was simply that they ran along at about an even pace. When No. 1 account would be fed from No. 4 account if No. 1 account had been drawn down. Q. It doesn't appear to have been fed ; it appears to have been maintained at a higher average balance than it was maintained in 1900? A. You must remember we had a good deal of income coming in. Q. I understand that, but, of course, account No. 1 appears to have been maintained at about the same average balance, or some- what in excess of what it was in 1900; accounts 2 and 3 the like; then we have the large balance that I have in account No. 4. A. Well, that is the variation of it. Q. Yes. A. That was the variation of it. Q. Is it fair to say that such moneys that you had that could be left for some little time for the purpose for which you have stated with the New York Security & Trust Company, were de- posited in account 4? A. Yes, that was it. But we could have withdrawn them as we did constantly ; transfer them according to our requirements to the other accounts. Q. Of course. But you deposited in account 4 what you ex- pected to be able to keep there for some time? A. Not exactly — it was — yes, of course it was — we intended to keep the account along as long as it was possible on that basis. Q. Of course, the very object of opening that account and 357 Testimony of Edmund D. Randolph getting the rate of interest of one-half per cent less than the current rate of money was to provide a fund on which the New York Security & Trust Company could rely on making its loans ? A. Of course. Q. It was for that reason they were giving you the rate of interest you have mentioned ? A. Yes. At the same time it was not under any embargo or anything of that kind. Q. Not at all. A. It could be drawn against at any time. Q. Now, referring to the balance sheet, the sheet showing the cash balance in 1903. A. 1903? Q. No. A. I have it. Q. Pardon me a moment. Let us refer to 1902 first. Now, looking at account No. I, we find it has a balance at the end of January of $2,731,274.63; that is, reduced to $1,011,564.35, rises to $2,006,881.21 at the end of March, falls to under a million- in April, rises in June to $3,777,461.42, falls to a little over a million in July, then rises again to nearly three millions ; at the end of the year is $2,003,684.82. That is the ordinary active account con- tinued in the same way? A. Yes. Q. And accounts Nos. 2 and 3 run about the same as they had previously, small amounts — a little less, perhaps? A. Their bal- ance was supposed to be in the No. 1 account always. Q. Now, we find in account 4 for January, February and March a straight ten millions in each month. Can you explain how it happened and for what purpose it was that you had a continuous balance for three months of ten millions? A. I don't recall any purpose of making it ten millions. I suppose it was adjusted to those figures, made round figures ; at the end of De- cember I see it was seven millions, that is six millions nine hundred and odd. Q. That is the end of December, 1901 ? A. Yes. I don't recall any transaction that made it a round ten millions unless we had adjusted it to that exact figure. Of course, I know of transactions 358 Testimony of Edmund D. Randolph over the end of the year that would have increased it over the seven millions, but as to how the exact ten millions arose I couldn't say without looking. Q. As a matter of fact, in those three months you kept ten millions on deposit continuously with the New York Security & Trust Company to enable it to loan its money to advantage, you getting the full current rate less one half per cent, A. That was so in part. Q. Well, in what part was it not so? A. There was a portion of that — for the life of me I don't know how that got to be an even ten million ; for the moment I can't recall it. That involves — an explanation of that involves again the question of our getting rid of our stocks. Q. Well, in what way? A. Why, we got into three stocks I mentioned a while ago, three large stocks that had attracted the attention of — had attracted public attention as being on our hands and requiring sale. One of them is New York Security & Trust Company, which you have already explained by reading the agreement by which it was really sold. Q. But pardon me a moment. That agreement had been made on December 9th, 1901? A. Yes, 1901. Q. Now, we are in the first three months of 1902, after you had disposed of it? A. I am speaking of the creation of the larger balance at the beginning of 1902, as I said the change from 1901. Q. Yes. That is to say, that the proceeds of that stock are in this account to some extent ? A. No, I am going beyond that now. Q. Go on. A. I am saying of the three stocks there were two large stocks, one was 10,000 shares of the Northwest preferred, and the other was 5,300 shares of the St Paul preferred. Q. Yes. A. Those stocks had been— well, Mr. Perkins had been trying to negotiate the sale of both of them at private negotiation. They were very large blocks of stock, and there was competition out there in that country for the purchasing of the 359 Testimony of Edmund D. Randolph stock of both those railroads, and the aim was to get 250 a share for the Chicago & Northwestern and 200 a share for the Sf. Paul. In point of fact, we didn't get either. But at the end of the year Q. 1901 ? A. At the end of the year 1901 there was the man- date of our by-laws and our agreement with the Prussian Govern- ment, which has been referred to already, under which we were required to not show on our schedules of assets for 1902 any stock ownership, and neither, of course — then those stocks had to be taken off our books, and in order to close them out of the accounts there was a pro forma sale made of those two stocks to the New York Security & Trust Company, and passed over to them along with others of these non-ledger stocks I have spoken of, so that it made it an absolutely secure actuality of reaping those values, and the stocks were ultimately sold at $155,000, an advance over the figures at which they were taken in the account at the close of the year, and that transaction created — those funds for that purchase were not withdrawn from the trust company, and I can see now — I don't see what made the exact ten millions, but I can see how that transaction would swell the figures from what they were at the end of 1901 to what approximately they are at the beginning of 1902. Q. You say there was a pro forma sale to the New York Secu- rity & Trust Company? A. Yes. Well, that is a phrase of my own. They were closed out of the account and Q. You mean that on the book of the New York Life Insur- ance Company it appeared as a sale? A. On the books of the— yes, it appeared as a sale. Q. It appeared as a sale at what price? A. The Northwest preferred at 250 — I mean at 235, and the St. Paul preferred at 190. Q. But on the books of the New York Security & Trust Com- pany it appeared as a loan? A. Later on. Later on. They— I 360 Testimony of Edmund D. Randolph think it was toward the end of January some time when they elected Q. 1902? A. Yes — elected to give it another form and sent up word to us that they would like to have two applications signed by two of our employees, that they could give them a loan for utilizing the non-ledger assets or stock as margin on a small loan. Q. So in 1902 the transaction took the form on the books of the New York Security & Trust Company of a loan to the New York Life Insurance Company? A. No, first I think not. First it was passed over as a protected sale, as it were. Q. That is in the first instance? A. In the first instance. Q. It appeared as a sale to the New York Security & Trust Company, and the purchase price was placed to your credit? A. In the No. 4 account. Q. In the books of that company in the No. 4 account? A. Yes, sir. Q. Then later on the New York Security & Trust Company didn't want it in the form of a sale, they wanted it in the form of a loan? A. Yes. I don't know what the prompting was, but they sent us a request to please sign the accompanying applica- tion or to have them signed by two of our employees that they might change the form on the books. Q. Then as a matter of fact it was changed to the form of a collateral loan on the books of the New York Security & Trust Company ? A. Yes ; it was some time later in January. 0. Who made the notes? A. Two of our employees down in the office. Q. Who are they ? A. Mr. Mattison and Mr. Marshall, treas- ury department, financial department. Q. You mean in the financial department? A. Financial de- partment, yes. Q. And they made their notes running to the New York Secu- 161 Testimony of Edmund D. Randolph rity & Trust Company? A. It was on the blanks they sent up, the usual form, whatever they were. Q. They are the ordinary New York Security & Trust Company collateral notes? A. They called it an application. I have re- ferred to the Q. Well, the transaction got beyond an application? A. Oh, yes, I know, but there was a note undoubtedly with it. Q. There was a note? A. The application resulted out of the non-ledger asset stocks of which I spoke. Q. And all those securities were the property of the New York Life Insurance Company? A. Yes. Q. Now what was Mr. Marshall's note? A. The other note was George W. Marshall $1,500,000. The collateral was 7,000 shares of Chicago & Northwest preferred, and the margin was 1,000 shares of the Southern Railway preferred, which was a non-ledger asset. Q. And those securities were the property of the New York Life? A. Yes. Q. What is Mr. Mattison's position with you? What does he do? A. He is the stock and bond — the bond clerk; not the stock clerk. Q. How long has he been with you, some years ? A. Oh, yes, a number of years ; a great number of years. Q. What is Mr. Marshall's position? A. Mr. Marshall is a messenger. Q. What is his salary? A. His salary is $600. Q. A year? A. Yes. Q. Now at the time you placed these securities, to which you have referred, in the hands of the New York Security & Trust Company, you increased your deposit in account No. 4 to ten million of dollars? A. That wouldn't make the round figures exactly, but we must have adjusted it to the ten million dollars. It practically increased it to that. 362 Testimony of Edmund D. Randolph Q. What was the total amount, $3,300,000 of these two notes? $1,857,000 I think you said and $1,500,000? A. $1,857,000 and $1,500,000. Q. Making $3,357,000? A. $3,357,000. Q. And the balance of your account No. 4 with the New York Security & Trust Company on December 31st was $6,905,167.82? A. Yes. Q. And that was increased to ten million in January, 1902? A. Yes. Q. And maintained through the months of January, February and March at ten million dollars? A. Yes. Q. So that you supplied the New York Security & Trust Com- pany through your deposits with the moneys that were necessary to make those loans ? A. For that particular purpose, yes. The rest of the account continued on the former basis. O. Then in April, 1902, your balance in the New York Security & Trust Company rises from ten millions to thirteen millions. What was the occasion for the deposit with the New York Security & Trust Company of the additional three millions ? A. I suppose the money market was in a condition to make it profit- able. I don't know of any other cause. In this case I recognize the direct cause, but of that I don't. Q. There was no occasion for that in connection with any dis- position of stocks that you had? A. None that I knew of at all; I can't recall any ; I don't think there was any. Q. Have any notes been made to the New York Security & Trust Company by Mr. Mattison and Mr. Marshall at any time that you know of other than these two notes ? A. These loans — yes, I think it was in May that the Chicago and Northwestern stock was sold at 260, ten per cent advance over the price of the ten thousand shares at which it had been put into the security and trust company that was $260,000 additional profit. 3^3 Testimony of Edmund D. Randolph Q. And you got the benefit of that ? A. We got the benefit of that, of course, every cent of it. Q. At any other times were notes made by Mr. Mattison or Mr. Marshall in the New York Security & Trust Company ? A. Yes, then we acquired for the readjustment of these notes Q. What readjustment was made then? A. Well, I think I have that here, too, $1,175,000 was applied to the reduction of the note of George W. Marshall. Q. Why did you select Mr. Mattison and Mr. Marshall for this? A. Well, I don't know. It is a very customary thing in banks to have employees sign notes for the principal and make them appear as the borrowers for their principal. It is a very customary thing. I imagine there isn't a bank or trust company in New York where that doesn't exist to-day. Two places have come Q. Where notes are not made for millions of dollars by messengers and clerks? A. Yes. Two notes have passed under my attention within a week for larger amounts than that, both of them, where the employers, very reputable people, had employees make notes for them. Q. What is the reason? A. It is a very usual custom. I was president of a bank for 21 years myself, sir, and it was not by any means an unusual thing. Then I was a partner in a banking house for 15 years before that, and it was not an unusual thing for us as borrowers to do it. Q. Well, I suppose it is not to have the names of the real principals appear ? A. Well, I suppose that is the case really ; cer- tainly it is a very usual custom. I have given you 36 years knowledge of it. Q. Now, then, we look at this account No. 4 in May, 1902, and we find the balance reads $6,757,000, which is maintained through June. That means that you got in the proceeds of some of the stocks, and hence there is no reason for keeping up that deposit 364 Testimony of Edmund D. Randolph further? A. Oh there is no doubt about it that other moneys were entering into that from day to day. Q. There doesn't appear to be a fluctuation in that account ex- cept in large amounts ? A. For a period there. But it was usually in large amounts, large amounts. Q. Well, it is a fact that the reduction in May and June to $6,757,000 indicates that some of these securities had been dis- posed of and the money was available for withdrawal ? A. Well, undoubtedly the proceeds went to the reduction of that account ; no doubt about that. Q. Apart from the readjustment of the transaction to which you have referred, had Mr. Mattison and Mr. Marshall made any notes in transactions in which the New York Life Insurance Com- pany was interested? A. Prior to that? Q. At any time prior and subsequent? A. Afterward? Sub- sequently there were two occasions similar to this. Q. Please state what they were ? A. The next one I think was at the close of 1902. I can tell by looking at my papers. Yes, 1902. Q. Just state what it was? A. Well, that was another case of the interpretation of securities under the By-laws. We had bought $1,800,000 in round figures of the Carnegie bonds of the United States Steel Company, the bonds that under 5 — the bonds that underlie all the rest, the best bonds of the steel outfit for that matter, and we thought we were making a very desirable invest- ment, but toward the end of the year, when discussing the attitude that probably would be taken by the Prussian government, with whom we were under this pledge not to hold industrials, and under the By-laws as well, it was thought it might be ruled to be an industrial security and therefore it was ordered to be sold, and unfortunately there was no quick market to the bonds, in fact the bonds had all been held by Mr. Carnegie originally, or practically, but to sell them in the market, there was no stock exchange market for them ; the only market they had before was the library 365 Testimony of Edmund D. Randolph market ; they had been given to libraries and the government, and with the agreement in each case that they shouldn't be sold, so that it became a matter of time to sell those bonds, and they in the same way were closed out of the account at the end of the year, "and there the loans were made in the first instance against them, and they were carried on loans with some of these same non-ledger assets as margin security to them until they were sold, and when they were sold on terms of periodical delivery, running along for months, and it took some time to liquidate that transaction. Q. Well, what notes were given and what amounts and by whom in that transaction? A. The Marshall loan had been paid off. Marshall gave the note in this case for a million dollars against a million Steel Corporation 5's, which were worth about 150 at that time, and the other note that was given was $1,335,000,. which was against the Steel Corporation 5's with the Union Pacific preferred stock 1,500 shares, 1,000 shares Southern pre- ferred, 620 shares of Erie First preferred and 633 shares of the Evansville & Terre Haute, and in addition 2,000 of Fort Worth, Texas, 4's. Fort Worth, Texas, was then trying to cut down the rate of interest on her bonds from 6 per cent, to 4 per cent., and the Finance Committee — there was a committee — a bondholders' committee, having the matter in charge and the Finance Committee had voted to deposit the bonds, and they were voted to be deposited and were deposited — were sent down to the trust company to be deposited, rather, and then they thought afterwards they would be quite willing to sell the bonds instead of that, and so they closed them out of the account for sale and incorporated them in the loan this way. Q. Did you give the amount of the loan that was secured? A. Yes, I gave the amount. Q. You gave Mr. Marshall's amount. Was there a second one? A. I think I gave it. The first one was a million dollars. The second one was $1,335,000. 366 Testimony of Edmund D. Randolph Q. Who made the second note? A. George A. Newkirk. Q. Who is George A. Newkirk? A. He is one of the clerks in the department. Q. Down in the Finance Department? A. Yes. Q. That you say was at the close of 1902 ? A. 1902. Q. Now were there any other transactions in which employees of the New York Life Insurande Company ever made notes ? A. Oh, I beg your pardon. December 30, 1902, there was also the note of Mr. Mattison for $1,007,000. That is simply a read- justment of the first note. Q. A readjustment of which first note? A. Of the notes first given in connection with the Northwest preferred and the St. Paul preferred. Q. Now what was the aggregate of the note given in connection with this loan upon the United States Steel bonds? A. On the United States Steel, the Fort Worth, Texas, bonds coupled with the non-ledger assets as margin was $2,335,000. Q. And in that way they were taken out of the books of the New York Life Insurance Company? A. They were closed out of the accounts on the books of the New York Life Insurance Company. Q. On the books of the New York Life Insurance Company it appeared that you had sold those? A. Yes. Q. If an examiner had gone in and examined your books at that time he wouldn't have found that you had any interest in United States Steel bonds, would he? A. No. I think that when the examiner came in that he did not know the transac- tion. Q. I mean apart from such explanations as you would make to him, on examining the books he wouldn't discover it? A. No, the books wouldn't show it. The object was to take them off the books. Q. Take them off the books, and how could it take them off 367 Testimony of Edmund D. Randolph the books without it appearing as a sale? A. It did appear as a sale. Q. It did appear as a sale? A. Closed out. Q. In other words, it appeared on your books you had sold the United States Steel bonds and gotten a certain amount of money for them ? A. Yes ; it was closed out of the account. Q. And as a matter of fact, you still owned the United States Steel bonds and they had been put up as collateral to the New York Security & Trust Company who had loaned the money on the notes of your clerks? A. Well, it was a protected sale, as we had the question up before, and a very well protected sale. Q. I understand that. But that is the fact of the transaction? A. That is the fact of the transaction. Q. Now were there any other cases in which the New York Life Insurance Company had loans made upon the notes of its clerks? A. One later under similar promoting, and the only one, and that was that there were 107,900 pounds of the United Collieries bonds which we had as an investment and they were ruled to be indus- trials. Q. When did you get those? A. Well, we got them Q. That is this matter I inquired about this morning, wasn't it? A. Yes. Q. You were a syndicate participator? A. In London. Q. July 17, 1902? A. We were a syndicate participator in London, that is it, in 1902. 0. Did you go into that syndicate with the idea that you would not have to take any of those bonds that might be regarded as an industrial, but simply get your syndicate profit? A. The ques- tion of industrial wasn't talked of at all, but we did go into it thinking we would get a syndicate profit. Q. And not with the idea of getting the bonds? A. No. We were rather surprised to get the bonds. Q. But you did have to take the bonds ? A. Yes. 368 Testimony of Edmund D. Randolph Q. And then you had to dispose of them before the end of the year? A. Yes. Q. Because you didn't want them to appear in your report? A. That is it exactly. Q. Now what did you do about those ? A. We sent to London and ordered them sold. Q. And there was a nominal sale? A. There was a nominal sale. Q. To whom? A. Well, they were charged to J. S. Morgan & Company. O. Yes. A. We wrote off 20 per cent or more. I forget just what we did write off, but at least 20 per cent and charged them to J. S. Morgan & Company and ordered them sold. Q. So in that way they went out of your books ? A. They went out of our books at 20 per cent less than cost. Q. But as a matter of fact you still owned them ? A. Yes ; they are not yet sold. Q. And they are not yet sold ? A. No. The others are all sold since then. Q. And who made the notes in that case? A. No note at all. We just simply had them advanced on the books of J. S. Morgan & Company, London. Q. So that on your books it appeared that those had been sold, and on the books of J. S. Morgan & Company it appears that they have advanced you a certain amount of money against them? A. Yes, as an offset to our balance. Q. And you maintain a balance with them equivalent to what they have advanced you or larger ? A. Yes. Q. So that you still have the money which they appear to have advanced you? A. Yes. MR. HUGHES : Before adjournment I want to say that Mr. Rhodes, of the Mutual Benefit Life Insurance Company, has 369 Testimony of Edmund D. Randolph written requesting that a statement which he finds he is reported as making should be corrected. He says he is reported as stating that the finance committee of the Mutual Benefit Life Insurance Company has "direct charge of the company's investments." He says as follows : "The official report of my testimony may differ from the above, but I should like to state that as a matter of fact the province of the Finance Committee regarding investments is solely to examine and report to the Board of Directors for its approval such investments as they may consider worthy of the consideration of the Board, as is set forth in Section 21 of the company's by-laws, a copy of which is in the possession of the committee. No investment is made for the company except upon the unanimous vote of the directors present at the meeting of the board at which the recommendations of the finance committee are considered." Inasmuch as Mr. Rhodes is a resident of New Jersey, and attended at our request, I deem it proper that that statement should appear upon the minutes. THE CHAIRMAN: We will stand adjourned to Tuesday morning at 10.30 o'clock. The witnesses who have been subpoenaed and have not yet been called are desired to attend next Tuesday. Adjourned to Tuesday, September 12th, 1905, at 10.30 o'clock. 37° ALDERMANIC CHAMBER, City Hall, New York City. New York, September 12th. The Committee met pursuant to adjournment. THE CHAIRMAN : It is the sorrowful duty of the Chairman to" announce this morning the death of Mr. Albert B. Sackett, the stenographer to this committee, which occurred at his home in Canandaigua Sunday evening at a quarter to nine o'clock. Mr. Sackett was comparatively a young man, about 37 years old, and had been for many years stenographer to the Senate of this State, and was prominent and very highly esteemed in the community in which he lived, and had a very wide circle of acquaintances throughout the State. He was married on the 17th of August and contracted his fatal illness on his wedding trip. The Committee regrets that it is not deemed expedient to adjourn the sessions of the Committee in order to attend the funeral, which will be held at Canandaigua to-morrow afternoon at 4 o'clock; but it will take occasion to spread an appropriate mark of its esteem for Mr. Sackett upon its minutes, and makes this announcement at the opening of this session with the greatest grief. It was not known last week that his illness was a fatal one. All our news was to the effect that he was upon the way to recovery, and his death was comparatively unexpected even by those about his bedside. He was personally known to every member of this Committee as a very able and efficient stenog- 37i Testimony of Edmund D. Randolph rapher, and a very genial and modest gentleman. It is a loss to the Committee and a very serious one to the State of a faithful and competent public servant, and it will be difficult to obtain one who will perform" the duties any more satisfactorily or any more faithfully to the Senate of this State, and possibly procure one who will combine with efficiency and loyality to his service so many other charming qualities as did Mr, Sackett. Mr. McKeen are we ready to proceed? MR. McKEEN: Mr. Hughes will be here in a moment. EDMUND D. RANDOLPH, resumed. BY MR. HUGHES: Q. Mr. Randolph, will you please point to the resolution of the Finance Committee of the New York Life Insurance Com- pany authorizing the sale of the Chicago, Milwaukee & St. Paul preferred stock in December, 1901 ? A.I will have to refer you back of that. You have the minutes and the index there, have you not ? Will you allow me to say a word about these minutes ? Q. Certainly. A. I do not wart to orate or anything of that kind, but as it turned out, I think it would have been very much better if I had testified from the minutes from beginning, and I will be very glad to do it hereafter. The whole of this story is in the minutes, and the index will show page and paragraphs, and it has been the action not of myself, but the action of our Finance Committee throughout, and I could show the evidences of that. Q. That is very well understood A. Yes, but my testimony is perfected, and I have been maligned and the whole thing has been heaped upon, and I simply want it to be understood that all this was with the consent and approval of the Finance Committee from the beginning, and even since that, at our 372 Testimony of Edmund D. Randolph meeting yesterday, and even one other gentleman who was not present at the time it occurred, they gave their thorough and cordial approval and knew of everything that had been done. They are men at the very forefront, as you know, of everything that is for good in this community, and with a record of a life- time; they are widely connected with banking institutions and know whereof they speak, and they say this practice is universal in every place where they do business ; it is customary to give what they please to call dummy loans. I might go further. You yourself will admit that it is a very well known practice in law offices as well, that however often the case is in making mortgage loans, the bond is given, but there is a solemn legal instrument, and here it is in the nature of a note. They give a bond, where that loan is very largely on real estate. The bond and mortgage application comes in, and the first question we ask is it a loaner's bond or a dummy bond, and in the majority of cases it is recognized as a dummy bond. There is nothing wrong, it is the idea of lending upon values and not upon names. So in this case, it was put down as a sale to those parties who have been mentioned. And I am very sorry for George Marshall, who has been brought into this ridicule. He i? a very excellent man, and his color is nothing against him. He was chosen from here, why I don't know, I personally did not make the application, but this request came up for this application before our trustees, and they turned it over to the party who was at hand. The other gentleman is Mr. Matteson, who is the chief clerk of our bond department, a man who gets $4,000 a year. George Marshall gets $60 a month ; I said $600 a year, but it is $60 a month. And I am very sorry indeed to have them brought into that. But I do not want to consume time in any personal explanations, if you may call them that. I have nothing to explain. I have nothing to defend. I stand by everything that we did, not only in my own conscience, but with the support 373 Testimony of Edmund D. Randolph and approval of all my associates there in the Finance Com- mittee. It was the act of us all behind every step, as every- thing in that Company is. Well, brush that aside, but the fact remains, look at the motive, look at the motive. What were we serving, what were we serving? Here the duty was upon us to sell these bonds and close them out of our account, and we could not show them as an asset after that time. That was the wording of the requirement of our By-laws and the insrtuctions of the Prussian Government. What did we do? We did as individuals would do, as Mr. Claflin said, that is the highest test of duty. We did as we would wish others to do by us. What was the result? Our policyholders on that one lot of the 10,000 shares of the Northwest preferred stocks — they had already made $1,000,000 at the 135 at which we closed out the account, and by carrying it we got $250,000 more. If we had been the men we are depicted, it was our golden opportunity. There was a million made already which was to our credit as a very handsome result, and we were compelled to sell them, and that would have been the defence. We could have put them in the auction room. We had a standing offer of 235 for them. But instead of gleaning it for our policyholders, the individuals could have collected $250,000, but THE CHAIRMAN: If you will kindly take the chair, some of the gentlemen who are interested cannot hear you, they say THE WITNESS: I beg your pardon, but I have smarted under the rather wrong idea that has been given THE CHAIRMAN: We are very glad to hear you. THE WITNESS: And I would rather proceed hereafter -with the backing of my associates in the Finance Committee. 374 Testimony of Edmund D. Randolph Q. I do not think, Mr. Randolph, there has been any misap- prehension on the part of the Committee that the transactions to which you refer were the transaction of the Finance Committee, directed by that Committee, and not transactions in which you personally were any more responsible than any other member of the Finance Committee or with which you had anything more to do than any member of the Finance Committee or perhaps as much. I think that is well understood, and the matter was pretty thoroughly brought out on Friday, that from time to time the Finance Committee took action, and several of the minutes I believe or resolutions have been read in the record. Now I would like to have you point to the resolution of the Finance Committee providing for the disposition of $530,000 par value of Chicago, Milwaukee & St. Paul preferred stock in December, 1901. A. I would like to go back of that, if you will allow me. I have a transcript, or I can read from the original minutes, whichever you prefer. Q. Whichever. will satisfy you. A. I will hand these to you and let it be compared afterward. Q. That is a record which you have there of all the actions of the Finance Committee in relation to that stock? A. I cannot say it is" all . It may be . It is all that have been found and given to me. I told them to produce all of them. The books were here on Friday and I thought they would be used and turned to. Q. Well, we will turn to them now. Please turn to them. A. At a special meeting of the Finance Committee held on No- vember 9th, 1900, at which were present the President and Messrs. Fairchild, Langdon and Perkins, and Mr. Kingsley Secre- tary, and Mr. Randolph, Chairman of the Finance Committee, the President called the attention of the Committee to the pro- vision of By-Law 27, calling for the reduction and ultimate elimination of the Company's holdings of stocks. This was on 375 Testimony of Edmund D. Randolph November 9th, 1900. Shall I read the rest of the proceedings that are not pertinent to it? Q. No; nothing but what you would like. A. I would like you to see there is nothing else there. Q. Oh, that is all right. That is all there is pertaining to that matter at that meeting? A. The rest is the Committee pro- ceeded to the examination, etc. Q. Now, what is the next minute upon that subject? A. Upon the 12th of November, that is, three days later, sale was authorized to be made of eleven hundred shares Central National Bank stock at 170 with due authority to transfer same. Q. Now, will you confine yourself for the moment to the minutes bearing upon the disposition of Chicago, Milwaukee and St. Paul preferred stock, so that we may not get that confused with other transactions? A. Well, I come to that with the next meeting. Q. Well, go ahead, then. A. I have one meeting I will read if you will allow me. Q. Certainly. A. This is merely to illustrate that the thing was commenced promptly — both of them come within the minutes of the same Board meeting, November 15th, 1900. "PRESENT: Messrs. Fairchild, Langdon, Grace, Morrison, Kingsley, Secretary, and Randolph, Chairman. Sale of stocks since last meeting made under existing resolution to be ordered by the President were approved. On motion it was resolved that Edmund D. Randolph, Treasurer, be and he hereby is, au- thorized to sell, assign and transfer all or any number of stock in the name of the New York Life Insurance Company, in the stock of the Central National Bank, preferred stock of the Southern Railroad Company, preferred stock of the Union Pacific, pre- ferred stock of the Chicago and Northwestern, preferred stock of the Atchison, Topekaand Santa Fe, preferred stock of Chicago, 37 6 Testimony of Edmund D. Randolph Milwaukee and St. Paul, preferred stock of the Baltimore and Ohio, common stock of Evansville and Terre Haute Railroad.*' The sales that were made under that authorization were as follows: The five hundred shares of St. Paul common at 122. 100 shares of St. Paul common at 121X4. 1 100 shares of Atchison preferred at 77 } /4- 900 shares of Atchison preferred at 77^. 3000 shares of Atchison preferred at 7 7 . 1000 shares of St. Paul preferred at 172.96. I will explain, these are rates and interest. Of course, we were carrying our securities and interest. Of course, there is no stock exchange quotation of 172.96. Probably we sold at 173 and in- terest was adjusted to the date of sale. 1000 shares of Baltimore and Ohio at 84. 34 shares of Atchison at 77. 500 shares of Atchison at 77^- 100 shares of Atchison at 77^. 700 shares Central National Bank at 87. 50 shares Atchison at 8o}4. 200 shares of Atchison at 8of^. November 19th. PRESENT: Messrs. Claflin, Langdon, Fair- child, Grace, Perkins, Morrison and Kingsley, Secretary. Q. 1900? A. 1900. I am following right along. Sales of stocks at last meeting made under existing resolutions were approved, namely : 250 of Atchison preferred. 1000 Baltimore and Ohio preferred. 377 Testimony of Edmund D. Randolph They have been selling right along from the time the mandate was given, and until the steps of from November 12th to Novem- ber 19th, we frequently made sales of all the stocks that are enumerated. If you will allow me Q. Continue right along and put in the whole record on the subject, Mr. Randolph, if you will. A. I am much obliged to you for the opportunity, Mr. Hughes. On November 14th, at the regular meeting of the Finance Committee, present: Mr. Perkins had then become Chairman Q. This is what date and what year? A. November 14th, 1901. Q. Now, one moment. Between November 19th, 1900, and November 15th, 1901, are there any records? A. November 14th, there are no records to be found Q. That relate to this transaction? A. None whatever that have been given to me These are given to me under orders to pick out everything. Q. Of course, you are the one who can tell about that and we shall take your statement that there are no records in the in- terim. A. There are no records in the interim that I have any- knowledge of, and I am quite sure there are none. I would like to correct one statement made through misapprehension, I think by Mr. John McCall, that I kept the minutes. I do not. Mr. Kingsley is the secretary, and keeps the minutes and writes them, excepting in his absence I write them always. November. 14th, 1901, the question cf sale of stock of New York Security & Trust Company was discussed and laid over. That was the beginning of the preparation to sell these three large blocks. We have had left in our hands, so to speak, these three large blocks of the New York Security & Trust Company , the St. Paul preferred and the Northwest preferred. I have explained already why they were marked stocks, as it were, and it was with 378 Testimony of Edmund D. Randolph very great difficulty that we accomplished a sale of them. In fact it went to such an extent — this is a pertinent explanation, if you will allow me — to such an extent, that a joint meeting of the Finance Committee and the Executive Committee was held as preliminar}- to amending our By-Laws, that is, to carry over for another year if we had to. It began to look so impossible of achievement, the selling of these three large blocks of stock, we had yet to dispose of, and here was the beginning, this meet- ing. The next meeting was on the 18th. Q. Of November, 1901? A. Of November, 1901. The mat- ter of the sale of these three stocks was then delegated to Mr. Perkins. Of course, in his contracts down in Wall Street with the people who are the very ones who are the most likely to buy the two items of stock, he was eminently the one to conduct it to the greatest advantage, and with reference to the sale of the New York Security & Trust Company, which is very difficult of ac- complishment at a suitable price for the value that there really was in the Company, I think that be handled it in a most masterly manner in the syndicate transaction which he evolved, which finally led to the sale in full of the 5,000 shares. Q. Did the reference of the matter to Mr. Perkins appear by resolution ? A. I don't think it did. I don't think it did. I don't find it here, but I will follow it up and we will see what comes of it. The long minutes I will skip. "The Chairman then presented the outline of a general plan for disposing of the Company's holdings of the stock of the New York Security & Trust Company. After discussion the plan was approved and the matter of final action postponed to the next regular meeting, when the plan in detail is to be presented." Q. What was the date of the meeting at which the action, was taken which you have just read? A. November 18th, 1901. 379 Testimony of Edmund D. Randolph Q. Proceed. A. The next meeting was on November 2ist, 1901. "Treasurer presented draft of genera! plan for disposing of the Company's holdings of the stock of the New York Security & Trust Company as noted in the minutes of the i8th, and read same in detail." I don't wish to be understood that I prepared the draft. The draft was prepared by Mr. Hornblower's firm and was sent up fe> me for criticism — examination and criticism. It was their draft that I read to the Committee and that is referred to here. Q. That was the draft of the agreement which was introduced in evidence at the last hearing? A Yes; but there were present at that meeting Messrs. Fairchild Langdon, Randolph, Grace, Claflin, Morrison and Kingsley, Secretary. Mr. Langdon took the chair. At the preceding meeting I believe I did not read when the general plan was presented, that there were present Messrs. Perkins, Chairman Fairchild, Morrison, Claflin, Grace, Randolph ana Kingsley, Secretary. 'December 2d, 1901: Present Messrs. Perkins, Chairman, Fairchild, Langdon, Morrison, Randolph Claflin Grace and Kingsley, Secretary. Chairman reported piogress in the matter of the syndicate forming to ptrchasc the company s holdings i.f stock in the New "York Security & Trust Company .^ ? December 5th, 1901- that is a mistake; there is nothing in the meeting of December 5th, 1901. Do you care to look, Mr. Hughes? There is nothing in the meeting ot December 5th, 1901. Q. Well, you have said it was a mistake. A. December T*th, 1901. Now this reflects what I referred to about the matter having been under meditation to amend the by-laws so as to lengthen the time of our holding of these stocks, notably the Testimony of Edmund D. Randolph » New York Security & Trust Company, and on this date, and to that end, we had joint meetings of the Finance Committee and the Executive Committee — this preparation would be in the Executive Committee minutes, but I find it here in one of the meetings of our minutes. "Wednesday, December nth, 1901. At a joint meeting of the Finance and Executive Committees, held this date at 12.45 P.M., the following were present: The President of the company, Messrs. Orr, Grace, Payne, Perkins, Langdon, M orrison, Ran- dolph, Claflin and Kingsley. The matter of the proposed amend- ment to the by-laws was referred to the joint meeting of the reg- ular sitting of the Board of Trustees on December nth, 1901: was presented by the President, and after discussion the follow- ing report to the Board of Trustees was unanimously adopted At a meeting held December nth of the Executive and Finance Committees in joint session, a proposed amendment to by-law No. 28, presented at the meeting of the Board of Trustees on December nth, 1901, was considered, the subject having been referred by the Board to the Finance and Executive Committees for joint consideration and report, the following preamble and resolution were unanimously adopted : Whereas, the Finance Com- mittee has arranged for the sale of the several stocks held by the company, therefore be it resolved that we report back to the Board of Trustees that there is now no necessity for the passage of proposed amendment to the by-laws.'' It was then the sale of the New York Security & Trust Com- pany's stock through the formation of this syndicate had been accomplished to an absolute certainty of fruition, and Mr. Per- kins was so confident of the favorable result of his negotiations with the other two stocks that he stated unreservedly to the Committee that they were going to be sold, and there was abso- lutely no need of any action on the by-laws. 381 Testimony of Edmund D. Randolph December 30th, Present Messrs. Langdon, Morrison, Rice, Randolph, Fairchild and Kingsley, Secretary. Resolved, that Edmund D. Randolph, treasurer of the New York Life Insurance Company, be and he hereby is authorized to sell, assign and transfer all or any part of the preferred stock of the Chicago & Northwestern Railroad Company standing in the name of this company on the books of the Chicago & Northwestern Railroad Company. That was the 31th of December, 1901. We were right up against the date which was the limitation to our holding of these stocks, under our by-laws and under the requirements of the Prussian government. That authorization was the result of the action that was instituted by the action that was before us, and the authority was given to me to execute the needful transfer to convey that stock. It was standing in the name of the com- pany but could not be transferred or passed over without that, of course, and that resolution was made for that purpose. The details of what transpired don't show here. It was oral. Mr. Fairchild, who was the president of the Security & Trust Com- pany, was sitting there at our meeting, as he was at all our meet- ings, and what transpired, was done orally between us, I mean as to taking over the stock. It doesn't appear there. Certainly no intentional omission. I am certain Mr. Kingsley made a rec- ord of everything that transpired. Q. Is there any other minute on the record of the Finance Committee relating to the disposition of these stocks ? A. Later on, yes. Q. Later on. Was there any resolution or action by the Com- mittee other than you have read, prior to January 1st, 1902? A. I make the same answer, that I gave the instructions to one of my stenographers, who also writes the minutes for Mr. Kings- 382 Testimony of Edmund D. Randolph ley and is most familiar of everybody with their contents, to give me everything that referred to it, and she has done it, presuma- bly. Q. Well, you -understand that you have given all the resolu- tions of the Finance Committee through the year 1901 relating to this matter? A. I confidently believe that I have stated everything that there is in the minutes. Q. Now, is there any resolution of the Finance Committee in the year 1902 relative to the execution of notes by Messrs. Mattison and Marshall and the making of a collateral loan upon the security of Chicago, Milwaukee & St. Paul, Chicago & North- west, or other stocks with the New York Security & Trust Company? A. There is no record. That came about, as I ex- plained in my former testimony, through a letter of the New York Security & Trust Company asking us to sign the enclosed appli- cations. Q. Well, there is no record in regard that matter? A. There is nc record that I know of upon the minutes ; it is a matter of knowledge which Q. To whom did you, as treasurer, under the resolution of the meeting of December 1st, 1901, transfer the stocks therein mentioned? A. Signed the usual powei in blank which makes a stock in deliverable shape, what is called stock exchange, delivery. Q. You didn't fill out in the blank the name of the person? A. No; you probably know that never is done. Q. To whom did you deliver the certificates? A. Down to the Security & Trust Company. I don't know exactly to whom they were delivered. I don't know any of the physical parts of the transaction. Q. Who did that? A. Well, that was done under the di- rection of my assistant-treasurer, Mr. Shipman, presumably. 383 Testimony of Edmund D. Randolph Q. To whom did you instruct delivery to be made. A. T. can't remember. Oh, to whom? Q. Yes. A. As to any person? Q. Person or company? A. Well, I can't recollect Oh, the Security & Trust Company, of course. Q. You directed that the delivery should be made to the New York Security & Trust Company? A. Yes. Q. Was an entry then made in any of the books of the New York Life Insurance Company that the stocks had been sold? A. The entry was that they had been closed out? Q. Well, what was the entry precisely and where made? A. Oh, I don't know ; you have the — in this voluminous prepara- tion we have made for you there is such a maze and mass of figures that it is pretty hard. Q. Well, I can turn to it for you. If you will turn to the entry under December, 1901, sales, on the list of purchases and sales which your Company has furnished the Committee in response to its subpoena, you will find an entry purporting to relate to these matters. A. I would simply review the remark that there has been no proof-reading of this, so I read from them with that reservation. Q. Of course. If you find through inadvertence or error there is a mistake made, why we should be very glad at any time to have it corrected. A. I should simply like to make the statement that I think you will bear me out in, that we did place in your hands everything called for at the opening of this investigation, and part of it was in type and part of it was in pretty rough form of copy, some of it in handwriting and some of it in typewriting, and you said you would rather we take it back and have it all put in printed form, or were willing we should, and that is the reason there was delay. Q. I have made no complaint as to delay, and there is no necessity for any explanation with regard to it. You have pre- 334 Testimony of Edmund D. Randolph sented us a number of papers, which, as you say, -were in some- what rough shape, and desired an opportunity to print them. The} r were printed and I received yesterday the final list. A. In another shape than that which had already been in your hands. Q. I don't think there is any occasion for any remarks on that subject. The exact facts are that we did have for a few minutes the rough copy to which you refer, which I was very glad to have. You supplied me very quickly with a list of sales through 1895, and within a few days a printed copy down to 1901, and yesterday you supplied me with a full copy. I have no com- plaint to make and appreciate you are doing all you can to com- ply with the subpoena. A. I will only explain a little if you will allow me which was what was in my mind, but I didn't intend to state it, but the thing is this, that it has gone abroad everywhere that certain things were wrung from me and all that. Well, in point of fact, as you know, we have furnished everything in the fullest and amplest form, coupled with a statement of the President and the minutes of all these transactions, so there was nothing to be wrung from us. Q. I don't care to make any further statement of that sort- A. You never would. Q. And there is no explanation required. A. You never would. Q. Now, will you proceed, please, and tell me just what entry you made in your books of the sale of Chicago & Northwest in December, 1901, and what that entry was and where it was? A. Well, this comes under December 26th here. That is, there is no date stated at all. They have omitted to put in a date, which was certainly not December 26th; it was December 31st. Q. When you sell a security in what book is the sale entered in your company? A. In the book that this is a copy of. Q. Is that a ledger, a purchase and sales ledger ? A . A purchase ar d sales ledger. This has everything in it, so that I think maybe 38S Testimony of Edmund D. Randolph these might be used for expert accountants and anyone can prove that with our books at any point that they choose to add it up. Q. Is this transaction from the ledger as it appears upon the list that has been furnished, or a paraphrase of it ? A. There is an insertion there " subsequently realized $155,000 profit." That is simply a remark added. Of course that wouldn't be on our ledger. Q. In your ledger does it appear "through New York Security & Trust Company?" A. It must do so. I haven't made any comparison of it. Q. Or the name of some other purchaser? A. No; no pur- chaser at all. Q. And the price is there ; and of course there would be the date? A. There would be the date, of course. Well, there was only one thing that I recognize there now ; the entry is perfectly correct. It was all through the New York Security & Trust Com- pany and they afterwards desired that part of it shouldn't reach them until the beginning of the year, or something, in their own matter of loans or arrangements, I don't know what it was. Q. Now, I am not inquiring about that? A. (Continuing) And a part of that was put through our deposit in the Central National Bank, and then down to the New York Security & Trust Company ; but it all was sold through the New York Security & Trust Company. Q. What I want to get at now is simply, if you can state briefly and definitely, please do so, what entry there was of that alleged sale in your books in December, 1901 ; was it entered in your sales ledger that you had sold that stock? A. Absolutely. Q. Simply without explanation ? A. Simply, without explan- ation; I take it that this is an exact copy of the transaction. Q. Now, the prices of that, according to the entry in your books, was $1,000,000? A. Yes. Q. And that price was received in cash by your company at 386 Testimony of Edmund D. Randolph that time. I am referring now to Chicago, Milwaukee & St. Paul preferred. A. It is credited to us in the No. 4 account. Q. With the New York Security & Trust Company? A. With the New York Security & Trust Company. Q. And I suppose in your bank book relating to the account there was an item that such trust funds had been placed to your credit as the proceeds of such transaction .A.I don't think there was anything probably said about that. I don't know except as banking custom, they make very often entries of figures Q. I am not speaking now of the entries made by the bank, but I am speaking of the entry made by the New York Life Insurance Company of this stock placed to the credit of the New York Life Insurance Company in December, 1901. Was that entry made? A. This is the only entry except on the slip Q. In the Sales Ledger? A. In the Sales Ledger. Q. But your account No. 4 with the New York Security & Trust Company was increased by $1,000,000? A. It was in- creased by the total of these two items. Q. Take the one. It was increased in the case of the Chicago, Milwaukee & St. Paul preferred by $1,007,000, was it not? A. Well, these two represent the ultimate increase after whatever proportion of it went through the Central National Bank on its way to the New York Security & Trust Company after that pro- portion had also reached there. Q. In the bank account with the New York Security & Trust Company or in your bank account with the Central National Bank, this consideration appeared? A. They show the respec- tive amounts that went to the credit, in the respective institutions. Q. What entry was made in the books of New York Life In- surance Company as to what these moneys stood for ? that were received at the time of the transfer of the stock? A. The books of the New York Security & Trust Company are kept in the 387 Testimony of Edmund D. Randolph bookkeeping and comptroller's department up at the main office. Q. You mean the books of the New York Life Insurance Company? A. Yes. Q. And the books that you refer to, the kind of entries you probably refer to would have to be had from them — that is Q. Well, as a matter of fact, the moneys which were placed to your credit on account of these stocks in December, 1901, were placed to your credit as the proceeds of the sale of stock? A. Well, undoubtedly. Q. Was there any entry made in your books prior to January 1st, 1902, of any loan received by you or by any one on your behalf against these stocks as collateral? A. Certainly not, be- cause such an entry would be impossible. Q. The entry of sale and receipt of the purchase price closed that matter? A. Yes. I would like to explain why I say im- possible. If we had entered and run an obligation of the com- pany on one side, we would have had to, per contra, have en- tered these stocks. The whole purpose of the thing was to close these stocks out of the account. We could not have shown any loan if there had been any, which there was not. Q. So as you closed your books on December 31, 1901, the books showed simply a sale of the stock and receipt of the con- sideration price? A. That was all, Q. And the cash balances that you had at the close of the year 1901 included the consideration price? A. They were aug- mented in the respective places, the trust company and the bank, by the respective amounts. Q. I repeat : And on the other side of your account there was no liability showing that there was any obligation to the New York Security & Trust Company to return part of that money ? A. There was none, because the.re was no obligation. They 388 Testimony of Edmund D. Randolph t passed out and never came back to us again. Some were sold and liquidated themselves ; we never saw them or had them . Q. That was the state of the case when you made your report at the end of the year? A. Yes. Q. The cash balance then you reported to the insurance de- partment included the money you received as proceeds from such stock? A. As a matter of course. Q. And there was no liability on the other side against that? A. No liability existed and there was none stated. Q. Go to January, 1902, and tell me whether there was any entry ever made in any of the books of the New York Life Insur- ance Company of the Matteson and Marshall loans? A Never Q. In any book? A. It was a change of form in the way I have explained at. the request of the Trust Company". Q. It was a change of form so far as the Trust Company was concerned, but there was no change in the entries of the books of the New York Life Insurance Company? A. None whatever The New York Life Insurance Campany made no obligations Q. Did the New York Life Insurance Company keep any memorandum^orany thing relating to the transaction? A Sure- ly it did; we had our memoranda of that. Q. What was that? A. I could not tell. Q. A memorandum? A. Of the existence of the loans do you mean? Of the location of the securities, where they were ; that was essential because Q. That these stocks were with the New York Security & Trust Company? A. Yes, that was necessary, because in the monthly examinations by our Finance Committee, in order to make the proofs I have already referred to, it is necessary for them to know the location of every stock. Q. What proof, I don't recall just what proof? A. I explained there was a proof made. The method is that monthly our Fi- nance Committee has an examination preliminary to a report to 389 Testimony of Edmund D. Randolph the Board. Their report is based upon that examination, and they not only make the examination, but they prove, they dele- gate to one of the members of the Committee to prove the securi- ties and he in person picks it off while the securities are put in the vault. Our vaults are very large, and there are a number of cages, as we call them, which are sealed compartments. Every compartment of which the seal is broken which was put on the month preceding, has to be entirely examined, and the package taken out, and the seal replaced, where the packages have been broken for any purpose, whether of delivery, or cutting of cou- pons, etc. Q. Pardon my interruption. These stocks were not in your vault were they? A. They were not, but I am explaining the method which Q. Why did you have to prove them if you had closed them out of your books and they showed the receipt of the purchase price in January, 1902? A. They had very valuable unclaimed assets of ours, what have been miscalled non-ledger assets, as I explained Q. Well, we will come back to that later- A. And they cer- tainly had to be proved. We proved the non-claimed securities which we did not claim as any assets with the same care as we did those which we considered assets. Q. Undoubtedly until you disposed of them ? A. Until we dis- posed of them. O. In the case of the Chicago, Milwaukee and St. Paul, in January, 1902, at the end of that month did you prove with re- gard to those as assets of the New York Life Insurance Com- pany? A. Certainly not. Q. Why mention the fact that they had to be proved a moment ago? A. Neither did the unclaimed assets, have to be proven, excepting as a matter of record of where they are. We have, 39o Testimony of Edmund D. Randolph and every institution has, and it is proud of it, assets beyond ■what they claim. Q. We need not go into the question of pride now. A. I am proud of it. The institution that has a conservative management the world over has something over in the way of assets which they do not count, and which they can fall back upon in case of need. I guarantee and I know, every trust company that I have knowledge of has them, and every bank that I have knowledge of has them. Q Now, Mr. Randolph, if you will confine yourself — because the explanations have been very clear and emphatic ? A I ask your pardon, but I cannot refrain Q. "Well, if you will just answer the questions we will get along much faster. A. A man has a little feeling who has been sub- jected to what I have been subjected. Q. What I want to get at now is this. In January, 1902, did you have any memorandum as to the location of the stock of the Chicago, Milwaukee and St. Paul? A. Of course Q. Pardon me. And the Chicago and Northwest, which had been closed out on your books in the previous December? A. Of course we did. But a memorandum and an asset entry are two different things. Q. Just what was that memorandum? A. I cannot say now. Q. In a general way did it show where the stock was ? A. I tried to explain to you but you arrested me. I was trying to explain on this proof sheet which is made in addition to the securities which entered into the assets of the New York Life Insurance Company, there is stated always the unclaimed and non-ledger assets as we have been calling them, and any other securities which are the property of the Company. Q. Well, as I understand it, in January, 1902, when you made up your proof after the proof had been finished with regard to 39 1 Testimony of Edmund D. Randolph the assets disclosed by your ledger, there was a supplemental memorandum A. At the foot Q. At the foot — with regard to unclaimed assets, as you call them? A. Yes. Q. And that supplemental memorandum included the Chicago, Milwaukee and St. Paul, and the Chicago and Northwest? A. No, it would not, with any propriety whatever, and probably did not. Q. Come back in January, 1902, did you have any memoran- dum as to Chicago, Milwaukee and St. Paul? A. Unquestiona- bly. Q. What was it ? A. Well, it was probably on the stock record books. The story is undoubtedly entered in the proper plaee on the books. I do not keep the stock records down there. Q. What is the stock records? A. I have — we have a memo- randum of every bond and every stock when it comes in and goes out. Q. And the memorandum is there? A. I suppose so. Q. Do you know its character? A. I do not. Q. Did it say where the stock was? A. I do not know its character, and I cannot say what it was. Q. You have no information about it? A. Absolutely none. Q. You really don't know whether there is any such memoran- dum ? A.I cannot testify to it. I did not even make the trans- action physically. Q. When you came the other day to testify, and had the mem- orandum in regard to the Marshall and Matteson notes, and the disposition of them, where did you get them ? A.I simply asked them to make me a typewritten statement of the transactions that I could have with me. Q. Where did they get it? A.I will have to ask them. They got them from the records of the books. 39a Testimony of Edmund D. Randolph Q. Of the New York Lilfe Insurance Company? A. I cannot speak of the work others did. Q. You, as treasurer of the company, know what records your clerks have access to? A. I cannot say from what particular record they got this particular information. Q. I am not at all desirous of making the matter especially significant by repetition. It was only that I was led off on this suggestion of proof and other matters that I have had to reiterate my inquiry. All I want to know is just what kind of a memo- randum you carried of these stocks after they had been closed out on the books ? A. I have absolutely no personal knowledge. Q. And that is true with regard to Chicago and Northwest as well as the others? A. Absolutely. Q. And what has been said by you in regard to the Chicago, Milwaukee and St. Paul stock, that is, that its sale appeared on the ledger in September for a consideration price A. In September ? Q. In December, for a consideration price, and that the mon- ies representing the consideration passed to your credit, and that there was no liability entered in your books against these mon- ies A. There was no liability. Q. (Continuing) applies equally to Chicago and Northwest? A. To both. Q. And as to both you closed your books in that way on De- cember 31st? A. They were closed out of the books for the year. Q. And you do not know anything about the existence of a memorandum with reference to those securities after January 1st, 1902? A. I have no knowledge whatever. Q. That is as to Chicago and Northwest. In neither case? A. In neither case. Q. Did these matters of the loans from the Security and Trust Company to Marshall and Newkirk, appear in your books, that 393 Testimony of Edmund D. Randolph is the New York Life Insurance Company's books? A. Not in our books as entries, certainly not. They could not. Q. Or upon your memorandum, so far as you know? A. ¥/ell, of course, I suppose a memorandum was written. I have no knowledge upon that point, but as a matter of entry in a proper sense, there could be no entry. They passed out of our hands, remained out of our hands, sold direct and delivered to the Trust Company, the Trust Company received the proceeds of the sale, and we never saw them again until we received the profits, the $250,000 profit in case of the Chicago and Northwest. And there was a resulting loss of some ninety odd thousand dollars in the matter of the St. Paul It was sold at less than it was taken into account for. There had been a limit of two hundred put upon it, and the price was not reached. Q. What do j'ou mean by limit of two hundred put upon it? A. They thought the price of two hundred could be realized for it, and Mr. Perkins was trying to sell the stock. Q. You are referring to 1902? A. I am- saying prior to that Q. Now, in the year 1902, who was making efforts to sell that stock? A. Why, of course, Mr. Perkins -was giving it his inter- est and attention and he practically sold the Chicago and North- west stock. Q. When was that sold? A. I think in May. Three months Q. In 1902? A. Yes. Q. When was the Chicago, Milwaukee and St. Paul preferred stock sold? A. That was sold sometime later. I can give you the date. Q. Approximately? A. Do you allow me to refer Q. Yes, approximately. A. I think it was in January, 1902, or 1903. I thought I could find something here to locate it. Q. When the profits came in A. If you will allow me to look — well, never mind if you don't want it. Q. When the profits came in on the Chicago and Northwest 394 Testimony of Edmund D. Randolph where was that entered? A. Credited to profits and loss, every penny of it. Q. There was no other entry made of it in any way? A It was credited by the trust company, they received the proceeds and credited to our account as cash ; our entry of that amount of cash was direct to profit and loss. Q. Was their entry made then showing that the stocks had been finally closed up? A. No, it was simply an entry of profit and loss. I presume the additional profit from this stock — I presume it was descriptive. Q. When you closed the account at the end of December, 1901, you, and when I say you, I mean the Finance Committee and those who have charge of them, intended to keep whatever profit might be obtained by the disposition of the stock later on ? A. The Finance Committee keep? Q. No.no, for the Company of course. A. Of course. Pardon me. Q. Certainly. A. That is just what the Finance Committee might have kept if they had been built on those lines. Q. The company expected to realize an additional profit on those stocks? A. They did, and most confidently and as I explained before, we had a standing bid of 235 for the stock. I am speaking of the Northwest now. We had an intimation we could probably get 250. In point of fact the same people finally paid 260. There were two competing parties for the control of the Chicago and Northwest Railroad, and Mr. Perkins very properly played one against the other until he got that price. Q. You did not let the stock get out of your control so you would lose whatever profit would finally be made by its sale? A. Assuredly we were to get every penny of profit from its sale. Q. And you kept control of the stock for that purpose ? A. We kept control and ownership of them beyond, most certainly. 395 Testimony of Edmund D. Randolph Q. You have referred to certain non-ledger assets. That was the phrase used by you on Friday, but you have informed me that it was inaccurately applied to that transaction. Non- ledger assets is a term used in insurance matters ? A. The letter 1 wrote you is the result of a remark made by one of our officers, that non-ledger assets really was a different term entirely and he asked why it was applied to these stocks. I knew nothing of it. I had no knowledge, and am free to confess, of the insur- ance side of the establishment. I have been in the monetary world all my life and I did not know until then that there was an item in insurance parlance called non-ledger assets. Q. I suppose popularly these securities were called non- ledger assets because they were not on the ledger? A. Not on the ledger. Q. And in the report of life insurance companies to the Super- intendent of Insurance, there are certain items headed non- ledger assets? A. It is an entirely different matter. I did not know of the fact until I was told of it yesterday, and I said I would write you a line to explain that I had no meaning in reference to it. Q. Those items in the report to the Superintendent of In- surance under the head of non-ledger assets are items of interest shown as accrued, and have not got into the books, and such matters would not normally appear on the books of accounts? A. I accept your statement of it. You know a great deal more about it probably than I do. I am not familiar with the in- surance details. Q. Now, taking some of these unclaimed or non-ledger assets, or the assets which were not in fact upon the ledger, although of value, and not written off, the first of them you mention, 2100 shares of Erie stock. When was that first entered upon your books? A. They were to send me up some details from my downtown office. I did not get down there this morning 396 Testimony of Edmund D. Randolph You have rather overtaxed us with your calls, and I have not been able to keep pace with them. Q. I am very glad to state you have furnished me with a great deal of material. A. They were to furnish me a great deal of detail. It would have tired me to answer your questions on these points. Q. I hope you will not think at any time that I am implying the slightest reticence on your part or on the part of your Com- pany. A. My dear sir, I have spent days and nights and Sun- days and holidays getting this ready for you. Q. Do you happen to have a list of these so-called unclaimed or non-ledger assets here? A. Yes, I have one here. Q. Made up in tabular form? A. I will have to look at it and see. Well, I don't know. Hardly in tabular form. It is not in the form quite in which you asked for it, I don't think. Per- haps it is. Q. May I look at it? A. (handing paper) Assuredly. I da not see this one you ask about, so evidently it does not seem to be complete. There may be another leaf. Or there are addi- tional leaves. Well, this is handed to me as a list of all the stocks. I find that some of these are carbons and duplicate sheets that are here and other sheets that are lacking. I think this will have to go back for completion, if you will allow me. You see here they have sent me Q. Well, while you are getting that perhaps you can tell me whether prior to the disposition of any of these securities there were styled non-ledger securities, or unclaimed securities that was any entry relating to them upon the books of the New York Life Insurance Company? A. In card indexes they were all kept. Q. They were not entered on the ledger or current books of account? A. No. We had card indexes of them all, which are 397 Testimony of Edmund D. Randolph kept in the bookkeeping department, and with the cognizance of the Comptroller's department as well. Q. Suppose you go into a syndicate operation, as I believe you did in one case where you got- 2,100 shares of Erie as the bonus A. Yes, I can tell you where that came from Q. Don't anticipate me, please. Suppose you go into a syn- dicate and you get 2,100 shares of Erie as a bonus. Do you make any record of that in the books of your Company? A. We make a record of it. 0. Where? A. Well, I don't know. Q. Is it made a record of A. In this way I told you in the first place Q. Pardon me. Is it made a record in any of the books that are currently kept, and showing dealings in securities? A. No, I do not think it would be. Q. Where do you think it would appear as a matter of record ? A. It goes up to the main bookkeeper in the main office, as I explained, every day a member of the Comptroller's department comes down and takes off everything that goes through the books — or everything — (paper handed witness). Oh, Mr. White, am much obliged to you. Q. Is this it? A. Here it is. Q. This is the Erie matter? A. Well, I have never seen it be- fore. Q. You present here a card which shows Erie Railroad first preferred stock par 100. D ate 1902, 1/23 $210,000. Is that the date when that Erie stock was acquired? »A. I haven't any doubt of it. Q. January 23d, 1902? A. I have not any doubt of it. I assume it to be correct. Q. And is that the entry that was made of it at that time? A. Undoubtedly. 3Q& Testimony of Edmund D. Randolph Q. And that was the only entry? A. And that was the only entry. Mr. "White can say when the entry was made. Q. Well, that is the only entry? A. He can answer that question better. MR. WHITE: That is the only entry that was made based upon that, Mr. Hughes. Q. I mean this is not posted into any book, but carried upon this card? A. Mr. White hands me this memorandum similar to those which often go from the downtown office. January 23d, 1902. Memorandum for Comptroller. MR. HUGHES: I will offer that in evidence, as that shows exactly what the transaction is. You would prefer to have it back, I suppose? THE WITNESS: I have a copy of it. It has served its pur- pose. The entry is made. The paper is put in evidence and marked Exhibit 44. THE WITNESS: May I explain for the sake of accuracy? Mr. White informs me that the card system to a very large ex- tent has been adopted in our office only in 1899, and that this is correct as of subsequent date, about the record having been made on cards. And that prior to that it was made in a book. Q. We are dealing with 1902 now? A. Yes, but I wanted to correct, when I said that had been the system, prior to that it was in books. Q. '(handing card) : This was carried on the cards without being posted in any book down to 1904, was it not? A. Yes. Q. And I find on the other side of the account upon this card 399 Testimony of Edmund D. Randolph opposite the entry that I have just read of January 23d, 1902, $210,000, the following entry: "1904, 6/2 $210,000, see Han- over Bank office." A. Hanover Bank office, that is our down- town office. Q. See Hanover Bank office account? A. Yes. Q. What is that entry under date of June 2d, 1904? A. It means that — it reflects a sale evidently, and the Hanover bank office means it was sold and delivered and the money came into that office. Q. Then that stock was not disposed of until June 2nd, 1904? A. Evidently. Q. And then it was sold through the Hanover Bank Office? A. Through our office downtown in the Hanover Bank building, yes. Q. And delivered through that office at that time? A. Evi- dently. Q. And in the meantime it was carried on this card? A. Yes. Q. Did you have an account in the Hanover Bank office — and of course by the Hanover Bank office you mean your financial office in the Hanover Bank building? A. Yes. Q. Other than a memorandum like this? A. Our books we have here must show that sale. Q. What books? A. The sales that you have there. Q. This list you have furnished me? A. It must be, yes # if you will look at it, at that page. Q. Suppose you look at June 2nd, 1904, on that list and see if you find it or any other date ? A. Are you sure of your dates, Mr. White? Q. Well, while you are looking for that date I will offer this card in evidence and read it on the record : . The paper was admitted in evidence and marked Exhibit. 400 Testimony of Cornelius C. White THE WITNESS: I have here the list in which I find the sale of 2100 shares of Erie at $119,950. Q. What date? A. The date is omitted there. I think that would give it to me. May I see the back of this card? These dates here are entirely different from the others. May I have Mr. White to explain his own entries here? Q. If you will step aside, I will ask Mr. White to take the stand if you will prefer that. If you don't think you can explain he may take the stand. A. If Mr. White knows what these dates are. Q. Well, step aside, and I will ask Mr. White what they are. CORNELIUS C. WHITE, called as a witness, being duly sworn, testified as follows: DIRECT EXAMINATION BY MR. HUGHES: Q. What is your occupation ? A. I am a deputy auditor of the New York Life Insurance Company. . Q. How long have you been such? A. Since the 1st of Janu- ary. Q. 1905? A. 1905. Q. What were you previously? A. I was head of the check division of the Comptroller's department. , Q. (handing card) I show you this card marked Exhibit 45. Did you make the entrfts on that card or any of them? A. I did, all of them. Q. Explain the entry on the right hand side of the card under date of June 2nd, 1904, $210,000? A. It means a sale of the stock. Q. Do you know to whom it was sold? A. No, sir. Q. How did you know it was sold? From a report to you from the financial office? A. From the financial office, yes. 401 Testimony of Cornelius C. White Q. That "See Hanover Bank office account" means what? A. It means that the price that was received on the sale of the stock went to the credit of that office. Q. Does that office keep a separate bank account? A. Yes, sir. Q. Did you have an account between the main office and the financial office? A. Yes, sir; for some items; not for all items. Q. For what class of items? A. Well, this is one that hap- pened to go to that account. I don't know of just what nature the items are. Q. Is there any particular kind of items which are in an ac- count between the main office and the financial office? A. Any particular kind ? Q. Yes. A. Not that I know of, sir. Q. Just as it may happen ? A. Yes. Q. In what sorts of transactions do you make entries in the account between the main office and the financial office? A. When I find an item in the cash book there credited to the Han- over Bank office account if .full details are not given I ask the financial department to furnish the details, and that is what happened in this case. Q. That does not quite explain to my mind the necessity of having an account between the main office and the financial office. A. It is only a matter of convenience. Q. What convenience? A. I cannot explain the full reason for it, because I don't know, but I knoifligjthat such an account exists. Q. For example, what charges are made to that account? A. I cannot tell you that either. Q. What kind of items are charged? A. I cannot tell you that. Q. Moneys that are placed at the disposal of the downtown office? A. No. 402 Testimony of Cornelius C. White Q. With what is the downtown office charged, so far as you ■know? A. They are charged with moneys received as in this case Q. I thought you said they were credited? A. I mean it was ■credited on our books. Q. Credited to them ? A. No, we charged the Hanover Bank office account and credited this account — no there was no ac- count. Q. By this account you mean this card ? A. No, this is a non- ledger — there was no account in the ledger for this, and they charged the cash account and credited to the Hanover Bank office account. Q. Had there been any charge in that account relative to these shares previously ? A. No, sir. Q. Is this account between the two offices a voluminous ac- count? A. No, sir. Q. Or small account ? A. Comparatively small. Q. And do you keep it? A. It is kept by the bookkeeper. Q. Is it kept in one of the current books of the Company? A. In the general ledger. Q. Then the proceeds of the sale of the Erie went into the general ledger through that account? A. Yes, sir. Q. But the Erie itself had never gone into the general ledger because it was a bonus, and nothing had been paid for it. That is right, is it not? A. That is right. Q. And that went into the ledger through the Hanover Bank office in June, 1904? A. I don't know that it went in just then. I think that amount was made up of — or rather that it was taken from a statement of items. Q. From a statement of items on both sides of the account, the less amount went into the ledger. A. Perhaps not on that page, which may explain Mr. Randolph's inability to find it. 403 Testimony of Cornelius C. White Q. You mean this item of $210,000 would be one of several items of debit and credit with the Hanover Bank office? A. Yes. Q. Carried on memorandums or books ? A. Yes. Q. And that the net balance on this date, whatever that may have been, went into that account as a credit to the Hanover Bank office? A. It is my impression that that is the way it went in the books, but it was in the general books. Q. Yes, and it might have gone in at any time? A. It may have gone in new statements. Q. Yes, but whenever it did go in this transaction would be one of the items entering into that balance? A. Yes. One mo- ment, you spoke of the $210,000. That is not necessarily the amount that went into the books. That is the par value, that $210,000. Q. Well, what was the amount realized from the sale? A. I don't recollect. Q. Is there any record of it? A. Yes, sir, it is in that ledger account, this column represents the par value debited, and that is the par value credited. That is the book value. This col- umn is for the book value debits and this for the book value credits. There was no debit and there was no credit to the stock account, but there was to the other account, I referred to to show what disposition was made of the account. Q. Then the way it would go in the ledger would be through the Hanover Bank office account? A. Yes. Q. That is the proceeds of sale, not necessarily the $210,000? A. Yes, sir, the proceeds of the sale. Q. And the account of course between the main office and the financial office in the Hanover Bank is kept in some book, that is a regular current account, is it not? A. Yes. Q. In what book is that kept? A. It is kept in the general ledger. Q. That is by a transfer of balances of special items? A. 404 Testimony of Edmund D. Randolph Either balances, or as transactions occur, the items go in the cash book and entries are made directly from the cash book. MR. HUGHES: I ask to have this list of purchases and sales from September ist; 1895, to September 1st, 1895, made from the New York Life Insurance Company, marked for identification. (The book was marked Exhibit 46 for identification.) Q. Did you make up this list Exhibit 46 for identification ? A. No, sir. Q. Do you know anything about it? A. I know there was such a list made up. Q. Well, in order before we resume with Mr. Randolph, that we have the benefit of whatever knowledge you have relative to these matters, I find no entry here of June 2d. 1904, or about that time, although I have not had an opportunity to look very closely, of the sale of the 2 100 shares of Erie preferred. Do you know whether or not it is in that list? A. No, sir, I do not. MR. HUGHES: That is all for the present. Mr. Randolph, will you resume ? EDMUND D. RANDOLPH, resumed. BY MR. HUGHES: THE WITNESS: Mr. Hughes, you offer that list subject to proofreading and correction. I explained, you know Q. Everything is subject to that, until the last day of the session, of course. A. But the fact that there- is evidently an error as to dates, but I will swear to the fact that 2000 shares of the Erie first preferred were sold at from 57 to 57 Y%. Q. When ? A. The date seems to be a matter of error or omission, which I will supply later. 405 Testimony of Edmund D. Randolph Q. Is that sale in this list? A. It must be, unless as I say — it has not even been proofread, in the haste to get it into your hands, but I will swear that 2000 shares were sold at 57 ]4, yielding $114,256.50 and that the other 100 shares were sold at 57, yielding $5,687.50. They were sold at the stock exchange, and of course the brokerage is deducted. Q. And of course the brokerage deducted. Q. At the end of 1902 did those shares, 2100 shares of Erie, appear in your report to the Superintendent of Insurance? A. They did not. Q. They were owned at the time by the New York Life Insurance Company, when the report was made? A. They had cost us nothing, and therefore showed no money assets in our books. Q. They were not included in the report? A. No. Q. Were they included in the report of the New York Life Insurance Company made to the Superintendent of Insurance at the end of 1.903 ? A. Well, necessarily they were not. Q. Well, why necessarily, because they were not on the ledger, I suppose? A. For the reason I have explained. Q. But they were owned by the Company at that time? A. Oh, yes. Q. Now I understand that these 2100 shares were not stock on hand at the time you were disposing of your stock or en- deavoring to do so in compliance with your new by-laws, but shares that came in afterwards as bonuses as the result of the syndicate operations? A. You have the list of the syndicates. Q. (Repeated). I see now by this card that is handed me, they appear to have come into our possession on January 23d! 1902. Q. So you can answer my question in the affirmative? A. Yes. Q. Have you the dates which will enable you to state when 406 Testimony of Edmund D. Randolph you obtained Union Pacific Preferred 55,000 shares as a bonus for your participation? A. Haven't you a printed copy I have sent you? Q. Pardon me: Is Union Pacific purchase money syndicate? I want the date when you got it. I have only the general state- ment of it. A. That is a long way back. Q. Have you a similar card to the one you have produced with regard to Erie Preferred? A. As to all the other unclaimed assets ? Q. No. A. Oh, at that time I fancy they were using the book I have referred to that as superseded by a card entry. Q. What I want to get at first is this. Did the Union Pacific Preferred 5,000 shares appear in the books of the New York Life Insurance Company, prior to December, 1901? A. No, they did not at any time. Q. So that in December, 1901, when you took the steps you have stated to close out the accounts of the stocks that did ap- pear in your ledger, you took no similar steps with regard to Union Pacific Preferred, for that did not appear? A. Yes.itwas not an asset. Q. In other words, it was not carried on the ledger, hence you did not have occasion to close out any account? I think the phraseology was we could not claim as an asset, or show as an asset, and we neither claimed nor showed it. Q. In the meantime you owned it ? A. We owned it. Q. And you continued to own it how long ? A. Does not the list furnished you of all our syndicates include or show the date? Q. When you sold that stock? A. No, not when we sold it, when we got it. Q. That is what I am asking you. A. I thought you said when we got it. Q. I would like to have that, too. I am not sure which the 407 ■Testimony of Edmund D. Randolph question was, but I was going to ask you both. A. The entry of it in the list that I have furnished you, D ecember 3d, 1897. Q. Now, did you get them on that date? A. Presumably we did. Q. Do you know whether or not you did? A. I don't know. I merely took it from the date I find there. Q. Was the date that you find there the date of your syndi- cate participation ? A. Well, it throws that back eight years Q. Never mind about the eight years, Mr. Randolph. Just answer the question. A. It was in 1889. Q. If you can, answer the question ? A. I cannot answer the question. Q. What date does the sheet show? A. This sheet is De- cember 3d, 1897. That may be the payment of the money or the syndicate participation. It may be the date of the con- clusion of the syndicate. I don't know; I will have to see. Q. Did you have that made up? A. I did not have it made up. Q. Do you know what it means ? A. lam not a bookkeeper. Q. Do you know what it means ? A. I do know what it means. Q. Please state. A. It tells the story ; it tells a story. De- cember 3, 1897, Union Pacific Purchase Money Participation, $1,000,000 — purchase money bonds — participation $1,000,000; ( payments for bonds that the New York Life received ,$997,722.23; profits received in cash $50,000, in securities 5,000 shares pre- ferred stock; net profits on the transaction, $481,508.34; man- agers of the syndicate, Kuhn, Loeb & Co. and Vermilye & Co. Q. Now you have read that, will you kindly answer my ques- tion and tell me what that date means, to what does that refer? A. I am unable to say without inquiry whether that date refers to the beginning or completion of the syndicate. Q. Now can you tell me when the 5,000 shares of Union Pacific stock which you got were disposed of ? A.I shall have to refresh 408 Testimony of Edmund D. Randolph myself as to dates. I have the memorandum here of the trans- ' actions without any dates appended, by a singular omission. Q. Without stating it exactly, can you approximately fix the date? A. I can approximately fix the date by saying that 2,000 shares were sold within a reasonable time, shortly, I think, after the dates had appeared in the syndicate list there. I should say something in the neighborhood of eight years ago; seven or eight years ago. Q. And when were the 3,000 shares disposed oi? A. They were sold comparatively recently. Q. How recently? A. Within a year or two; I think about two years ago. Q. Do they appear somewhere else? A. They do somewhere of course; I think it is all in the complete list here, but with the omission of dates. Q. Well, we can say that the 3 ,ooo shares were disposed of by you since January 1st, 1904? A. Oh, that is absolutely the fact. Q. And for some time A. Since 1904? Q. Yes. A. No; I can't say that; I said a year or two ago. Q. Well, that is a year and eight months ago. A. Well, I can't say I recall that ; any statement as to dates I shall have to re- fresh my memory. Q. Well, can we say since January 1st, 1903? A. I decline to make any answer until I refresh my memory as to dates ; I prefer to be accurate as to dates. Q. I would be glad to have you get this together. A. I have a full list here, sir Q. Perhaps in your list of non-ledger assets it will appear? A. I have it here, the list that you asked for, but not the detail in which you asked for it. I am sorry to say it isn't complete; I have here the one which I brought for you prior to that, which is very meagre, as you say. 409 Testimony of Edmund D. Randolph Q. Now, is it the fact that during this period that you, as the New York Life Insurance Company, were the owners of these ' shares you had received ? Until the time came to dispose of them, they were carried on a card in the manner in which we have seen in the case of the Erie shares? A. Will you allow me to defer that question and revert to the former question ? Q. Certainly. A. I find here now a memorandum on August 29, 1899, we sold 1,000 shares of Union Pacific preferred from 79/4 — no, at 8o>6, yielding $79,433.34. They have run the figures into one another there. On June 4, 1900, we sold a thousand shares at 75^4 ; then in 1904 we sold on March 19th 500 shares at 90^; on March 25th 500 shares at 91H; ° n March 28th 500 shares at giyi, on March 30th 500 shares at 93^- an( i on Jul}' 6th, 1,000 shares at 94M.. That completes the 5,000 shares. Q. Those sales that you have mentioned in 1904, I don't find in my list. Is that because the list is limited to the ledger ? A. Not at all. That may be the explanation; I can't say. I suppose that is it. I really don't know. Q. Now, when you sold the Union Pacific preferred, or such shares as you did sell in 1 904, how did you book the proceeds in the books of the New York Life Insurance Company — profit and loss ? A. All Profit and Loss entries are made up at the main office. The credit goes up to the main office, and they make the Profit and Loss entries there. Q. Well, do you know whether they were, as in the case of the Erie, simply credited to Profit and Loss? A. I know as a matter of fact all money goes to Profit and Loss. Q. And not to any other account? A. Not to any other ac- count. That is the account they ultimately reach. They enter into the balance of Profit and Loss at the end of the year. Q. Now what I want to get at is this, you have made a careful statement with regard to the disposition of the stocks which were 410 Testimony of Edmund D. Randolph on your books at the time your new by-law went into effect. A Yes. Q. Or was to go into effect, and the method that was adopted to close out the accounts relating to those stocks. Now I have called your attention to a series of stocks which were not on your ledger, and to cases where there was no occasion for closing o. t. accounts, such s the 2100 shares of Erie which carrn in later in 1902, and the Union Pacific preferred, which probably had come in earlier, but neither of which were disclosed by your ledger. Now do I understand that in such cases as the latter you invari- ably carried those until the time of the disposition of them, with- out any entry upon your books, through an entry in a card? A An entry in Q. And then when you disposed of stocks, credit the proceeds to Profit and Loss ? A . That is where the proceeds go in every- thing. Q. My statement as to that is accurate, so that we need not follow each particular transaction ? A. Oh, absolutely accurate. I don't make the entries, but that it invariably results in profit and loss. Q. And none of these stocks, which the New York Life Insur- ance Company owns but which were not upon its ledger, were stated in its reports to the Superintendent of Insurance? A. Never shown in its assets. Q. Now a good deal has been said about your receiving these stocks as bonuses. As a matter of fact, in entering into a syndi- cate participation you either sign an agreement or assent to a participation which implies an agreement, do you not? A. The methods differ, as I explained them; it comes to us with a very full and ample explanation of what is intended to be done. Q. But for your underwriting you are to get certain bonds or stock, as the case may be? A. Well, we don't know what the result of the underwriting is to be. 411 Testimony of Edmund D. Randolph Q. I am aware of that. A. They tell us the purposes and the securities in which the money is to be embarked. Q. They tell you what the consideration is to be to the New York Life Insurance Company for putting its responsibility as an .underwriter back of the proposition, as it is termed in Wall street? A. Yes; the terms and the methods vary. Q. And that consideration sometimes includes a right to shares of stock, does it not? A. We don't always know. We are not apt to know whether we would receive stock. In a great many cases, I think in the majority of cases, whatever accrues to the syndicate managers they dispose of and you receive a cbeck for the general outcome, whether it may have arisen from bonds or stocks or anything else. Q. Well, that is your right to a share of the profits? A. Yes, Q. These syndicate managers aren't making presents to you, are they? A. Assuredly not. Q. They are carrying out their agreements? A. Assuiedly not. Q. They are carrying out their agreements by delivering to the New York Life Insurance Company what that Company is en- titled to? A. Of course. Q. And entitled to by virtue of its having participated in the syndicate operations? A. Of course. I have never known of a case where they haven't. Q. And when you get stock, you get stock as a part of your share of the results, part of the agreement? A. We often get it without knowing there is any stock coming out of it or not. Q. Well, whether you know it or not, you get it because you are entitled to it? A. We get it because they give it to us. Q. To recur, you get it because you are entitled to it as a par- ticipator in the syndicate? A. We get what we are entitled to. Q. And what you get in stock is just as much a part of your 412 Testimony of Edmund D. Randolph syndicate obligations as what you get in bonds, isn't it? A. Yes; surpluses. Q. Why do you call stock bonuses rather than to call bonds bonuses? A. It is surpluses ; that is a better word perhaps. Q. Surpluses over what? A. Over what is a return of our money in adequate form, and it is surpluses above it. Q. In both cases, whether you get money or whether you get stock, you are getting what you have paid for by your syndicate underwriting according to the terms of the agreement? A. If we get our money back that we paid in, I think that is a thing by itself. If we get in addition to that a further sum for profits, that is credited to Profit and Loss. Q. What do you mean by getting your money back? A. Well if we are called upon to contribute money to the syndicate mana- gers, we certainly get that money back before we call anything profit. They pay it back to us. Q. Exactly. But whether you get that money back depends on whether you market your bonds for the same amount you paid in? A. Not at all. They very often give us our money back and call for the bonds, and we deliver to them as we require. Q. I have noticed that, and we will go into that a little later. What I am driving at now is that you enter into a syndicate and assume certain obligations ? A. And assume certain obligations as a participator. Q. And put up a certain amount of money ? A. And put up a certain amount of money if called for. Q. If it is called for, you have the responsibility and are liable to call at any time ? A. Certainly. Q. And for that responsibility you are entitled to certain benefits? A. Yes. Q. And those benefits consist of certain profits, if profits are realized and divided? A. Yes. Q. Or it may be certain securities ? A. Yes. 4i3 Testimony of Edmund D. Randolph Q. And whether it is profits or whether it is securities, you pay for those profits or pay for those securities by entering into the syndicate obligation? A. I still say that Q. Just answer that question, can't you, Mr. Randolph? A. I don't say that we in all cases pay for it. Paying for a thing is giving money. Q. Well, that may be a popular idea of it, but as a matter of fact you know men are very largely paid when they don't give money when they enter in, for example. A. Well, if we have given money and are repaid that money, whatever is over that m )ney is certainly surpluses. I can't state it in any other way. Q. When you enter into a syndicate obligation and put the responsibility of the New York Life Insurance Company back of it, you understand that if the flotation isn't successful you might have to take securities? A. Yes. Q. And you understand that those securities are frequently bonds and stocks? A. Yes. That I understand. Q. And you understand that, if by reason of any fall in the market the bonds don't measure up to what you have had to i .■ •/ . you can have a lot of stock and try to get your money out of these? A. That is correct. Q. And when you have wound up the whole matter, if you have got a profit you call it the profit of the syndicate? A. That is a perfectly correct statement. Q. And, for some reason or other, in dealing with your books you separate the bonds and stocks and enter the bonds on the book and then call the stock bonus? A. Well, I don't think there is any significance to be attached to that. Q. I am asking why that is done? A. I think it is stated so there, I don't know whether it is on the books or not; I suppose it is there. The question has never presented itself to me before, frankly. Q. We don't have to go back, of course, to be assured these 414 Testimony of Edmund D. Randolph stocks are not in fact on the ledger, because they are not ledger assets. A. Certainly. Q. But the bonds are on the books ? A. The bonds are on the books. Q. The bonds are ledger assets? A. The bonds are ledger assets. Q. And the stocks are non-ledger assets? A. Non-ledger assets. Q. Now, can you explain why that is ? A. Because the bonds fully — are fully representative of the amounts of money that is embarked in them. Q. Are they always ? A.I don't recall a case now in the wind- ing up of a syndicate where we have received bonds that they were not fully representative of the price at which, at all events, we could reasonably expect to receive them from the terms of the syndicate. Q. But you are quite well aware that it might be very much the reverse? A. Oh, absolutely. There is nothing sure in syn- dicates. Q. Take, for example, Chicago & Alton, taken by you at 96 and now 83? A. That was no synidcate, sir. Q. What? A. That was no syndicate. Q. We will come to that later, but it is a fact, isn't it? A. It is a fact, but they were not the product of any syndicate pur- chase, though. Q. I haven't suggested it was. We will have that whole trans- action out in a moment. A. Oh, yes. Q. Now, what I want to get at is this, if you have gone into such a participation at 96 and if for any reason, for which you in no way are responsible, there should be a turn in the market which should make the bonds you took much less, the stock, of course, would be available to you to make up that, and would be a part of your assets for that purpose ? A. Of course. 415 Testimony of Edmund D. Randolph Q. Now, can you conceive of any reason why those stocks shouldn't be on your books regularly, just like the bonds? A. If you can instance any case where that shows to be it, I can prob- ably explain it. I don't know of any case where it was at all necessary to show the stock after the conclusion of the syndi- cate. Q. You are talking about in order to make up a list, but I am not talking about it in that way. I am talking as a matter of bookkeeping why there is any significance. A. I think our book- keeping method is absolutely correct. Q. Can you explain why you should have the bonds in the book, and the other not? A. Yes. It is our duty to show an asset for every expenditure, and the bonds supply the asset and fulfil the requirements, and the stocks are surplusage, as I said before. I don't know of any case there. I don't know of any case there to which any different statement can be applied, of any concluded syndicate. Q.\Well, no call is made upon you, that is because the bonds can be J^arketed and they are marketed and the profits divided ? A. Ye?*""- - "'.•■' Q. Now, that profit you always enter on your books? A. Yes. Q. The cash profits are always entered.regularly on your books ? A. Yes. Q It is merely these stocks that are not entered ? A. Yes. Q. Now I want to ask you with regard to some of these syn- dicates. I shall offer this sheet that you have furnished me, entitled "Participations in Syndicates for ten years last past by New York Life Insurance Company," and marked Exhibit 38 for identification, in evidence. (Marked Exhibit 38 in evidence.) Q Now, this sheet shows under the head of profits certain 416 Testimony of Edmund D. Randolph cash profits and certain profits in securities, with a statement in a final column of net profits, which includes the profits realized by a sale of securities, showing as a total net profits $2,399,695.22, and I understand the fact to be, apart from the inquiries that we have been going into and shall go into with regard to these oper- ations, that you show by this that these syndicate transactions have been very profitable? A. Have been very profitable. And I would state parenthetically, if you add that $2,399,000 to the round six million or so that we were talking about from these stocks that have been so criticized, and add some ten million more that that list that you have shows above their cost, I think that the policyholders at least will commend us for our steward- ship. Q. And if you had gone into stock operations for the last four or five years undoubtedly you would have conducted them with a great deal of success and made a great deal of money. That isn't my point. Taking up this list of syndicate operations and calling your attention to the fact that you show a net profit on the syndicate operations of $2,399,695.22? A. Yes. Q. And you add to that a footnote, "The Company has never been in any syndicate that has made a loss?" A. There is no syndicate that has ever been closed up with a loss. I didn't put that statement there. I didn't think it belonged to the figures in the case, but it has been added here. Q. I find it here. A. I find it on my copy. Q. And in order that you may have the benefit of it, and to show there is no disposition to conceal any such item, I have read it. A. Yes. The fact is plain we have never closed up any syndicate with a loss. Rather, we have never been interested in any syndicate that has been closed up with a loss. Q. I want to know just how you arrive at these profits that are mentioned here? A. Give me an instance. Q. "Well, we will go over it in plenty of time. A. Let me say 4i7 Testimony of Edmund D. Randolph you called for a very full statement of that, Mr. Hughes. I have only the beginning of it here. To-morrow I will have it in your hands. Q. Well, you can look at mine whenever your recollection fails. That is the one you have furnished me? A. This is the one you have called for in your letter of yesterday. Q. Let us take the syndicate participation in the Toronto, Hamilton & Buffalo, under date of December 29, 1898. Your statement shows a participation of $875,000, that the New York Life carried bonds of $796,250 and that there has been a cash profit of $4,049.46? A. Yes. Q. If you will take up with me the list of securities purchased and sold that has been marked Exhibit 46 for identification, I should be glad to have a statement made of just what the trans- actions of your company in the syndicate were. Refer to De- cember 29, 1898. I find there, under the head of Purchased A. 1898. I would remark I had nothing to do with this part of the business at 1 h at time. It was before I was treasurer. But I will follow your directions. I find the entry. Q. Decembo: 29, 1898. Now, that is an entry on the purchase side of Toronto, Hamilton & Buffalo four's, $875,000 at 91, cost $796,250. That is the entry corresponding to the one upon your syndicate sheet, Exhibit 38. A. You say that is a debit? Q. On the purchase side, right up here. A. Yes; I see that. Q. That means that you bought those bonds and paid that amount and invested the full amount of $875,000? A. No; it means that the par value of the bonds was $875,000 and that the investment was $796,250. Q. Yes. My question was on a false basis. In other words, you put them in at 91 and the investment referred to in your syn- dicate list was then made. A. I take it to be so from the figures. Q. Now, having those bonds on April 15, 1899, you sold $50,- 418 Testimony of Edmund D. Randolph ooo back to the syndicate at the same price at which you got them, didn't you? A. I fancy that that was the case. Q. Just answer the question, please. We will get to the con- clusions later. A. I don't know. I can only explain as I started to. Q. Look at your list? A. It doesn't follow that it was a sale. Q. What? A. It doesn't follow that it was a sale. Q. It says so. I am taking your list and giving what it says on it. A. I am entitled to an explanation. Q. Go ahead and make it. A It is a very usual method in syndicate operations that you are called upon for a payment, and they give you the representative quantity of bonds to carry; those bonds are to be held subject to the call of the syndicate, and as they fell they call back from you, and you make a credit to them and receive the money from them, against, the amount you paid. If doesn't follow at all it is a sale. They are claimed by the syndicate for the purpose of delivering against sales they have made to the general public. Q. Exactly. You finance the syndicate ? A. Not at all. We have made an undeiwriting, but no financing syndicate at all. Q. But you put your $796,000 in their hands and then you get $875,000 in bonds which is subject to the call of the syndicate on giving you back a pro rata part of the price of the bonds that they call for? A. That we paid, yes. It is so we carry our interest in the syndicate, that is the phraseology. Q. I am following this line of questioning because there was an inference in Mr. Claflin's testimony about your going into this as an investment and your taking these allotments for the purpose of holding them. Now, isn't it a frequent practice that you take an allotment from a syndicate or even more than your allotment, and then hold the bonds subject to the call of the syndicate until they are able to market them? A. It is sometimes the case that we have to do that, that we take a profit to be derived from the syn- 4TQ Testimony of Edmund D. Randolph dicate's participation, even though we take bonds and purchase them from the syndicate at the syndicate price, and are sharers in the profits of the syndicate to reduce the cost of the bonds to us that we take. It arrives at very nearly the same thing in the end. The price in the one case is reduced by profits from the syndicate, and the price in the other case is the syndicate's original cost with a charge of }4 cent commission. Q. The actual fact of the matter is that on December 29th, 1898, you paid the syndicate $796,250 for 875 bonds of the Toronto, Hamilton and Buffalo Fours, and then on April 17th, 1899, you turned back to the syndicate A. Will you allow me to see if. I can find any light here ? Q. 50,000 of those bonds at 91 on May 25th, you turned back to the syndicate 25,000 of those bonds at 91 — Are you following me? A. I am, yes, sir. Q. And on July 25th, 1899, you turned back to the syndicate 300,000 of the bonds, making a total of 375,000 of the bonds which you have originally taken, which you restored, leaving you 500,000 in your hands. A. Yes. Q. So that when you originally put up that $796,000 with the syndicate in December, 1898, you didn't put that up with the idea of making an investment in those bonds to that extent, but with an idea of furnishing the syndicate with that amount of money and holding the bonds subject to their call until they could dis- pose of them in the market ? A. It is very evident as you state it that we took a syndicate participation very much larger in amount than 500,000, but with the understanding that we could withdraw some bonds. If they call for the full amount of our participation we have to pay, but- then they stopped calling when they got down to the 500,000 bond. We, therefore, got 500,000 bonds which we withdrew for investment, and the cost to us was not only the syndicate price, but it was marked down by any profit which there would be accruing to us on the interest of our 420 Testimony of Edmund D. Randolph syndicate participation, the excess over and above the 500,000 bonds which we withdrew. I haven't the data before me, but that is manifestly and clearly the case as you state it. As I said before, I was not then treasurer. It was not a matter I had the handling of, except I have a perfect recollection. I was one of the Finance Committee at the time and I was also Chairman of the Executive Committee. Q. No; we have reached a point where you have returned 375 out of the 875 which you got from the syndicate originally at the same price, and half a par value of 500,000 left. Now, on July 26th, 1899, or at a time not stated here but under that date, in your list Exhibit 46 ? A. Is there nothing dated at all? I am afraid that is an omission of date. Q. It is right under July 26th? A. Yes. Q. You sold 500,000; you sold out those 500,000 that you have left of Toronto, Hamilton and Buffalo Fours, and you sell those at 99. To whom did you make that sale? A. Doesn't it state there? Q. No. A. Well, I can't conceive why it is omitted. Well, there apparently is no concealment in not giving the name. Q. Not at all, it is not intended to imply anything of the kind A. It has been absolutely impossible in some cases to find who were the parties to these transactions. It was sold at the Stock Exchange or somewhere, and we have no record of the names. I have had to get the names you have there down in the vaults, or from brokers' bills, or other vouchers in the vault. It has been a labor of the utmost magnitude and in some cases there is absolutely nothing to give us the names of the parties who have been the purchasers. Q. Perhaps you have a resolution of the Finance Committee of that sale, as it is a large one, but you haven't your records for 1899 here, have you? A. We undoubtedly have the records. 421 Testimony of Edmund D. Randolph MR. HUGHES: Have you the record here, Mr. Kingsley? THE WITNESS: I have the Finance Committee's. What was the date of it? Q. This is way back in 1899. A. Yes, I think No. 7 goes to 1899. Q. July 26th? A. July 1st. Q. In July sometime. I should infer it was the 26th here. Well, without stopping on it now, perhaps you can look that up a little later during the recess hour. A. We have several Toronto interests of one kind and another given on the index, and it is quite possible that the clerk has made a wrong posting. Q. I notice here you have sold 500,000 of Toronto, Hamilton and Buffalo fours at 99, 495,000 on July 26th, closing out ap- parently the transaction. A. Apparently, but my answers are purely hypothetical, Mr. Hughes, as I told you I have no knowl- edge except from what you state. Q. But what I state is taken from the list that you pointed at? A. Yes. Q. And I presume I should take that to be correct? A. With the reservation that I have made, that it has not been proofread even. I think there was an error in the omission of a date. Q. But you understand that you can correct that at any time ? A. Yes. Q. If you will make the same assumption that I make, that this list is correct until it differently appears, and take the list and follow me, you can tell me whether you disposed of that series of bonds at that time? A. In point of fact I think we have 500,000 of those bonds now. Q. We will come to that in a minute. I have no doubt yOu have. A. Well, I will assume that is a sale of 500*000. 422 Testimony of Edmund D. Randolph Q. Now, look on the purchase side of the account on July 3 ist. A. Of what date ? Q. 1899, five days later. You will find there a purchase of Toronto, Hamilton and Buffalo syndicate of 500,000 in par value at 99. In other words, a repurchase at 99 of the same amount that you had sold five days before. Now, why did you, when you went into a syndicate at 91 and intended to reserve 500,000 of those bonds for advancement, on July 26th, 1899, sell 500,000 at 99, and then on July 31st buy them back at 99? A. I would have to refresh my memory. I have no recollection of this. Q. You don't remember anything about it? A. I don't know anything about it. Q. What does "Through Paris office" mean when I see it throughout here ? A. What, in that case? Q. I find that frequently in the list ? A. Well, it is manifestly a stupid blunder. Paris office never saw Toronto, Hamilton and Buffalo. They handle only the European securities that, we are obliged to use for deposits with various European Governments. That is an error. That evidently would be corrected in proof- reading. Q. Did you ever sell a lot of securities out on one day and take them on another day, a few days later, to make a mar- ket? A. Never. Q. Well, I would like to have you explain what these cross- entries are. A. I will give you an explanation of that in full. Q. That is another thing I notice about that syndicate. You now carry the cost on your books of the 500,000. A. Yes. Q. At 99. This last question, you carry it at the cost of 99, instead of the cost of 91, the original syndicate price. A. I reserve my explanation of the whole matter until I have an opportunity to refer to the entries. 423 Testimony of Edmund D. Randolph Q. And in order that you may have all these inquiries to- gether, so you can answer them together A. The entries are correct, that I am positive of. Q. You carry them at 99 and on that basis they show a loss on market value, but that loss on market value isn't figured in when you come to the result of your syndicates. A. Let me see if we do carry them at 99. Q. At the cost of 99. A. I think that can hardly be, Mr. Hughes. I don't see how it can be. Q. "Well, look at this. A. I am getting it Q. Here is a list furnished yesterday, showing the securities now held'by you, and as classified, which show Toronto, Hamil- ton and Buffalo First Fours, 500,000, book value $493,551.59, cost price 99. A. If anyone will sift that out they will see it is an impossibility. I have them here estimated in the last year's statement twice Q. Well, that was so in your last report, wasn't it? A. That was so in our last report. Q. Here is your report to the Superintendent of Insurance. A. Yes, that is it at 99. Q. At 99? A. That does figure out 99. Q. And the market is put in at 80,000? A. 96 that was. Q. Making a cost of 13,000? A. That is so. Q. So you don't take account of that in your syndicate profit? A. "When we take it as an investment. Q. So on that there is a loss of 13,000 market value? A. On this. Q. Upon that you make up a statement of syndicate profits, but you don't take account of that? A. What was the year of the syndicate profits? Q. I don't know. That is why I want to know when it comes in. 424 Testimony of Edmund D. Randolph. THE CHAIRMAN : I suggest you look that up at recess. Q. If you will lookEthat up. A. I will get a complete state- ment of that. I don't remember frankly. THE CHAIRMAN: Any other suggestions you want to make? MR. HUGHES: No. THE CHAIRMAN : The Committee will stand in recess until 2 o'clock sharp. ■>*:> AFTER RECESS.' Mr. Rogers in the Chair. MR. HUGHES: Col. Pain, will you take the stand? I would say that Col. Pain desires, for the purpose of being excused to attend to certain matters of importance, that he be examined at once. So we will suspend Mr. Randolph's examination for a few minutes. AUGUSTUS G. PAIN, called as a witness, being duly sworn, testified as follows: DIRECT EXAMINATION BY MR. HUGHES:' Q. Col. Pain, you reside in the city of New York? A. I do. Q. What is your business? A. I am the president of the New York & Pennsylvania Company, manufacturing. Q. And you are also a trustee of the New York Life Insurance Company? A. I am. Q. And how long have you been such? A. Thirteen years. Q. Do you serve on any of the standing committees of that company? A. On two. Q. Which two? A. The executive and the agency. Q. How long have you been a member of the Executive Committee? A. I have been more than ten years. Q. How long have you been a member of the agency com- mittee? A. Since the beginning of my service of the company as trustee. 426 Testimony of Augustus G. Pain Q. Have you ever been an officer of the company? A. I have not. Q. Or a member of the Finance Committee? A. I have not. Q. Have you ever participated in syndicates? A. I have. Q. Have you participated in syndicates in the last five years? A. I have. Q. And in the last year? A. I have not. Q. Will you state what syndicates you have participated in in the last five years? A. The Steel syndicate originally and in a syndicate taking some bonds of the Atchison, Topeka & Santa Fe railroad. Q. What particular steel syndicate were you in? A. The original. Q. What do you mean by that ? A. Morgan syndicate. Q. What do you mean by that? A. The original Morgan syndicate. Q. That is the syndicate engaged in the flotation of the United States Steel 5's? A. No sir; prior to that. The organization of the — the consolidation of all the companies. Q. Well, what particular securities were underwritten by the syndicate of which you were a member ? A. Why, all the securi- ties under that original. I have forgotten the details of it. Q. The United States Steel Corporation was incorporated in 1901, was it not? A. I think so. Q. And on April 1 st, 1902, was an authorized issue of $304,000- 000 of collateral trust 5 per cent, bonds ? A.I should have to get my. papers to describe my underwriting exactly. Q. Well, was your underwriting the underwriting of those bonds which at the time of the organization were issued against shares of the Carnegie Company, the Federal Steel, Illinois Steel, National Steel, National Tube, American Steel & Wire, American Tin Plate, American Steel Hoop Company and American Sheet Steel Company? A. I presume those were all in. 427 Testimony of Augustus G. Pain Q. Those were bonds which Mr. Carnegie took to a large ex- tent at the start ? A. I don't know whether those are included in my underwriting or not. Q. Well, there was a United States Steel bond, five year bonds, authorized issue of $250,000 in April, 1 903 . Was it that you were connected with ? A.I had no interest in that. Q. Then it was the earlier one in which you were interested? A. It was the earlier. Q. That was the syndicate, as I say, with regard to the United States Steel 5's, preferred lien? A. That I don't know without referring, but it was the original underwriting. Q. Did you take bonds under that underwriting? A. I took nothing. Q. Did you take a share of the profits? A. I did. Q. What other syndicates did you say you have been connected with? A. A syndicate underwriting an issue of bonds of Atchison, Topeka & Santa Fe. I have forgotten the year. Q. What particular bonds of the Atchison, Topeka & Santa Fe were those? A. I will have to refer to that. Q. Were they Atchison, Topeka & Santa Fe debentures? A. I will have to refer. Q. You have nothing here which will enable you to state? A. No, I have not. Q. What other syndicates have you been in ? A. None. Q. What is that? A. None. Q. Were you in the Oregor Short Line syndicate? A. I said none, sir. Q. None whatever. My reason in asking you a further ques- tion was to see whether you were absolute or able to be absolute in your statement, or whether it was a matter of general recollec- tion? A. Absolutely, sir. Q. You are quite aware of that? A. Yes, sir. Q. Those were the only two syndicates? A. Yes, sir. 428 Testimony of Edmund D. Randolph Q. Have you the original syndicates agreements'that you went into? A. I think I have. \ Q. If you will be good enough to furnish us the details of your participation showing what the syndicate precisely was with copies of the agreements we will excuse you now. A. I will be very glad to. Q. In the two cases. A. Any more, sir? Q. That is all, Col. Pain. MR. HUGHES: Mr. Randolph will you take the stand? ^JEDMUND D. RANDOLPH, resumed the stand. BY MR. HUGHES: Q. Mr. Randolph, at the close of the session this morning I was asking you with regard to Toronto, Hamilton & Buffalo 4's? A. Yes. Q. And particularly with regard to a sale as shown by your list, Exhibit 46 for identification, of 500,000 of those bonds on July 26th or thereabouts, 1899, at 99, and I asked you to whom that sale was made. Are you able now to state? A. I am able now to answer it. Q. To whom was the sale made? A. Why, it was simply a cross entry taking the bonds out of syndicate account and putting them into investment account. They are credited up to syndi- cate account, then a new account opened for them as investment account. Q. As matter of fact you didn't sell them? A. Oh, they were not sold at all Q. Then as matter of fact you didn't re-purchase them? A. No, never went out of our possession Q. Then why is this entry "through Paris office" of purchase 429 Testimony of Edmund D. Randolph of July ist? A. Well, that is the printer's mistake entirely. Where he got it from I don't know. Q. Why the price of 9^? why did you change the price to 99 from the syndicate price of 9 1 when you put them in the invest- ment account ? A . That was the resulting balance of the account. I saw the account and the resulting balance of the account was 49 — you read it to me there, what it showed on the list. And it pro- duced a balance of 400 — they were credited up to that account at 99 and they were brought into* the investment account at 99. I had nothing at all to do with it. It was my predecessor, Mr. Gibbs, but I can say what I saw on the surface of the account. Q. Then you don't know why they were put down as sold at 99? A. Excepting, as I say, to take them out of syndicate ac- count and put them in the investment account. The supposition is Q. That is an explanation that does not explain. You say you took them out of syndicate account and put them into general account, but my inquiry is why when you did this you changed the cash price of the securities from 91 to 99? A. I was going on to say the supposition is that was the price at the time, and they were taken into the investment account at the common price on that day. That is the supposition. Q. Now, as a matter of fact, when you had originally taken the whole 875,000 of bonds you entered them as purchases on your ledger? A. We entered it as a syndicate interest. We took a syndicate interest of 875,000 and we withdrew only 500,000 bonds. What the intermediate entries are I have no possible means of knowing, As I say I had no possible connection with that transaction. Q. Yes, but you had that before you? A. I mean from my recollection. Q. Now, the date of the syndicate participation as shown in your syndicate list, Exhibit 38, is December 29th, 1898 ? A. Yes. 43=- Testimony of Edmund D. Randolph Q. The transactions, as they appear in your ledger, as shown in this list, Exhibit 46 for identification are as follows A. December 29th you will find a Q. Pardon me. On December 29th, 1898, we find the entry of purchase as follows : "Toronto, Hamilton & Buffalo 4's $875,- 000, price and interest 91; cost $796,270? A. That is the par- ticipation cost. Q. Pardon me a minute. American Loan & Trust Company Now you had that upon your books, didn't you, as a purchase? A. Yes. Q. In what sense did it require another transfer to investment account? Didn't it then appear from your books that you had invested $796,650 in 875 bonds of this issue at 91? A. Itdidnot, It was invested in the participation of 875,000 in a syndicate. Q. But you had the bonds? A. They were delivered to us, yes. Q. And you entered them in your purchase ledger? A. Asa participation. Q. This is the exact statement from the ledger as it appears in the ledger, on this list? A. This is the purchase and sales book, yes. Q. Well, on that purchase book it appears that you have bought these bonds? A. Every payment in the syndicate ac- count is in this book; every payment. Q. Every purchase you make for investment is also in that book, in exactly the same form ? A. I suppose so, yes. Q. If you had on December 29, 1898, entered on your book a straight purchase of those bonds without any reference to any syndicate whatever, you would have made precisely the entry you did make? A. Exactly. Q. Then why did you have later to change to a general account and fix the price at 99? A. Because it was a method of book- keeping that prevailed then. 431 Testimony of Edmund D. Randolph Q. Is that the only answer you can make? A. That is the answer I make and a perfectly correct method of answering perfectly correct. Q. As a matter of fact, they didn't cost 99 ? As a matter of fact, they didn't pay 99 for them? A. Whether they cost 99 or not, I don't know, and I won't answer until I get proper informa- tion of a thing I know nothing of whatever. Q. From the information you have been able to get up to the present moment, are you acquainted with anything that indicates you paid 99 ? A. I will give you the only thing I have been able to get up to this moment. That is on Mr. Shipman who has charge of the matter I am not an accountant in the office ; I don't receive and deliver securities. I think he would be the one to testify to these matters, especially as these things are in his hands and not in my hands. Q. I am not an accountant either; but I am only taking the list you have handed me ; I find you acquired 875 bonds at 91 and then afterwards, there are cross entries, of 500 bonds had been sold at 99 and repurchased at 99 and you tell me that is simply a transfer? A. To close the syndicate account and to open the investment account. Q. I want to find out if you can tell me. Your answer is suf- ficient as far as you are concerned. Why was it you took it in on the investment account at 99 when you hadn't paid 99 for them as the entry showed ? A. I have no knowledge of the entry and therefore no knowledge of the motive; had nothing to do in connection with the transaction in an administrative way and don't know the motive. Q. Is there any one in the room who knows what you paid for those bonds? A. I saw on the books that they were trans- ferred from the syndicate account to the investment account and the exact balance was carried over, with the exception of $4,000, which shows as a profit on the transaction. 432 Testimony of Edmund D. Randolph Q. Is there any one here who knows more about that transac- tion than you do? A. No, there is not. Mr. Shipman is the one from whom I got the information, and he is busy at the office trying to get the things you asked for. Q. Very good. Does he know about this? A. He does. Q. Kindly have him here to-morrow morning. Now, are there any entries in these transfers that you speak of, investment account, other than the two entries to which I have referred, one on July 26, 1899, purporting to show a sale of 5,000 at 99 and one on July 31st, 1899, at 99? A. None. Might I see the account? Q. So what you call a transfer to investment account was sim- ply these two entries on the ledger? A. Yes, sir. Q. There wasn't any new account opened? A. Yes, there was a new account opened, an entirely new account. Q. Please produce that account. A. All right. Q. Also the man who knows as to the transaction. Now, passing the Toronto, Hamilton & Buffalo, I would like for a moment to take up United States Steel. You have already tes - tified that at some time you bought U. S. Steel bonds? A Yes. Q. Please look on that list, Exhibit 26, for identification under date of January 14th, or below that date, though not dated. A . I would like to explain with reference to this. It is only an omission of dates. I have them supplied now. Q. I understand. I am not making any point of that. A. It is the printer's fault. Q. If you will look, please, at what I call your attention to, o you can follow my question at the list. A. On what date is it? Q. January 14th, 1902, or under that date? A. Yes. Q. Now at that time you invested $21,118,000.16 in those bonds? A. If you will allow me to defer answer for a moment until I get the I would prefer again, with your permission to answer from the minutes. 433 Testimony of Edmund D. Randolph Q. Of course, only make it, if I may suggest, just as definite and brief as possible. A. I will. Q. D on't put too much time on these matters, as you go along. A. I will. I don't propose to go through all these, but I have to find the right book. January 2d, 1902, Present the President of the Company, and Messrs. Perkins, Chairman, Langdon, Ran- dolph, Martin, Craig and Kingsley, Secretary. The reference to the United States Steel corporation there is that authority was given to buy at about 115, 1,600,000 par value of the bonds of the United States Steel corporation known as the Carnegie bonds. Shall I go on? Q. My question that I asked you was whether in January, 1902, the Company paid $2,118,926.15 as shown by your list, Exhibit 46 for identification, for United States Steel bonds? A. We evidently did. Q. Now those were bonds you say that were known as the Carnegie bonds ? A. Yes, sir. Q. They were part of the issue authorized, $304,000,000, which were secured by shares of the Carnegie Company, Federal Steel, National Steel, National Tube, American Steel & Wire Company, American Tin Plate Company, American Steel Hoop Company, American Sheet Steel Company and 96,000 collateral trust bonds of the Carnegie Company of which 240,000 were delivered to J. P. Morgan & Company and the remaining 64,000,000 of the authorized issue were reserved to retire Carnegie bonds. That is correct, is it not? A. Well, I really don't know. I really don't doubt that it is correct. I mean the details as you read, them. I accept them as of course correct, but of my own knowl- edge I can't say. Q. Those were the first lien 5's, in other words of the United States Steel? A. As I expressed it the other day they were the underlying bonds of the whole outfit. Q. Well, that is an ambiguity because there was another 434 Testimony of Edmund D. Randolph 96,000,000 of bonds of the Carnegie Company which was a part of the collateral United States Steel bonds. Now the bonds you got were the United States Steel bonds ? A. Yes, but these were incorporated into these bonds; they were behind the bonds. Q. The old Carnegie bonds were a part of the collateral of the United States Steel bonds? A. Yes. Q. And the United States Steel bonds were secured by the Carnegie bonds and also by the Carnegie stocks and a lot of other stocks? A. Yes. Q. And were collateral bonds, a 5 per cent, bond? A. Yes. Q. Now, at the close of the year 1902, if you will refer on the list, Exhibit 46 for identification, you will find an entry under date of December 30th, 1902, as follows under the head of sales, "December 30th, U. S. Steel 5's, $1,848,000 realized $2,116,793. 12." Were those sold at that time ? A. Will you pardon me just one moment ? Q. To jog your memory as a matter of fact, those bonds were not sold at that time, were they? A. I recollect. Q. But were closed out in the same manner that you had closed out the stocks that you held at the end of 1901 . That is, there was a sale in form, but in fact they were left in the New York Security & Trust Company as collateral for notes issued by your employees ? A. Exactly. It was not a case of jogging my memory. I was simply getting the details to see exactly how the loans were made. Q. I think you have stated that in effect. A. I have stated that. Q. We want the exact figures. A. I simply wanted to get the exact figures so as to be perfectly correct. Q. I find in the ledger that the entry is simply United States Steel 5's realized $1,216,793.12? A. Yes. Q. In short the formation of that realization was a credit to your account with the New York Security & Trust Company? 435 Testimony of Edmund D. Randolph A. Precisely the same as in the former instance, as I have ex- plained. Q. And there was no liability on the other side of your books against that amount? A. None. They were closed out of the account. Q. And in your reports at the end of 1902 to the Superinten- dent of Insurance, you reported the cash that you had on hand including the amount to your credit with the New York Security Trust Company as free cash? A. Yes, sir, as cash. Q. Well, as cash. A. Yes. Q. No liability against it ? A. No liability against it. Q. As a matter of fact, when did you actually dispose, and when I say you I mean the company, of those United States Steel bonds? A. I think I can get my dates from this. At a meeting of the sub-committee on January 16th, 1903, it reads: "The Sub-committee also recommends the sale of the Com- pany's holdings in St. Paul preferred now with the New York Security & Trust Company, the company's holdings of the 5 per cent bonds of the United States Steel corporation now with the New York Security & Trust Company, also the Fort Worte bonds, also at the same place. Q. Pursuant to that authorization, in January, 1903, those bonds were subsequently disposed of? A. Yes. Q. At a profit? A. No, at a loss, as I stated. On a former oc- casion they realized — I stated in my former testimony, if I recall correctly, that we found that there was a difficult market for that, no market in fact, no current market, because they had not come on the market. They had been given away and donated by Mr. Carnegie, and we sold them finally to the United States Steel Corporation itself for their sinking fund purposes on periodical deliveries. Q. What was the loss on those? A. The loss was $82,303.13. Q. Was that loss sustained in 1903? A. Yes. 43 6 Testimony of Edmund D. Randolph Q. And how did you book that loss on the books of the New York Life Insurance Company? A. Charged it to profit and loss. Q. So as in the case of the Chicago & Northwest you took the profit which was realized after the stocks had been closed out of your account at the end of 190 1 in the case of the United States Steel 5's you took the loss that was subsequently sustained on the bonds which had been closed out of your account at the end of 1902? A. Constructively came out of the value of the secu- rities that were attached to it, but in point of fact it was charged up to our account and charged to profit and loss. Q. So that when on December 30th, 1902, we find in your entry of sales U. S. Steel 5's realized $2,116,793.12 we are to under- stand that that figure was inserted at that time and you were given credit for that amount at that time and that subsequently there was a loss sustained when the securities were actually dis- posed of which went to profit and loss? A. That was a pro forma sale to close the account, as in the former cases. It was the same in the cases I havestated in it ; was different than in the other cases by this having been ruled to be an industrial security. The end of the year is the time we make up our accounts, and we try to make it conform to the requirements of the by-laws as well as the peculiar requirements of the Prussian government. At the time the bonds were sold they were not thought to be industrial. I did not think so then and I do not think so now. The bonds happened to be sold at a time when there was a great depression in everything. The order had been given to sell them and they were sold at the very best price obtainable, but they are very much higher now and certainly a very good investment. That is not to the point at all, but as a matter of individual opinion I think we could have held them with perfect propriety. Q. The point is that was not the opinion of the Committee? A. I think it was rather the opinion of one member of the Com- 437 Testimony of Edmund D. Randolph mittee, and in the Committee the rule is that one objection governs always; one objection kills a purchase and one ob- jection kills a sale, and one objection will reverse a transaction and one objection will lead to the closing of a transaction or investment. Q. So while these were nominally closed out at the end of 1902 and you made your report to the Superintendent of In- surance on that basis, as a matter of fact when a loss was sub- sequently sustained, when these bonds were disposed of the Company took that loss and charged it to profit and loss on the books? A. Of course. It was the inevitable result. The cir- cumstances were precisely analogous to the former case. Q. It is suggested that it would be a good thing for you to fur- nish a transcript of the profit and loss account. Will you do so? A. I will do so — well, I will get it from the office. The books of the concern, as I explained before, are all kept there. Q. Well, of course, you are a representative cf the company? Now let us look at the Chicago \ Alton syndicate THE CHAIRMAN: Did I understand there would be any difficulty? THE WITNESS: None whatever. Oh, none whatever. I will make a memorandum of it while I think of it. Q. If you will turn to the syndicate list, Exhibit 38, I call your attention to the entry under date of March 15th, 1899, Chicago£& Alton, $550,000. That was the amount of syndicate participation of the New York Life Insurance Company? A. That was a stock purchase syndicate. That also was in the time of my predecessor, Mr. Gibbs, and I cannot speak from a personal familiarity that I could had it been within my own administra- tion. 438 Testimony of Edmund D. Randolph Q. Are not you mistaken in saying that was a stock transac- tion? A. No, sir, that was a stock purchase transaction. It had nothing to do with the others, that $550,000 syndicate. Wait until I look. I am sure of it, that was not a bond syndicate. Q. Were you not in the bond syndicate? A. We were not. Q. Have you a memorandum to refresh your memory on that matter, or one you desire to refer to? A Yes, I am looking to see. I can read you this as the information is given to me by those who were familiar with it at the time. Q. Go on. A. Formed for the purchase of the stock of the Chicago & Alton railroad and for which stock the following prices were paid: For common stock $175 per share. For preferred stock $200 per share. This syndicate bought practically all the capital stock of the railroad on April 2d, 1900. The syndicate incorpor- ated the Chicago & Alton Railway ; the Chicago & Alton Railroad was leased to the Chicago & Alton Railway for 99 years, which also is the holder of its stock. Q. If you will refer back to this list you have given me you will find under date of March 15th, 1899, Chicago & Alton $550,000, and under the heading New York Life carries bonds $533,500. A. Well I will have to say again that was not within my bailiwick and I cannot give you the information. I will have to get it or bring someone who can. Q. Take the list you have furnished me, Exhibit 46 for identi- fication, and turn to October 17th, 1899, you will find there an entry under the headings of purchases as follows : October 17th, Chicago and Alton Syndicate Account, $4,000,- 000, cost $3,845,333.33, Kuhn, Loeb & Co. What does that mean, Chicago and Alton Syndicate Account? A. The syndicate end of that transaction was a syndicate com- posed of Goldman and Sachs, and some associates that I have no knowledge of. It was their syndicate presenting a purchase of one- half of the bonds of the Chicago & Alton Railway Co. We were 439 Testimony of Edmund D. Randolph the purchasers of the other half, and the syndicate I have referred to had no interest whatever in our purchase, or we in theirs. Q. This $4,000,000 in par value itemized as Chicago and Alton syndicate account, was a purchase of those bonds, was it? A. I I take it that it was. Q. From Kuhn, Loeb & Co. ? A. Yes. Q. Who were the syndicate managers? A. Yes. Q. Why was it called the syndicate account? A. It may pos- sibly have been the portion of bonds that applied to the syndicate interested in the other half of the bonds that were not ours, or they may have made a mistake of calling the whole thing a syn- dicate account. The fact remains however Q. As a matter of fact you don't know, do you? A. I know this perfectly well, the fact remains that we owned one-half of the bonds without any interest whatever, or any money in that syn- dicate at that time, with any interest in the other half, none whatever. Q . You owned half of the bonds ? A . Of the total amount pur- chased ? Q. What was the total amount purchased? A. I think it was ten million dollars. Q. Then you had half of that, which was five millions? A. Five millions. Q. Look below. I have called your attention to October 17th, four million, look under November 1st, 1899, purchased Chicago and Alton in the same place, right in the same place. A. Novem- ber 1st? Q. Yes. A. That is over the leaf of course. Q. Let us see. You are under 1899? A. Here is Chicago and Alton and here is Chicago and Alton. Q. That is what I have called your attention to. Chicago and Alton four millions, and here is the other. You find Chicago and Alton threemillion, cost $2,890,125, Kuhn, Loeb &Co.? A. Y es . 440 Testimony of Edmund D. Randolph Q. Then look under December 15th, 1899, just below, and you will see Chicago and Alton three million, cost $2,898,500? A. Yes. Q Through Paris office ? A. In my copy that is scratched out and it is Kuhn, Loeb & Co.; that is a printer's error. Q. That is probably Kuhn, Loeb & Co.? A. Yes sir, they have probably commenced to make proof on my copy and not on yours. Q. So that between October 17th, 1899, and December 15th, 1899, both dates inclusive, the New York Life Insurance Company took ten million dollars of bonds from Kuhn, Loeb & Co. at 96? A. Yes. Q. That was the whole issue, was it not? A. No- Q. I mean the whole amount A. I believe that was all the bonds they sold at that time. Again, I am speaking from impression and recollection. I was not treasurer at that time. Q. Well, you do not in any way mean to doubt the correctness of these entries? A. No, not for a moment, but I mean I cannot speak from my own personal knowledge. Q. You had ten millions acquired from Kuhn, Loeb & Co . at 96. Now, please turn to October 7th, 1901, on the sale side. A. A year later? Q. Two years later nearly. A. Yes. Q. October 7th, 1901, on the sale side, I find October 7th, 1901, Chicago and Alton threes $3,925,000 at 96, realized $3,768,000. A. Let me get you — what date in 1901? Q. October 7th? A. Yes. Q. Does that mean that at that time you turned back $3,- 925,000 of these bonds jn par value to the parties from whom you had obtained them at the same price? A. To them? Oh, no, these were taken up evidently, it shows, to the joint account, that is they were turned over to the parties who owned the other half of the bonds. Q. The other half of what bonds? A. I explained 441 Testimony of Edmund D. Randolph Q. The other half of ten millions? A. The other half of ten millions. Q. But you had the whole ten millions and had paid for them? A. Yes. Q So do I understand you bought the ten millions on joint account and put up the money and later on turned over five millions to the parties with whom you were on joint account? A. Mr. Gibbs made arrangement to some such effect, that he could carry the bonds until they were called upon to take them up. Q. So it was understood when you took the ten million dollars of bonds in the fall of 1899 tnat nve millions of those you were ready to turn back at the same price? A. Not turn back Q. Well, turn over to the other parties? A. The other parties had an interest in one-half of the bonds. Q. For the purpose of selling on the market? A. The whole thing was that Goldman & Sachs were to have had the selling of the bonds. There was a bill pending in the Legislature at that time to make these bonds a savings bank security, and Goldman & Sachs who were in that business, thought that they could sell the bonds at a very good profit, and I remember that Mr. Gibbs delegated to them that function. Q. Now if you will look at December 29th, 1900, under the head of sales, you will find the following entries: Chicago & Alton 3's, T. L. $4,000,000. What does that mean. A. Of what date? Q. December 29th, 1900. A. Now tljis is only an inference, this is only an inference, as I said before this is not my transaction. I think that T. L. should be P. L. Q. Does it not mean temporary loan? A. Well, maybe it does. I don't know whether it does. At first I thought probably they had written off that much to profit and loss. 442 Testimony of Edmund D. Randolph Q. I see T. L. and temporary loan frequently there, and I assumed it might mean that? A. Frankly, that did not occur to me. Q. What occasion have you for temporary loans in such a transaction? A. I could not say without an examination. Q. For example, I find under date of January 2d, 1900, under the purchase side, Chicago & Alton syndicate T. L. $533,500. That was a temporary loan to the syndicate, was it not? A. It might have been. I really cannot answer. I shall have tj decline to answer anything I have not any knowledge of. Q. The net result of the transaction was that you originally took ten millions of bonds at 96; that you turned back five millions or disposed of five millions at 96, to or for the benefit of the parties with whom you were in joint account? A. We took ten millions in joint account with Goldman & Sachs and associates — there were four or five of them. Q. You putting up the money ? A. We putting up the money, and when the bonds depreciated we got securities for them. Q. You mean you put up the money which was necessary for the syndicate, to finance the transaction? A. Yes, we paid for the bonds, until as I say they depreciated, and then we got se- curities to margin their interests. Q. And they took up five millions from your hands at the same price you had paid, leaving five millions ? A. The expected rise from their being made savings bank securities did not materialize and we notified them finally to take up their interest, and there was no likelihood of their Q. Well, they did take up? A. They did take it up. Q. And the result was you were left with five millions ? A. We were. Q. And those five millions are now worth about 83, are they not? A. Not as much as we paid for them. 443 Testimony of Edmund D. Randolph Q. Well, that is about it? A. They are in the 8o's, 85 or whatever they are. So are our State of Massachusetts, and a great many of our best securities, at a very low rate of interest, have declined. Q. Well, we must not go into all that at this time. A. But you must remember the interest. There was a time when Mr. Gibbs at least thought we were going into a very low rate of interest basis, and we bought a number of low interest bonds. These bonds, the State of Massachusetts bonds, and others, that as I say — even the State of Massachusetts have depreciated materially from the time of their purchase. Q. The point of my inquiry is this. You took these five millions of bonds originally on joint account with their five millions that were taken off your hands in the way you have stated, and on that operation as judged by present market values there was a very large loss, was there not? A. Oh, yes. Q. $600,000? A. Well, whatever the market is to-day. Q. But that you do not call a syndicate loss? A. No, it was not a syndicate at all. We had no syndicate. Q. That does not figure in your statement at all? A. It was not a syndicate in any sense. Q. It was a purchase on joint account? A. We took no par- ticipation in a syndicate. It was a purchase on joint account with other parties. Q. I see. Now I find under date of October 7th, 1901, under the head of purchases, Chicago & Alton 3's, joint account profit $1,937.91, and a second item directly below that A. Where is that ? Q. October 7th, 1901, under head of purchases in this list Ex- hibit 46 for identification. A. I don't see any entries. If you will show me any entry of profit on those bonds I will be very grateful to you. Q. (Indicating). There. Now, looking at that entry, Chicago 444 Testimony of Edmund D. Randolph & Alton 3's, joint account profit $1,937.91, what does that entry mean? A. Well, I cannot tell without looking — I suppose that at the outset there may have been some bonds sold at a profit. Q. Do you mean the New York Life Insurance Company was taking these bonds and then releasing them or turning them over to some extent and sharing in the profits in their re-sale? A. I cannot answer without referring to the account to see. Q. There is another small item October 31st, Chicago & Alton 3's, joint account profit $1,937.32. You do not know about that either? A. No. Q. Just below that I find Chicago & Alton 3's, joint account profit $400,000 temporary loan? A. Well, that I can swear is a mistake. Q. Now, let us see. Is it not a matter of fact that you loaned at that time $400,000? A. Joint account profits though is what I mean Q. I do not understand the entry, but the fact is that at that time you actually loaned $400,000? A. I don't know what it is. But that part, of joint account profits certainly needs correction; when we come to read proof that will go out most certainly. Q. I would like to have some one able to state just what your relations to that syndicate were. A. It is not a syndicate. Q. Don't call it a syndicate. I withdraw that expression. Call it joint account profits. A. You would like to have a statement of the progress of this joint account? Q. Yes. The thing I don't understand is if you were simply buying bonds for investment in the way Mr. Claflin pointed out why you should take ten million of bonds and pay for them and turn back five million dollars and in the course of the procedure actually make temporary loans apparently for some joint account profit. A. You have lost the order of sequence. We took ten millions of bonds on joint account, and then you say " and then the parties took back five millions." The parties did not take 445 Testimony of Edmund D. Randolph back five millions until the effort to market them was exhausted. That was its finality apparently. Q. So you were holding them in the effort to market them? A. It was a joint account. Q. For your joint account? A. If the thing had taken the course that was expected and the bonds had been sold the profit would have been divided on the entire transaction. Q. In other words you went into that not for the purpose of in- vestment but for the purpose of taking them on joint account, putting in the money and sharing the profits if they could be sold ? A That was the idea. Q. I call your attention to this syndicate mentioned on your list, Exhibit 38, headed "Navigation syndicate." April 21st, 1902, participation $3,200,000. New York Life carries bonds $3,200,000 still in force? A. Yes. Q. Were you treasurer at that time in 1902? A. Yes. Q. So you are familiar with that transaction? A. Yes. Q. As a matter of fact, your syndicate participation was $4,000,000? A. We applied for $5,000,000. Q. Now, was not your participation $4,000,000? A. They allotted $4,000,000 and delivered us $3,200,000. Q. Did not they deliver your four million? A. No. Q. Did not you pay for four million? A. No. Afterwards they delivered us $800,000 more and that was ordered to be re- sold and the amount limited to $3,200,000. Q. Now, if you will refer to your list exhibit 46 for identifica- tion, purchases and sales, and refer to May 5th, 1902, you will find an entry Navigation subscription $1,000,000? A. Yes. Q. That was a payment on account, was it not? A. Yes, called by the syndicate. Q. Now, if you will look on this list of purchases under date 446 Testimony of Edmund D. Randolph nf May 21st, 1902, you will find Navigation syndicate $1,000,000, J. P. Morgan & Company? A. I have that. Q. That is another payment on account? A. Oh, is that a second one? Yes, I see the other one above Q. Look at October ioth, 1902, under the head of purchases. You find Navigation syndicate $1,200,000, J. P. Morgan? A. Yes. Q. That makes an aggregate of $3,200,000? A. That makes an aggregate of $3,200,000. Q. Now, if you will look at January 15th, 1903, under the head of purchases you have navigation syndicate $400,000, J. P. M. & Co.? A. Yes. Q. If you will look at July 20th, 1903, you find an entry July 20th, Navigation Syndicate $400,000. A. 1901, July 20th. Q. July 20th, 1903. A. Yes. Q. That is an aggregate of four million dollars that the New York Life Insurance Company paid to J. P. Morgan & Company for syndicate purposes? A. It is, but as I said before it had reached a point of $3,200,000 and we believed that was the end of it, and were so informed that it was the end of it. Q. But it was not the end of it? A. But it was not the end of it, no. It came later on. Q. As a matter of fact you put up four million dollars in all? A. Yes, but when we came in the complexion changed some, and our Committee thought they would like to get rid of some of that four million. Q. Look at December 31st, 1903. Under the head of sales you find Navigation Syndicate $800,000? A. Yes. Q. To whom did you sell $800,000 at par on December 31st, 1903? A. To J. P. Morgan & Co. Q. On January 2nd, 1904, there is an entry of a purchase, Navigation Syndicate, $800,000 at par. From whom did you buy $800,000 at par on January 2nd, 1904? A. From J. P. 447 Testimony of Edmund D. Randolph Morgan & Co. They had been trying to sell the bonds in Lon- don, or sell the interest in London. Q. Why did you sell J. P. Morgan & Co. $800,000 at par on December 31st, 1903, and buy from J. P. Morgan & Co., $800,- 000 at par on January 2nd, 1904? A. For the reason, as I stated a few moments ago, that when the unexpected $800,000 came in, the Committee thought that they would just as will- ingly let them be resold and have the amount taken limited to the $3,200,000, which they thought was to be the limit. Q. If the Committee had gotten rid of $800,000 in that way, why did they immediately take them back on the next business day? A. Well, they did. Q. Why did they? A. They were repurchased. Q. Why were they repurchased? A. Because they desired to keep the blocks limited to the $3,200,000, and they were in hand for sale and were subsequently sold. Q. But this repurchase brought it back to the four million? A. It did. Q. Any reason for it? A. For what? Q. For the repurchase? A. They were not sold. We bought them back again. That is, they were sold to Morgan & Co., and we bought them back the next day. Q. You have stated it several times. I want the reason for it? A. There was no reason, except the desire was to limit it to $3,200,000, and they reduced it to $3,200,000. In the figures at the end of the year, awaiting the sales of the bonds. Q. But the desire to reduce it to $3,200.00 at the end of the year did not exist on the next business day, at the beginning of the next year, did it? Then you were willing to have your four millions again? A. We took them back again. Q. Will you point, if you can to the minutes of your Finance Committee relative to that transaction? A. To what? Q. The sale and repurchase. A. There were no minutes. 448 Testimony of Edmund D. Randolph Q. Was there no proceeding of the Finance Commiltee with regard to that? A. Of that transaction at the end — when was that? Q. At the end of 1903, an alleged sale and repurchase on the next business day at the beginning of 1904? A. I do not find any record of it. Q. Was that matter brought before the Finance Committee? A. Yes, it certainly was with the knowledge of the Finance Committee. Q. Was it brought before the Finance Committee? A. As a matter of recorded action? Q. Yes. A. I do not find that it was as a matter of recorded action. Q. Who sold those on December 31st, what officer? A. Mr. Perkins sold them. Q. Who bought them on January 2nd, 1904? A. Well, I say Mr. Perkins sold them as an officer of the company, the New York Life sold them. Q. Exactly. Who bought them on January 2nd, 1904? A. I don't know that I have a right to say that he did. It is an assumption. Q. Was there authority given to any officer of your com- pany to buy $800,000 of Navigation Syndicate bonds on Janu- ary 2nd, 1904? A. It was a transaction made with the entire knowledge of the Finance Committee. Q. Please answer my question. A. I said before there wag no recorded action of the Finance Committee. Q: Do you mean to say that on January 2nd 1904, there was an informal caucus to see whether it was a good thing to take the bonds back? A. Oh, no. Q. How was it that it was with the knowledge of the Finance Committee 3 A. There is nothing on the record and I can say nothing further than that. 449 Testimony of Edmund D. Randolph Q. As a matter of fact you made a report to the Superintend- ent of Insurance on December 31st, 1903, did you not? A. We made a statement that we always make at the end of the year. Q. You made a statement at that time? A. Yes. Q. And that statement showed you only held $3,200,000 of International Mercantile Marine? A. Yes. Q. But as a matter of fact down to December 31st you had held four millions? A. Yes, sir. Q. And as a matter of fact, immediately after the days that report was made you took back the $800,000? A. Yes. Q. The whole purpose of that transaction was to be able to state in your report that you only had $3,200,000? Was it not? A. The whole desire was not to increase the amount we had been carrying, and the bonds were sold. Q. Have not I stated it accurately, that the whole purpose was to be able to state in your report to the Superintendent of Insur- ance that you only had $3,200,000 in the Navigation Syndicate? A. Yes. Q. WhatisNylic? A. Well, Ny lie is in the Insurance Depart- ment of the business. I would rather have some one else explain that to you. Q. Is it anything more than a name arbitrarily made from the initials of your corporate name? A. That is what it is, but I mean the absolute workings, it is an organization for the benefit of the agents of the Company, for their stimulation in getting business. Q. It is something more than a mere nickname of the society? A. Yes. Q. It is an organization? A. It is an organization. Q. Do you mean a corporate organization? A. Oh, no. Q. Well, a joint association, do you mean? A. It is an organ- ization within our organization for the benefit of our agents. 45° Testimony of Edmund D. Randolph Q. What kind of an organization? A. I will have to ask you to ask those who know the particulars. There are others who do. Q. Who would know about that especially? A. Anyone, Mr. Kingsley, Mr. Perkins, or Mr. Buckner, anyone of them would know. Q. But you know it is not a corporation? A. Certainly not. Q. It is a sort of joint association? A. Yes, a joint associa- tion. Q. Are there proprietary interests in it? A. I cannot go into that. I will have to refer you to those who know the details of it. Q. Look, please, under the head of Sales, April nth, 1904. I find this entry under the head of sales in Exhibit 46 for identifi- cation: "Lake Shore and Michigan Southern Fours, $50,000 at 95, and under the head to whom sold I find Nylic. How could you sell bonds to Nylic? A. Because Nylic had funds and gave us a check for them. Q. That is Nylic is an institution which has funds and draws checks? A. Yes, sir. Q. Has investments? A. It has a method of accumulation for the benefit of the agents who are members of it, and contrib- utors to it. Q. Has it a function exactly A. I will have to ask you to ask the details of some one more familiar with it. Q. Who are the officers of it? A. I think Mr. Perkins is a trustee. Q. Does it keep separate records, separate books? A. It has undoubtedly. Q. Books that you as treasurer of the New York Life Insur- ance Company have nothing to do with? A. I have no connec- tion with it at all. Q. I take it from this list that you buy and sell to Nylic. A. 4Si Testimony of Edmund D. Randolph It is a beneficient organization and society, and they have funds and invest. I don't know that they buy and sell to any great extent. Q. Not to any great extent, but I notice a few items here and I did not know what they meant. A. The income goes in dis- tribution to the members of the Nylic. Q. Is it any more than a mere method of bookkeeping on your books, or is it an actual investiture of title when you pass securi- ties to Nylic? A. It is an absolute investiture, it is an entirely separate organization. It is a beneficial organization for the agents. Q. We were talking the other day about the course of your bank deposits, and we had reached in our examination the months of January, February and March, 1902, during which time you maintained in accounts a continuous balance of $10,000,000. Then we diverted to take up stock matters which you said ex- plained to some extent the increase in the deposit balances. I asked you why the deposit balance was increased to $13,000,000 in April, 1902. Are you able now to state? A. I would say, Mr. Hughes, that the time that has been required with the other things, which we have been preparing at your request, we have not got to that as yet. Q. What I mean as a matter of current information that you as treasurer of the Company would possess, and subject of course to correction if you fall inadvertently into error. What was the reason of putting up $13,000,000 with the New York Security & Trust Company ? A. It would arise from the loans that have been the subject of inquiry, moneys that they would put there by reason of reaping a higher rate of interest. Q. The New York Security & Trust Company loaned its money on collateral? A. Yes. Q. And made its money by such loans? A. That was partly so. Q. Largely? A. Yes. 4S 2 Testimony of Edmund D. Randolph Q. And loaned at the current rate of interest which was obtain- able in the market? A. Yes, sir Q. And by its arrangement with you in account 4 you got the benefit of a rate of interest within one-half of one per cent of the amount the Trust Company was getting? A. Yes, sir. Q. And the New York Life Insurance Company has discour- aged the policy of loaning its own money on collateral, has it not? A. At that time, and all along while we were uptown we were at a great disadvantage in the matter of collateral loans. The bor- rowers at our distance with the risk of carrying collaterals and valuable securities back and forth were very reluctant to borrow from us and we could not — we had not the same advantages for loaning as those had who were down in the financial center. Q. You have steadily decreased your collateral loans, have you not? A. Yes. Q. Your practice in that regard is different from other insur- ance companies ? A. Yes. Q. For example, I find at the end of last year according to the published reports of the Superintendent of Insurance it is about A. About a million dollars. Q. That you had about $550,000 on collateral loans? A. Oh, at this moment. Q. At the end of last year? A. Yes. Q. Whereas the Mutual Life Insurance Company had upward of $11,000,000? A. Yes. Q. So that this indicated a policy on your part. You could get loans as well as the Mutual could, could you not? A. The argument — or not the argument, but the fact that was at that distance and under the disadvantages of which I spoke, it was more than a difference of half a per cent to us between loaning money up there and this arrangement we made with the Security & Trust Company. Q. The matter of fact was you preferred to have the loans 453 Testimony of Edmund D. Randolph made from the funds of the New York Security & Trust Company which were deposited with your Company, then with your own money? A. The agreement did not express that. They were to allow us within half a per cent of the rate they gained from their own loans. Q. But the policy of your Company was to decrease its own collateral loans and to maintain a large amount of money with the New York Security & Trust Company so that that Company could make collateral loans, that company paying you the same rate of interest that they got within one-half per cent? A. That was the way it resulted. Q. It was the way it was intended ? A. They were not lending for us at all. Q. Of course, I know not, in a technical sense, but as a matter of fact they were enabled to loan by the deposits you main- tained? A. Yes. Q. And made money by it? A. Yes. Q. And you got the rate of interest within one-half of one per cent? A. It was never above six and never below two per cent, which was the guaranteed minimum. Q. So the real transaction was that the New York Security & Trust Company on collateral loans made with your money made one-half of one per cent? A. Yes. Q. And that was the object of it, was it not? A. For them to make the one-half per cent ? Q. Yes. A. Not at all. Q. Why didn't you make them directly? A. I have explained the parties would not cart valuable securities uptown from Wall Street and they would take the money where they could get it without that trouble. They would not borrow money from us except at a concession which was greater than the one-half per cent difference. 454 Testimony of Darwin P. Kingsley Q. Mr. Kingsley suggests that the reason you could not make collateral loans usually was that you did not loan on stocks? A. Yes, of course, that is one reason, but irrespective of that Q. But the New York Security & Trust Company could loan on stocks? A. That was not an element in it at all. They could do it of course, but I differ with Mr. Kingsley on that entirely. MR. HUGHES: Will you step aside and let me ask Mr. Kings- ley about that. ( DARWIN P. KINGSLEY, called as a witness, being duly sworn, testified as follows: By MR. HUGHES: Q. You are an officer of the New York Life Insurance Com- pany? A. lam. Q. Holding what office? A. One of the vice-presidents. Q. You are a member of the Finance Committee? A. No, sir. Q. You are the chairman of the Executive Committee? A. I am. Q. If you can state why it was that the New York Life In- surance Company reduced its collateral loans so that at the end of the last year they were down to $570,000, I would be glad to have you to do so. A. The reduction followed from the fact that the company loans only on bonds. Q. It could not loan on stock? A. No, under the by-law it could not loan on stock, and the natural result of that was that the loans by a natural process decreased, because there was not much of that sort of business to be done. Q. In the meantime you maintained deposits with the New York Security and Trust Company, and they did loan on stock? A. I don't know as to that. 455 Testimony of Edmund D. Randolph Q. Were you ever a trustee of the New York Security and Trust Company? A. No, sir. Q, No connection with that? A. None whatever. Q. Well, you are conversant to some extent I suppose with the transactions of such companies? A. Very slightly. I was never a director in one. Q. You are not prepared to say whether or not the New York Security and Trust Company loaned on stock as collateral? A. Not of my own knowledge. I presume they do. Q. Yes, I guess there is not much doubt about that, if they are in business to make money. That is all for the present, Mr. Kingsley EDMUND D. RANDOLPH, resumed: By MR. HUGHES: Q. You are a trustee or were of the New York Security and Trust Company? A. Yes. Q. The New York Security and Trust Company loans on stocks, does it not? A. Undoubtedly. Q. That is the way they make a large amount of their money? A. On stocks and bonds and Q. And these loans which were contemplated to be made or to be facilitated by the deposits of the New York Life Insurance Company with the New York Security and Trust Company were to be ordinary collateral loans made by that Company on stocks as well as on stocks and bonds as collateral? A. We simply dealt with the rate that they earned upon their loans. There was never any allusion or thought of anything else . Mr. Kingsley is exactly correct in what he says as to our inability to loan on stocks, but there is no question about that. I was speaking of the cause, and you were speaking to the condition, of 13 4S6 Testimony of Edmund D. Randolph millions of deposits down there, and what the reason was that we did not lend that money ourselves. Q. And the reason is that you could not lend on stocks? A. That is not the reason why we left that money there especially. Q. But that is the reason you decreased your collateral loans? A. That is the reason we decreased our collateral loans, but I still think what I said about the risk of carrying securities a mile up Broadway and a mile down has militated against our loans all the time. Q. It had not in prior years. In prior years your collateral loans showed up about the same as the Mutual and the Equi- table, didn't they ? A.I think if you will look back and you will compare them Q. I am asking — I am taking that as a suggestion. I would be glad to have your opinion. A. No, we never were up to them. It is perfectly right and a very good business, and they are perfectly wise to do it, but they are right down on the spot where if a person wants money he can get it in five minutes and it is done. Q. Your financial office is at 5 Nassau street? A. Yes, but we were not at that time, and that is the reason we are at 5 Nassau street now. Q. How long have you had your office at 5 Nassau street which you call your treasurer's office or financial office? A. I think it is two years. Q. So if you wanted to make collateral loan, the fact that you had a main office at 346 Broadway would not make it difficult to do so? A.I don't think we had it at the time you are speak- ing of. Q. Never mind about that. A. But you are speaking of 13 millions of dollars. You pick out a date, and I think it is ma- terial to refer to that time. 4S7 Testimony of Edmund D. Randolph Q. Yes, I think that is true as of that date. At that time you did not have an office downtown? A. I don't think we did, no. Q. In April, 1902? A. No, we did not. Q. But now you have one? A. Yes. Q. And now of course the reason you decreased your collateral had nothing to do with the distance the borrower would have to carry collateral? A. No; nor have we any money, with the trust company. Q. I am coming to that presently. From May to December, 1902, I find that your deposits run from $6,757,000, which was maintained in May and June, to $9,257,000, which was main- tained in July, $9,231,000 in August, $19,531,000 in September, $8,981,000 in October, and $11, 081, coo in November and $10,- 716,000 in December, all in account 4. Now those large bal- ances throughout that period were maintained under this ar- rangement that you have spoken of, getting this one-half of one per cent of the market rate of interest which the New York Security and Trust Company made on its loans? A. Yes. Q. Now, coming to the year 1903 and following Account 4 A. Oh, that statement needs some qualification. Q. Go ahead and qualify it. A. That was the arrangement. The modification was in two particulars. One was the loans that have been referred to Q. The Matterson and Marshall loans? A. That were credited as the proceeds from the stocks that were closed out of the account. Those were carried at a uniform 3 per cent, rate of interest. I think it was either 3 or 4, but at all events the credit and the debit were identical. The charge of interest was the same as the allowance that they made us. Then when there were loans which they made at times Q. Did they charge you interest on those Matterson and Mar- shall loans? A. It was charged as an offset. 458 Testimony of Edmund D. Randolph Q. Charged as an offset. But did they charge your company interest on these loans ? A. Yes, it was an offset. The proposi- tion was, that it should be without any interest. Q. But with the exception of the amounts that were carried as the proceeds of those Matterson and Marshall and Newkirk loans, this account 4 with the balances I have stated, represents the moneys you maintained on deposit with the New York Security and Trust Company under this arrangement by which you were to get within half a per cent, of the current rate of interest? A. Yes; they made this discrimination that with securities — as long as the risks of the securities and the responsibility of the exchange of collateral were theirs, and not ours in any sense, and we had nothing to do with them, they made a distinction between loans that were daily loans where there was a deal of handling of se- curities, and loans which ran along at a continuous rate of inter- est. Q. Now you are speaking of the loans made by the New York Security and Trust Company? A. They are loans made by the New York Security and Trust Company. Q. And the amount of interest they would give you on your deposits? A. According to the nature of their rates of interest. They claimed they did not earn the going rate of interest on all loans. Q. In other words, when it came to adjusting the amount of interest which you, the New York Life Insurance Company, came to receive on these deposits in Account 4, exclusive of so much of the deposits as was composed of the proceeds of the employes' notes, there was an adjustment according to the nature of the loans which the New York Security and Trust Com- pany had made? A. At times, of course, the amount to the credit of Account 4 would be of one character Q. Won't you answer the question. The interest was adjusted upon Account 4? A. When the conditions were such as I have 459 Testimony of Edmund D. Randolph described, and they were at times, and there would at times be three different rates. Q. Then what you got in interest on the Account 4 from the New York Security and Trust Company depended upon the in- terest the New York Security and Trust Company got on their money? A. Yes. Q. And when they said, all things considered, it did not earn the full market rate, it was adjusted between you? A. We now and then differed as to the adjustment, and they would send us a statement giving the condition of different classes of loans, show- ing that if they allowed us the full rate on some loans — to make an average they made it three different rates. Q. Did they appropriate any particular loans to these moneys you deposited with them ? A. No. Q. So they considered their general business and the general amount they were getting on different transactions in adjusting the rate of interest you would get on the moneys they were using in their business? A. The agreement and terms was as I have described, that they were to allow us within one-half of one per cent, of what they received for their own loans. Q. Now we will look in 1904. We find in January a balance in account 4 $8,272,708.05. That is reduced to $6,850,000 and re- mains at $6,850,000 in March, April and May, 1904. That bal- ance was carried in that account 4 on the same basis ? A. It may have been all on the half per cent, basis. Q. Well, on this joint arrangement that you have mentioned? A. Oh, the same general arrangement was running. Q. You had your financial office in 5 Nassau street in March, April and May, 1904, did younot? A. Yes. Q. So that so far as your facilities for making collateral loans yourselves were concerned, you had abundant facilities at that time? A. If we had chosen to do so, yes. Q. But you did not choose to do it. You chose to maintain the 460 Testimony of Edmund D. Randolph deposits with the New York Security & Trust Company ? A. Yes and found it a very profitable arrangement. Q. To both parties? A. Well, I don't suppose the half per cent, was any loss to them. Q. But it was a loss to you? A. Not necessarily. Q. If you got less than the market rate of interest by one-half of one" r cent, it was a loss of that amount. A. I think a trust company has better facilities for loaning money_than we had. Q. The real point was you did not want to loan on stocks, wasn't that it? A. Not at all, absolutely no. It never entered into the discussion or thought of the matter. Q. Is there any other reason why when you got your financial office downtown you did not run up your collateral loans and make the full amount of interest? A. We would not loan on stocks, but I mean it was no condition entering into this agree- ment. Q. But it was the reason you did not run collateral loans ? A. Down there?" Q. Yes. A. We might have loaned on bonds if we wanted to. Q. To a much larger amount than you did? A. Yes. Q. But you preferred to stay out of that margin? A. Any trust company can get better rates of interest on loans than we could. There is not a shadow of doubt about that. And the net to us, was more profitable to us, and yielded us a larger return of interest than though we had been loaning the money ourselves. Q. Did the New York Security & Trust Company get a larger interest on those collateral loans which were made with the money you had on deposit there than the Mutual Life with its collateral loans or the Equitable ? A . I have no possible means of answering that question. Q. You have never considered that. In June, 1903 , 1 find that the balance of the New York Security & Trust Company in ac- count four is reduced to $3,500,000, why was that? A. When- 461 Testimony of Edmund D. Randolph ever that arrangement ceased to be profitable, there was no mo- tive for keeping the money there. Q. Did it cease to be profitable? A. If interest got down to 2%, of course. Q. Was that the reason this was reduced? A. I don't think it is. I told you in the first place I was simply generalizing. Q. This is only last June, a little over a year ago. A. It is im- possible — how could you expect me to follow the fluctuations, and carry in mind the changes in figures in a bank account ? Q. I would not expect that at all, but here is an account which has been maintained for a year or more at a very high figure, and in June, 1904, $3,370,000 were taken out of that account and the money is left at $3,500,000 flat. A. It is perfectly explainable, if I had access to the figures I could tell you in a minute. We drew upon it and decreased it. Q. Please don't interrupt me. Continuing my question. I find from the list of July, 1904, to the end of December, 1904, there was a continuous balance of $2,500,000, now, don't you recollect that fact? A. From what time? Q. During the last six months of last year? A. Yes, I remem- ber that perfectly. Q. And as a matter of fact it was not drawn against? A. I was not speaking of that particular thing. Q. But I am speaking of it, and that is the reason I mentioned it. A. Do you mean what that $2,500,000 was? Q. Yes. Kept there in 1904? A. That was after the change to the other company. \ j Q. Why was it you reduced the account to $2,500,000 and then maintained it at that figure to the end of the year? A. For the reason that at the time of the consolidation of the companies there was a question entertained on the part of some of the people of the Continental Trust Company whether our relations would continue with the company, and Mr. McCall said certainly, there 462 Testimony of Edmund D. Randolph would be no reason for a change in the company's relations, and having given that assurance, as part of the company's relations had been the maintenance of a number four account, it was con- tinued along for a reasonable time, until by the consent of the present president of the company, Mr. Bannard, the thing was drawn out and ceased. Q. I asked you the question on Friday, whether when the stock of the New York Security and Trust Company was increased from one million to three millions of dollars in March, I believe, of 1904, whether the trustees with whom the 5,005 shares which your company had originally owned, was transferred, took any of the increased stock? A. They did not. I have ascertained that since. Q. So the transaction stood in this wise. Prior to the end of 1 90 1, the New York Life Insurance Company owned 5,130 shares of a total of 10,000 shares of the New York Security & Trust Com- pany ; in December, 1901 , after the agreement which has been put in evidence, 5,005 shares or a majority of the then stock were transferred to Messrs. Fairchild, McCall, and Perkins, as trus- tees? A. Yes. Q. And they still hold that as trustees? A. Yes. Q. With voting power? A. Yes. Q. That continued in that shape down to March, 1904, when the stock of the New York Security and Trust Company was in- creased to $3,000,000, making the total sum of the New York Security and Trust Company, 30,000 shares. Now, as I under- stand it, the trustees, Messrs. Fairchild, McCall and Perkins, con- tinued to hold as trustees 5,005 shares, but did not get any of the remaining 4,995 shares. That is correct, isn't it? A. They did not get any of the remaining shares ? Q. Yes. A. No, unless as individual holders outside of the syndicated stock, they would get it, but as trustees 463 Testimony of Edmund D. Randolph Q. Did they get it as individuals? A. I don't know, I have no knowledge. Q. But as trustees they did not? A. I, for instance, was the holder of a small amount in the syndicate, and I took out my ad- ditional stock. I had ten shares and took out ten shares more at 500 under this agreement, and I fancy that whatever outside holdings the others had they exercised their privilege and took the new stock. Q. But the holdings of the trustees under this agreement re- mained at the 5,005 shares? A. Yes. That question was re- ferred to each one of the parties at interest to act for himself. Q. So that these trustees who previously had had 5,005, shares, or the majority of the stock, now after the increase in the stock were in the minority? A. That is a legal proposition I don't know. Q. No, it is a numerical proposition A. No, I think there is a question of whether a dividend follows an ownership. Q. I don't think you could have followed me A. This is a dividend. Q. 5,005 shares are a majority of 10,000? A. I follow you, but would prefer not to express an opinion. Q. I thought you would be glad to express it, and that is the reason I was asking you. 5,005 shares are the majority of the 10,000? A. Yes. Q. But it is a minority of 30,000? A. I can fathom the prob- lem, but where it lands the interest, I really could not say. Q. I asked you the other day whether the option which the trustees as the holders of the legal title of 5,005 shares had to take up the increase of stock according to their pro rata interest was exercised by them, and I understand from what you now say it was not? A. The option to take up what? Q. The option to take increased stock by reason of their ownership of the 5,005 shares of original stock? A. Acting as 464 Testimony of. Edmund D. Randolph trustees they sent around to each of the parties. They sent, I think, Mr. Bright to see each of the parties in interest. Q. Mr. Osborn Bright? A. Yes. Q. Where did the stock go to which the 5,005 shares were entitled to subscribe? A. I think each one of the parties repre- sented in the trust acted for himself. The trustees gave them notice that they were free to act and they did. To what extent they did, I cannot say. Q. Did they take the direct legal title to the increased shares? A. I have no means of answering. I was not in the trust and don't know. I have absolutely and literally no knowledge. Q. So you really don't know what the legal position of the trustees, Fairchild, McCall and Perkins, may be? At present what shares they do or do not hold? A. Absolutely, I could not answer that question. Q. But after this change and increase in stock the deposits of the New York Life Insurance Company with the New York Security and Trust Company were largely decreased? A. That account was discontinued Q. Well, it was not discontinued at that time? A. No. Q. So, if you will follow my question please, the deposits were largely decreased? A. Yes. A. In this way, Mr. Bannard said something to the effect that he would rather take care of his own loans without any arrange- ment of this kind. Q. With the New York Life Insurance Company? A. No, his own loans, that is the loans that thecompany was making, i Q. You said without any arrangement of this kind. A. I mean without continuance of an arrangement by which we were to be entitled to a rate of interest within one-half of one per cent, of the rate he was earning. So that the thing finally disappeared, and the account does not exist any more. 465 Testimony of Edmund D. Randolph Q. Well, it remained during the last six months last year at a continuous balance of $2,500,000, was there this arrangement pending? A. No, that was simply the continuance of the rela- tion which they said they would keep as they were. The Pres- ident, rather, told them he would keep up as they had been, and he did so. We were not using account 4 as we had before. That paid us a continuous rate of interest. Q. What did they pay? A. I think 2*4 per cent. Q. When did they commence to pay you that rate ? A. I would have to look at the books to tell you. I am not an accountant. Q. This $2,500,000 in account 4 continued not only during the last six months of 1904 but also during January and February, 1905? A. Yes. Q. For eight months? A. Yes, I accept the fact. Q. Well, you can look at the papers. A. I know it is, I merely mean I cannot speak from knowledge as to the number of months. I accept your statement. O. Does that refresh your recollection as to the rate of interest? A. No, it does not. I think it was 2% per cent. Q. But it was not under the old arrangement of one-half of one per cent, under the market rate? A. No, I think that had ceased entirely. Q. Now, then, at the end of February, 1905, your account with the New York Security & Trust Company closed all of them? A. Security & Trust Company? Q. Yes. A. The consolidation of the companies closed tne accounts. Q. Pardon me. The consolidation that you refer to took place the year before, and that was not anything more than a merger of the Continental with the New York Security and Trust Com- pany for the acquisition of all of the stock. A. There was no 466 Testimony of Edmund D. Randolph other time when our accounts were closed. We shifted to the new. Q. Well, when the accounts were changed the accounts in the name of the New York Security & Trust Company were closed and the accounts with the New York Trust Company were opened? A. Yes. Q. But in the statement you furnished me the accounts with the New York Security & Trust Company end? A. Yes, but that is a matter of bookkeeping. It simply goes in under another caption in our books. J Q. There is no desire to imply anything else, and it is merely that matter of bookkeeping that I want to have explained? A. I took it literally to mean that an account had been closed, and that is the reason we were at cross purposes. Q. Now then, on the ist of April, 1905, your accounts appear with the New York Trust Company? A. Yes. Q. There is no account 4 ? A. I have explained that. That Mr. Bannard did not care for an account 4, he did not care to make the same terms we had had with reference to account 4 before. Q. Well, you ended the account at that time? A. That ended the account; withdrew the money. It has never been revived. Q. It had continued for several months previous to that, on the basis of a straight rate of interest, and now you took the money out altogether? A. Well, I explained to you what Mr. McCall had said when that point was raised. There was no con- dition or anything ■ Q. I am asking you for the fact. A. The fact was Q. Whether you took it out altogether? A. Yes. Q. And it has never been renewed? A. No, sir. Q. When you took the $255,000 out of the New York Security & Trust Company and closed the account with that balance 467 Testimony of Edmund D. Randolph where did you put the money? A. I don't know, whether we transferred to No. i account, or whether we drew against it, or what. Q. Suppose you look at this schedule of bank balances so you can refresh your memory? A. That won't necessarily aid me. Well, I see that two of our accounts increased $1,000,000 each that day. I don't know whether Q. What are those two accounts? A. The First National Bank and the Central National Bank. Q. Yes. Now take the First National Bank. A. That may be an explanation of it. I don't know. Yes. Q. That is the explanation, isn't it? A. Oh, I say it may be an explanation. Our money fluctuates a million or two in a day from natural causes very often. But it is merely an instance, seeing the other accounts increase a million dollars each day, that is a possible explanation of it. It is pretty hard to testify from imagination. Q. You are not asked to. A. I have said pretty plainly that is about what I am doing with a mass of figures. Q. We don't want imagination. Now did you have any such arrangement as you have stated was in operation with the New York Security & Trust Company with any other bank? A. We renewed the same arrangement exactly with another bank. R Q. What bank? A. Well, that is a confidential matter. You have it before you there, but I don't know whether I ought to state it publicly. Q. Why, there is nothing confidential about the insurance business. A. That was the First National Bank. Q. Did you make the arrangement with the First National Bank? A. Well, you will see when the account was opened there. I can't tell ; the first time it shows on the list there was the first time. That arrangement was made, a separate account: 468 Testimony of Edmund D. Randolph it was carried in one account until a point was reached when we made the same arrangement with them. Q. As I find it there, the account with the First National Bank was opened again, was opened in January A. I don't mean the account with the First National Bank; the second account with the First National Bank. Q. I see. When was that? A. I don't think you can have all the sheets here. Have you 1902, 3 and 4? Q. Here is 1905. A. No; it won't be in 1905. Q. Is it on those sheets? A. Well, they have lumped those two accounts together unintentionally. I haven't seen that before. This was done at the uptown office. I will have those two separated for you. Q. Well, how large are the balances in account No. 2 with the First National Bank? A. Well, the aim was to keep the No. 1 account not much over a million dollars unless we had some en- gagements that would require us to draw upon the account within a few days. Q. No. 2 was what account? A. Well, whatever the differ- ence is, that shows there. Q. When was that arrangement made? A. Well, I will have to refresh my memory as to dates; I can't tell. Q. Well, was it made when the arrangement with the New York Security & Trust Company or the New York Trust Com- pany closed? A. I don't think they had any relation to each other at all; not at all. Q. Was it about the same time, without reference to any con- nection between them? A. I am rather inclined to think the arrangement was made before we closed the account with the Trust Company, but that I will decline to answer. You can refer to your dates. They will speak for themselves. Q. I would like to have a statement of the balance in account 2 separately. A. I would like to give you a new schedule entirely 469 Testimony of Edmund D. Randolph that would properly separate those two accounts, as I intended it should be done. I gave instructions to make the separation of the two accounts, and frankly I have never looked at the map since it was thrown off the type. Q. If you could answer by looking at the balances as there are here for 1904 and 5, please do so; would you rather wait? A. I would rather, because we had large balances with the First National Bank. It was an account against which we drew for large payments. Q. What was the arrangement with the First National Bank? A. The same thing, that they were to allow us within one half per cent, of the money they were getting. The reproduction identically with the arrangement with the New York Security & Trust Company. 'Q. Was there any suggestion or statement as to the amount of money that you would keep with them? A. None at all. Never any limitation; never any suggestion; wholly and alto- gether in our control. We could draw from one account to the other if we needed to do so on any day without the slightest notice. Q. I wish you would take these sheets and tell me what in- terest is paid upon the other balances which are mentioned there with the various banks as far as you can remember? A. I would rather give you a new sheet. I think I can remember to a cer- tain extent. Q. I hand you the sheets for 1904 and 1905. A. The Central National Bank, 2 per cent., which changed afterwards to the Citizens Central National Bank which is the same thing; the National City Bank 2%; the New York Security & Trust Com- pany 2%; the Bank of Commerce 2%; the First National Bank 2%, with the exception of the special arrangement referred to when they authorized that higher rate — whenever there were higher rates of interest to justify keeping funds under that more 470 Testimony of Edmund D. Randolph favorable arrangement. The Bank of Montreal allowed 2)4%, with the reservation of $25,000 of a balance to cover matters, well, that are out for collection and haven't resolved themselves into cash; the Hanover National Bank 2%; the City Trust Com- pany — we have not that account any longer. The First National Bank of Chicago 2%, and they had the account of our Chicago office of issue and in the same way, credit of a great many items that really are not cash money, and they make a reservation of $25,000 with them from interest allowed. The United States & Canada deposit — that is a multitude of outlyingbalancesinsome I think between three and four hundred banks, all over the coun- try ; they are the agency balances that cover any funds collected from premiums, and they are remitted weekly. That covers all. Oh, here.Wells, Fargo & Company, which is now the Wells, Fargo Nevada Bank ; we have an arrangement with them ; we have also an arrangement with the Bank of Montreal, which is more valu- able to us than the interest arrangement in the transmission of funds. If we want to put funds in the Bank of Montreal, we de- posit here; if we want to draw funds from the Bank of Montreal, we draw here; the same as in California. Instead of incurring the loss of interest as it is, the time of crossing the country, and whatever exchange might be, we have the same arrangement, we draw money from their agency here, the same as drawing out there getting the money here; the money deposited here is de- posited there; we get the immediate credit for it instead of the loss of interest in transit. I am quite correct in that, I don't think I need qualify the statement. As I ran along I recollected that all clearly. Q. By the way there are two First National banks on this list. I haven't noticed that before. One in Chicago, isn't it? A. First National of Chicago, yes. Q. That doesn't explain it. I omitted a moment ago to ask you with regard to the Navigation syndicate, and I find that I 47i Testimony of Edmund D. Randolph must refer to that again. We find that on January 2nd, 1904, you repurchased 890,000 Navigation syndicate at par, Now I find that on December 3 1st, 1904, an entry under sales, December 31st, Navigation syndicate, 800,000, realized $720,000. A. Yes, that was sold. Q. That was an actual sale at that time, wasn't it? A. That was an actual sale in London. Q. To J. S.Morgan & Company? A. Through J. S. Morgan & Company. They sold them. Q. And that was a loss on that $800,000 of $80,000? A. Yes. Q. Which you charged to profit and loss? A. Yes. Q. But that doesn't appear in your schedule which you have furnished here of syndicate participation because you enter your syndicate participation at $3,200,000 and don't show the other $800,000?' A. For the reason I explained when that $800,000 came in it was an unexpected entry, but it was determined to get rid of it, keep it at the original amount; it was supposed that Messrs. Morgan & Company would attend to it just the same for us. Q. So that when on this syndicate list, Exhibit 38, you say that the company has never been in any syndicate wherein it has made a loss, you haven't included that $80,000 which you lost on the Navigation syndicate? A. Well, as I told you, I didn't put that there. But the fact comes just the same, just as I have stated it, that we have closed up no syndicates with a loss. Q. But that hasn't been closed up yet? A. No. Q. But it has been closed to the extent of $800,000? A. Well, yes, I suppose it has. Q. And that shows a loss ? A. That would qualify that state- ment unquestionably. Q. Now that at the end of 1904 you didn't pay back. That was closed. A. No, in accordance with the original intention 472 Testimony of Edmund D. Randolph that was finally sold. Weadded$8oo,ooo. Really, Mr. Hughes, it was never considered at all — at first we considered Q. I don't know what you considered or didn't consider it, but you paid $800,000 in cash? A. Absolutely I am not shirking that statement at all. I am simply making an explanatory re- mark. Q. "What I want to have clear and distinctly was that at the end of 1903 you apparently sold the $800,000, and on January 2nd, 1904, bought it back, and then on December 30, 1904, you actually sold it out and took your loss of $80,000 ? A. Yes. Q. Now, then, coming to your relations with the New York Security & Trust Company further I would like to ask you whether at the time the change was made in the capital stock of the New York Security & Trust Company, about March, 1904, and the Continental Trust Company was absorbed, an examina- tion was had of the assets of the New York Security Trust Company? A. There was a mutual examination. Each exam- ined the other. Q. And when the Continental Trust Company was absorbed, an examination was had of the assets of the New York Security and Trust Company? A. There was a mutual examination; each examined the other. Q. And as a result of that examination, did the New York Life Insurance Company take off the hands of the New York Security and Trust Company any assets? A. They did. It was the opinion of the Continental people that the New York Security and Trust Company had rather an unduly large holding of New Orleans Railway stock and rather an unduly large advance in the syndicate's interests in the stock. Q. Did the New York Life Insurance Company take that off the hands of the trust company? A. "We bought $1,500,000 of bonds from them and we took up one of the syndicates upon which — into which two million nine hundred and something thousand 473 Testimony of Edmund D. Randolph dollars were invested. If you will wait I will get the exact figures. There was a participation of $3,885,000 upon which $2,913,750 had been paid in cash. Q.-By whom? A. "Well, I don't know who has paid it. Q. Well, not by the Life Insurance Company? A. Oh, no, not at all. Q. The New York Life Insurance Company had nothing to do with it? A. Not at all. We took over that loan. Q. Pardon me a moment. Had no responsibility in connection with it? A. None whatever. Q. When the Continental people looked into it, or when this matter of consolidation came up, that was regarded as rather a doubtful venture? A. No; regarded that they had too much of it. Q. Well, it wasn't satisfactory to the parties coming in to have the New York Security and Trust Company hold all it did hold ? A. No; it was too great a volume. Q. And why did the New York Life Insurance Company take any part in that? A. Well, we had made considerable over $3,- 000,000, I think, by the sale of those 3,005 shares referred to. Q. You mean the shares in the New York Security and Trust Company? A. New York Security and Trust Company, and the argument was presented to us that we would be suitable parties to take that over, to guide $1,500,000 of bonds and to take over the loan on this syndicate participation. Q. Well, the net result of it was that because you had made such an advantageous sale of stock and realized a profit of about $3,000,000 on the Security and Trust Company stock, the parties putting their money into that thought that you ought to take off the hands of the New York Security and Trust Company some of these New Orleans Railway bonds in participation? A. We said, we would go in with others and do it, and they reported that we 474 Testimony of Edmund D. Randolph were the proper ones to do it because we had made so much money on our sale of this stock. Q. In other words, they would be willing to take the stock off your hands if you would take some of these securities off the hands of the trust company? A. Oh, mercy, no; there was no connection between the two ; the other had been done long before. Q. Then it was merely alluded to? A. It was merely alluded to. Q. As an argument? A. As an argument, as the reason why we were the best fitted ones to do it. Oh, no, there was no connection between the two. Q. It is perfectly proper to point what you have just said by the statement that this sale of the stock was away back in 1901 ? A. Yes. Q. And this taking over from the New York Security and Trust Company was 1904? A. Yes. Q. So that of course there was nothing between those two transactions in common ? A. Oh, nothing whatever. Q. I don't, of course, imply the contrary, but that is quite obvious. Now then, when you came in 1904 to take up the ab- sorption of the Continental Trust Company, and the people inter- ested in that company came in, the other interests, then the ques- tion arose as to the character of the assets of the New York Se- curity and Trust Company, and then, thinking that the volume of these securities was too large, it was suggested that because you had previously made a, good deal of money out of the stock you were the proper persons to take a part of that loan? A. iWell, it was proposed — it was proposed that some of the people interested in the company should take up a portion of this loan and buy a portion of these securities, and we said that we would join with others who were also in close interest with the com- pany, and their argument was that as we had made this large money that we were the proper ones to do it alone, and we con- tested the point, but they prevailed in the end and we did it. 475 Testimony of Edmund D. Randolph Q. Now, just what did you take over? A. We_bought $1,500,- 000 of bonds at 85. Q. What was tne date ot that transaction? A. Well, I think it was in — here is another case of dates omitted from my state- ment. Haven't you any data there that show? y. I think I can give it to you in just a minute. I think it will show there ; it must show. If you will refer in this list, Exhibit 46 for identification, under the head of purchases, to date of March 7, 1904, you will find an entry: "N. O. Traction Syn. $2,914,432.- 26 at 85.78 and the interest; cost $2,500,000; vendors, New York Security and Trust Company.' ' A. Where is that ? Q. March 7th, 1904. That is the transaction, isn't it? A. I have no doubt it is. I haven't found it yet. Yes, yes, yes. That is it. Q. Now, immediately below that you find an entry on the same day, March 7th, 1904, N. O. Traction 4^2, $1,500,000 at 85, cost $1,275,000, New York Security and Trust Company? A. Yes, those are the two items. Q. Though you paid into the New York Security and Trust Company at that time $3,775,000? A. Well, we got a quid pro quo. Q. Well, you paid in that amount ? A. Yes. Q. And you got for that $2,914,432.26 participation in the syndicate, and $1,500,000 in par value of bonds of the New Or- leans Railways? A. Well, that is it, only I don't want to appear to be at variance with a statement I made a while ago, that is all. Only to harmonize that. The participation was $3,885,000, of which $2,913,750 has been paid in cash, for which we paid $2,500, - 000. That was the way I — that was the way I stated it. Q. That is the participation in the syndicate ? A. Yes. No, we were not participants in the syndicate in any way. We loaned on the 476 Testimony of Edmund D. Randolph Q. Pardon the expression. What did you pay that $2,500,000 for? A. We paid it for this participation of the amount of $3,885,000. Q. Participation in what ? A. In a syndicate. Q. That is what I said. A. Participants in a syndicate are those who sign and are members of the syndicate. We never were. Q. But you bought participation in it from the New York Security and Trust Company? A. Yes, but that don't carry membership in the syndicate. Q. I don't desire to dispute that or to argue about it, but I merely want the fact you bought a participation in the syndicate ? A We bought this with the explanation that I made. Q. Now, in addition to that, you bought bonds from the New York Security and Trust Company to the amount of $1,500,000 at 85, paying therefor $1,275,000? A. That is it, yes. Q. Now how was that $2 ,500,000 carried ? Was that an actual out and out purchase of the participation, or did you loan that amount of money? A. Well, we were told at the time — had intimations from various people at the time that they would join us in taking this thing up. Q. Who were the syndicate managers? A. I really don't know. I think that the trust company was. Q. You mean that this New York Security and Trust Company was? A. The New York Security and Trust Company, yes. I think I am correct in that. I think the Company as such was the syndicate manager. Q. Now, if you will look under date of March 19th A. I will qualify that. That is a matter of impression; I think that is it. As a matter of fact it may not have been. Q. Look at March 19th, 1904, at the list Exhibit 46 for identi- fication, under the head of Sales you will find this item A. March 19th, 1904? 477 Testimony of Edmund D. Randolph Q. Yes, March 19th, 1904, N. O. Railways Syndicate par, $2,500,000, realized $2,500,000; transferred to temporary loans. What does that mean? A. The reason was that when they both came in they were put into open account and the question was raised that that was simply — one was a purchase of bonds, and the other was listing that much of loans, and it was put in the same category in which it was taken over. Q. Now, will you please refer to the minutes of the Finance Committee which show the authorization for the taking by the New York Life Insurance Company of that participation and those bonds of the New Orleans Railways? A. May 12th, 1902. Present, Messrs. Perkins, Clarkson, Fairchild, Langdon, Mor- rison and Randolph. New Orleans Railway and Light Syndi- cates presented- by Mr. Fairchild, and upon motion of Mr. Clarkson the chairman was authorized at his discretion to accept participation of a million or two million dollars. The Chairman at his discretion didn't accept it. That was the first^start. Q. Why not? A. I don't _^ know. I suppose something changed his mind. Q. Didn't think it was a good thing? A. Not at all; changed his mind. Q. Was there any reason for not taking the chance to make some money? A. It is an operation of his own mind; it was referred to him with power and he didn't do it. On March 7th, 1904, present the President and Messrs. Clarkson, Langdon, Fairchild, Morrison and Randolph, with Mr. Langdon in the chair. The treasurer reported to the Committee the substance of the various conferences of officers with the individual numbers of the Committee from time to time relative to the New York Security and Trust Company, and submitted the following draft of letter already approved by the President: 478 Testimony of Edmund D. Randolph Charles S. Fairchild, Esq., President, New York City. Dear Sir: — I hand you herewith, as between the New York Security and Trust ^Company and ourselves cheque on First National Bank of $3,805,679.55 in payment for purchase from New York Security and Trust Company of securities of the New Orleans Traction Company, namely, interest in syndicate. Part of shares, $2,500,000 $2,500,000.00 Interest at 4% to March 1st 19,429 . 55 Total $2,519,459.55 Bonds purchased 1,500,000.00 At 85 Plus interest to March 1st at 4%% 11,250.00 Total $1,206,250.00 The totalfor both $3,805,679. 55 Q. Is that all the minutes there is? A. There is of another $1,000,000, which was canceled and void. Q. That was cancelled and never took effect? A. No, never took effect . Nothing ever done . The whole thing was done with a view to others joining us in it. Q. And they didn't join? A. And they didn't join. Q. Who did you expect to have joined with you? A. That I must decline to answer, really. Q. You don't know? A. Oh, yes, I do know perfectly well. Q. You mean it was purely hypothetical and nothing came of it? A. Not a bit of it; it was a positive thing. Q. You mean you don't care to answer because it was a purely expected thing and didn't become an actuality? A. Didn't materialize, and I should yet consider it as confidential. 479 Testimony of Edmund D. Randolph Q. Do you know who were in the New Orleans Railways syndicate? A. I never saw the list — yes, I did too see the list once, but I can't recall it. It was merely a matter long after- wards seeing who the parties were who were in it when I began to feel a lively interest in its affairs. Q. You don't know now? A. I don't know now, no. Q. Now, on December 31, 1904, when you came to the time of making up your report for that year, you desired to dispose of that holding of New Orleans railway shares, did you not ? A. No. We started in to sell them before that. We sold, you will find on November 25th, or somewheres in that neighborhood, you will find in the minutes here, there is a minute here November 25th Q. Yes, you sold, according to this list, on November 25th? A. $200,000 at 80. Q. 80.70? A. $250,000, I think. Q. Have you your loan list there? A. Q. I haven't any loan list ? A. Oh, yes, you have. MR. HUGHES : Can we sit a few minutes later and finish this subject? THE CHAIRMAN: Yes. Q. From this minute that you have read of January 5th, 1905, it appears that the sale of $1,250,000 at 75 was authorized? A. Well, that should be was "approved" it had been made. Q. It already had been made? A. Yes, under a power given to the sub- committee. Q. It had already been made at 75? A. Yes. Q. And that was the sale to William S. Fanshaw & Company that I referred to? A. Yes. Q. And that sale at 75 was accompanied with an agreement that the purchaser in consideration of the division of the result- 480 Testimony of Edmund D. Randolph ing profits upon the securities to protect him against loss? A. Yes. Q. Now, what was the agreement for resulting profits from the securities? A. The agreement was that we were to have four- fifths of what I called the beyond, the profits accruing in the ultimate Q. In the sweet by and by? A. In the sweet by and by. Q. Well, have you ever had any profits on the beyond? A. We got this check afterwards for $7,450.95. Q. And when was that? A. Here is another case of no date. It was credited to profit and loss. Q. In the next year? A. Yes. That don't show there. It came within — well, it was some months after; probably June or July; I canont remember really. I think it was to be paid in June, but it lapped over into July. The date I can't feel sure of, but it is substantially correct. Q. Well, closing out $1,250,000 at 75, taken with the $200,000 disposed in November 25th, 1904, at 80.70 and the $50,000 dis- posed of December 29 at 80.27 accounted for the entire million and a half that you originally got? A. Yes. Q. And what about the participation in the syndicate which you had paid two millions and a half for in addition? A. That is just what I this moment said would show in your loan account ; the profits were written off here, and in the loan account there -was further written the net loss on the entire transaction, $320,- 194.27 the final loss after we had recouped on these sales. Q. The net loss? A. We got back from the sales under this agreement I speak of $216,515,000. Q. Then the net loss on the whole business was? A. $326,000. We had already written off the gross loss here, and in the loan account you have written to profit and loss. Q. At the end of 1904 how did this participation which you had purchased in the New Orleans syndicate at that time had 481 Testimony of Edmund D. Randolph not been disposed of, appear in your report? A. Oh, we had absolutely sold it. Q. Sold the participation ? A. Yes. Q. Apart from the bonds? A. Yes. Q. You say that would appear in the loans? A. Yes. Q. Why would it appear in the loans? A. I explained to you a while ago that it was first entered as bonds and then afterwards transferred to temporary loans, as being the proper entry for it. Q. It was closed out of the temporary loans A. It was closed out of the temporary loans. Q. At what time? A. The same time; the transactions were both at the end of the year. Q. Towards the end of the year? A. Yes. I beg your par- don, Mr. Hughes, you have the loan list. We have given you everything. Q. So. You merely showed it and took it back to print. I haven't got that. A. I really think that I must differ with you on that. Q. Well, that is undoubtedly your impression, but I haven't got the paper. A. I think Mr. Flemming has it. Q. We have looked carefully for it because you suggested the other day A. In the letter of yesterday I said we have now given you everything. Q. I know you said that, you are under that impression? A. I don't know where it brought up. I certainly sent it to your office. Q. That isn't of any moment? A. No, but I am very sorry you haven't it. Q. You closed that out in your loan account in December, 1904? A. Yes, in both cases it fell to profit and loss for the difference. Q. With that same agreement, however, you would protect some one from loss and take a share of the profits. A. It was 482 Testimony of Edmund D. Randolph absolutely certain that the outcome of the reorganization would be much better. Q. Apart from ideas in regard to it, the fact was that you had such an agreement? A. Yes. Q. Was there any other resolution on this point or was that covered by the one that you read? A. No, the whole thing had been committed to the committee with power and this simply was the approval of the framework on which they were author- ized to sell the bonds. Q. And the fact that you had any interest in any such syndi- cate or any such bonds by way of expectation or profits, or that that you had any such responsibilities for losses did not appear at the end of 1904? A. Naturally not. Q. In your report I mean? A. Naturally not. Q. Or in your books ? A. Naturally not. Q. Except as appearing in these minutes ? A. They had been sold outright in both cases. Q. What was this receivership you spoke of? You said after- wards there was a receivership? A. Why, the New Orleans Railway. Q. When was that, recently? A. Oh, no, at this time. That was what promoted these sales we are speaking of. Q. Was it in the hands of a receiver at that time? A. Well, I don't know whether I am correct in saying a receivership. No, there was a reorganization. In connection with the reorganiza- tion, was there a receiver appointed? Q. There had been a default on the bonds ? A. No, there had not been a default on the bonds. Q. There was a rer~ganization for what reason ? A. Why they had had all sorts of trouble with city governments and legislature assault I was going to say — I beg your pardon. It was proposed that they should do various things which were very inimical to the interests of the company, and finally they concluded they 483 Testimony of Edmund D. Randolph would have to reorganize on a different basis. The main thing, as I understand, was that it was insisted that they should reduce their capital, and I dare say quite properly. Q. Was the reorganization in contemplation when you took over the securities from the New York Security & Trust Company in the spring of 1904? A. Not at all; on the contrary we had the most glowing assurance from — we had the president of the road brought on here to see us, we had gentlemen who were interested in New Orleans commerce, bankers of high standing to see us, and they gave us every assurance of the value there was in the road. I think that the reorganization or receivership, whatever it may be, was brought about by the necessity of reducing the capital under the demand to do so on the part of the authorities. BY MR. ROGERS: Q. Mr. Randolph, I wanted to ask three or four questions which have been promoted by a line of the inquiry which the lines of the Committee have taken. A. At your service. Q. We could not, or at least some of us, were not quite satisfied with the reason which you assigned for not answering Mr Hughes's question as to the people whom you expected to par- ticipate in taking up the securities ? A. Joining us in the purchase of these? Q. Yes. A. Really I feel that is a confidential matter. It wouldn't bear upon the question here at all. I simply stated it as a fact. I say now that I think they should have done so, people who were actually in interest, who were not desirous of taking the whole of those, and we finally did so, but as to giving the names of the parties, it would only be speaking of an expectation of mine. I will say frankly it was a very confident expectation and a very well based one. There was no intimation of bad faith on any- 484 Testimony of Edmund D. Randolph one's part, but they simply concluded they didn't want it and preferred we should have it all. Q. There must have been either some moral or legal foundation for your expectation, was there not? A. Well, yes, in the ex- pectation that there is when people are talking together about doing a thing and seem to evince a willingness to take part in it, and finally do not. As far as the moral — there was no obligation. There was an expectation on my part. I will return to that, simply adding I considered it was well founded. Q. And do we understand because your expectation was not well founded in fact, therefore the funds of the company were taken up to a larger extent than you had supposed were neces- sary? A. Than we would have done. Q. Yes. A. Well, I think they thought that we were the rich- est of the party, and that we could best afford to pay in the money; that was all. Q. And that was the reason of the refusal? A. I think that was it ; that they thought we had made a great sum of money, $3,000,000 and odd on our sale of the stock, and they argued that it was only fair, that it was only returning what we had made as profit, investing it in these securities. I don't see^ — I don't follow the argument at all; but I say that was their argument. Q. The Committee does not want to be precipitate in insisting on the answer to that question, but I should desire to consult further with my associates. A. As to who the parties were we expected? Q. Yes. But for my part I want to say that 1 am not satisfied with your refusal to answer, especially in view of the declared purpose of the New York Life Insurance Company in various doc- uments and letters which have been sent out, that it was pre- pared to make and will make before this Committee the fullest exposure of all its affairs. A. I really don't think this bears upon that, if you will pardon me for saying so. I said that in answer 485 Testimony of Edmund D. Randolph to a question. I would willingly say in confidence to all you gen- tlemen who they were that I expected, willingly; I merely say that I don't think I would be authorized to say in public, to go into the newspapers. It is a breach of confidence. There isn't the slightest hesitation in saying to you, sir, or saying to the gen- tlemen of counsel in confidence just to whom my expectation turned. Q. Passing now to another matter, Mr. Randolph, and simply that we may get our perspective right, because we found we weren't quite sure about that — you took occasion this forenoon to justify the transaction brought out last week with reference to what you characterized dummy loans, by stating that A. The characterization was made not by me ; but I quite under- stand you. Q. Very good ; but you took occasion to justify it by saying it was a common practice. I want to ask whether it is a common practice for your company to sell securities just prior to the making of your annual reports, which are supposed to show the true con- dition of the company, and buying them back immediately after- ward, as was the case with the $800,000 transaction? A. I don't know of any cases but those that have appeared in testimony. We have furnished the fullest detail, every figure there is on the books, and naturally Mr. Hughes found them. It was our pur- pose; we wanted to find everything. That book he has there, there are a great many entries you may think trivial and unim- portant, but we put in everything, because if you have, as we sup- pose you will have, expert accountants go over this, they can draw their pencil line at any date and foot it up and go to our Comp- troller's department and they can prove it to any date. Q. I am not asking so much about your transaction here to-day as to the good faith of that transaction , but what have you to say in justification? A. I answered we never have done this. I mean to say the cases stated are the only ones I have recollection 486 Testimony of Edmund D. Randolph of, where we have had occasion to make transactions of that kind. We are in a peculiar condition under this by-law, and we had to close these stocks and these securities not of their respective ac- counts, and stocks by reason of their being stocks, the others by reason of their being considered industrials, which we had not at all considered them when we took them. The $800,000 that you referred to specifically. Now, I suppose on the Navigation syn- dicate, I had stated what I thought was it, and not when the $3,200 came in, we had reason to believe so, and had done it, and excluded it. That is the $32 interest, and when the additional $80,000 came in we said we would sell it out, and the end of the year came and it wasn't sold out, and in the following year it was sold out; it was sold at 90, as appears in the testimony, and we wrote off the other 10 per cent. Q. But the annual report for 1903 made up as of the close of business on December 31st would have been more accurate and more truly representative of the facts, if that sale of December 31st, 1903, and the repurchase of January and, 1904, had not occurred, would it not? A. Well, it was a sale and it was a pur- chase. There is no doubt, whatever, what the purpose of it was. That was a sale, and it was delivered and paid for, and a very good check went into the account, and it was taken back on the first of the year. At the time that our statement was made it certainly had passed out of our account and had become a cash asset. I am not disguising for a moment — I am not disguising for a moment that the purpose of that sale was as a temporary sale to avoid altering our books and assets, which we had declared in good faith and believed to be $3,200. We had stated that as the limit ; we had stated it in a variety of ways, and for the purpose of mak- ing that statement good we determined to sell it, and it had not been sold, and it was done with the idea of keeping that statement good. 487 Testimony of Edmund D. Randolph Q. I think your answers have helped me to get a correct under- standing. Anything further? BY MR. HUGHES: Q. As a matter of fact, it was well understood that you would buy that back? A. Well, it was sold. Q. When you sold it on December 31st at par, it was well un- derstood you would buy it back the first of the year? A. If it wasn't sold, yes. It had already been in the hands Q. You mean if it wasn't sold over New Year's Day? A. Yes. Q. You sold it on the 31st of December, with the understanding that if it wasn't sold on New Year's Day you would take it back on the 2nd of January? A. There was no understanding about it at all, but if it wasn't sold we would take it back. It wasn't any sale with any understanding whatever. BY MR. ROGERS: Q. The whole result, as I gather from my associate, was that the sale on December 31st, 1903, and the repurchase on January 2nd, 1904, resulted in showing in your annual report as of the close of business of December 31st, 1903, $800,000 more actual cash assets than there really, in the strict interpretation of the facts, was in the treasury? A. Real cash? Q. Yes. A. Real cash it was; I beg your pardon. Q. Put there for a couple of days? A. Yes, it was real cash. THE CHAIRMAN : All persons now under subpoena who have not been excused are directed to report here at 10.30 to-morrow morning, to which time the Committee stands now adjourned. 488 ALDERMANIC CHAMBER, City Hall, New York City. September 13th, 1905. The Committee met pursuant to adjournment. FREDERICK H. SHIPMAN, called as a witness, being duly sworn, testified as follows : BY MR. HUGHES : Q. What is your occupation? A. I am assistant treasurer of the New York Life Insurance Company. Q. How long have you been assistant treasurer? A. About three years. Q. Were you connected with the company prior to that time? A. I was. Q. In what way? A. As assistant to the treasurer for about two years and previous to that as bond clerk. Q. You have produced this morning an account headed syndi- cate account, Toronto, Hamilton & Buffalo Railway first mort- gage 4's due June 1st, 1946; and also an account headed Toronto, Hamilton & Buffalo Railway Company first mortgage 4's due June 1st, 1946; are these respective accounts taken from the books of the New York Life Insurance Company direct transcripts of such accounts as they appear upon the books? A. They are direct transcripts. MR. HUGHES : I offer that in evidence. The paper was admitted in evidence and marked Exhibit 48. 489 Testimony of Frederick H. Shipman Q. Who was E. N. Gibbs? A. E. N. Gibbs was our former treasurer. Q. When did he cease *o be treasurer? A. He died, I think, about the 22nd of October, 1900. Q. What is meant by this item under date of January 24th, 1899, a credit item by check, E. N. Gibbs for his commission as manager? A. Mr. Gibbs was one of the managers of that syndi- cate, and that is part of his commission as manager, turned over to the company. Q. What was done with the other part of his commission? A. You will see that down below in the other account. Q. I see. So that what he got by virtue of his being managei of that syndicate was turned over to the company? A. Turned into the company. Q. The first debit item is the original amount of money which was put up by the New York Life Insurance Company for the total of its subscription? A. Yes. Q. That means an actual payment of $796,250? A. Yes. Q. Then, as against that on April 17th, May 25th and July 5th respectively, there were delivered securities aggregating $575,000 at 91 to the syndicate? A. $375,000, if you please. Q. Yes, I meant $375,000. Now, what is meant by the next item, July 5th delivered to the New York Life Insurance Com- pany $500,000 at 99? A. The New York Life Insurance Com- pany retired $500,000 of those bonds at 99. Mr. Gibbs thought that the market would stand that price. The difference between that and 91 was put off to profit and loss. Q. Wait a moment. The $500,000 of bonds to which you refer there had already been paid for by the New York Life at 91 ? A. At 91. Q. And were held by the New York Life at that time? A. Yes. Q. Now how could the New York Life retire those bonds at 490 Testimony of Frederick H. Ship man 99? A. Because the syndicate was disbanded and we retired from the syndicate participation $500,000 of bonds. Q. But you had those bonds? A. We retired our own par- ticipation, which was $375,000. Q. But you had the bonds physically in your possession? A. Yes, sir. Q. And had paid for them at 91 ? A. In the syndicate account. Q. In any account, what difference does it make? How could you retire the bonds at 99 which you had and had paid for at 91 ? A. Because we supposed and thought the market would stand it at 99, which was about the price of the day. Q. As a matter of fact you did not get $495,000 for those bonds. You did not sell them ? A. No, we did not sell them. Q. There was no change in the actual situation. You had the bonds you had originally paid for at 91 ? A. Yes. O. And by retiring them, as you call it, at 99, you mean you proceeded to close the syndicate account and open a new account as though you had invested $495,000 in those bonds ? A. Plus the eight points. Q. In other words, you made entries on your books to make it appear those had cost you 99? A. That is it. Q. Why did you do that? A. Really I could not tell you why it was done. I did not have the management of that part of it. Q. By doing it in that way, you closed the syndicate account with an apparent profit of $44,986.96? A. Yes. Q. And that profit was realized by apparently disposing of $500,000 of bonds at 99? A. Yes. Q. When, as a matter of fact, you had not made any such disposition and had not realized any such profit? A. But we simply credited profit and loss with the $44,000, and credited $4,000 which you will find as the syndicate profit. Q. How could you credit profit and loss with $44,986 wnen 491 Testimony of Frederick H. Shipman you had not received that amount at all? A. By simply putting the bonds in at the same market price. Q. In other words you figured, or Mr. Gibbs figured, that the bonds were worth 99? A. At 99. Q. Then you treated them on your books to show a profit of $44,000, as though they had been sold at 99 ? A. I presume that is the idea. Q. Then you carried to profit and loss a profit of $44,000 on the basis of what you thought was the value, although no such profit had been realized? A. That is it. Q. And then, having closed that account with a profit of $44,- 000, you of course had to open another account, inasmuch as you had the bonds, on which you charged yourself with those bonds at 99? A. Yes. Q. So the net result was that you raised the price of the bonds eight points? A. Yes, eight points. Q. When as a matter of fact you had them all the time? A. And took the balance to our profit and loss account. Q. And took the profit which you had not realized? A. Yes. Q. You hold those bonds still, don't you? A. We still hold them. Q. They are not worth 99 in the market now? A. They are about 98 bid and 99 asked. Q. Do you do that in other cases? A. Well, this is the only case that I ever remember that we ever did it. Q. Was there any object at all that you can think of in having it appear in your books that you had paid 99 for bonds that cost you 91, and that you had made a profit of $44,000, which, in fact, you hadn't made? A. I don't know any object at all, sir. Q. You never heard that discussed? A. Never heard it dis- cussed. Q. Of this amount carried to profit and loss, $44,986.96, $4,- 049.46, were the profits from the syndicate to which Mr. Ran- 492 Testimony of Frederick H. Shipman dolph testified? A. Those were the actual profits from the syn- dicate. Q. And the remaining amounts, or $44,936, was simply a book entry derived from the putting in of the credit of the $500,000 at 99? A. And the check of $937. Q. And the check of $937, Mr. Gibbs' commission? A. Yes, Q. Now, in the subsequent account which you opened you represented the bonds as costing 99, and charged the company with them at that price? A. That is right, sir. Q. The only credit on the other side of the account is the credit of July 5th, 1889, Mr. Gibbs, for his commissions? A. For his commissions. Q. Is it a fact that frequently when the New York Life In- surance Company participates in syndicates, it pays for its allot- ment to the syndicate managers and then returns bonds to the syndicate managers as called for on being repaid the syndicate price? A. That is a very common case, yes, sir. Q. And then goes into the market and buys the bonds to some extent from the syndicate managers? A. Yes, sir, that is occa- sionally done. Q. And then charged . A. I beg to correct that. Not to the syndicate managers, but after the bonds are offered to the public. Q. Well, from the banking house that is offering them to the public? A. Yes. Q. And then it charges itself with the amount it has paid" for the bonds in the market? A. Yes, sir. Q. And takes its share of the profit, which is the result of the syndicate management? A. Yes. Q. In this Toronto, Hamilton and Buffalo case, however, the New York Life Insurance Company didn't return the 500,000 of bonds to the syndicate managers, but took them themselves as though they had returned them and had bought them at a price 493 Testimony of Frederick H. Shipman in the market, and then carried on the books of the New York Life this apparent profit, which, in fact, hadn't been made. That was it, wasn't it? A. Yes, that was the transaction. Q. You have also furnished an account headed "New York Life and Goldman, Sachs & Co., joint account ; Chicago and Alton Railroad Company, 3 per cent refunding 50 year gold bonds, due October 1st, 1849." That is a correct transcript from the books of that account as it appears on the books (handing paper to witness) ? A. Yes, sir, that is a correct transcript. MR. HUGHES : I offer that in evidence. (Marked Exhibit 49). Q. This account shows the $6,000,000 purchased in the Fall of 1899, or taken in the Fall of 1899, at 96? A. Yes, sir. It shows the account of the ten million bonds taken. Q. The ten million bonds taken? A. Yes, sir. Q. Five millions of those bonds were subsequently delivered to Goldman, Sachs & Co., or to purchasers from them, at the prices stated on the credit side of the account? A. Yes, sir. Q. The joint account means that the New York Life and Goldman, Sachs & Co., were equal participators ? A. Equal par- ticipators in that account. O. That means that each was to take ■ five millions of the bonds? A. Each was to take five millions, and the New York Life Insurance Company carried the interest of Goldman, Sachs for the interest, for the coupons. Q. Well, did the New York Life Insurance Company get the interest on five millions? A. They did, sir. Q. Where does that appear? A. The coupons were detached from the bonds and credited to interest on the bonds. Q. Now, I find in this an item under date of December 29th, 494 Testimony of Frederick H. Shipman 1899, on the credit side of the account, by temporary loans, $400,- 000?" A. That was a loan that we required Goldman, Sachs & Co. to make Q. To your company? A. Our company required Goldman, Sachs & Co. to make it in order to keep good their margin on the bonds. The bonds had fallen off in the market. Q. And then, on October 7th, 1901, that was repaid? A. That was repaid, yes, sir. Q. And the last items on the debit side of the account of $ I >937-9 1 and $1,937.92 were the profits? A. Represent the profits? A. Yes, sir. Q. On that entire transaction? A. Yes, sir. Q. Then, I understand that for $3,875 the New York Life took the responsibility of an investment of five million dollars in the bonds of the Chicago and Alton Railroad Company for the bene- fit of Goldman, Sachs & Co. A. No, I shouldn't think it was that way. When the contract was entered into the New York Life supposed that they were going to get some benefit from the bonds. I imagine that was the idea. Of course, like all trans- actions, it didn't turn out as well as thought. Q. My point is that the New York Life didn't expect to get any benefit from the five million of bonds which it carried for Goldman, Sachs & Co., beyond the coupon interest? A. Noth- ing more than Goldman, Sachs & Co. were active sellers, and they probably could sell the bonds more readily. That was the idea. Q. But the five million bonds which were Goldman, Sachs & Co. participation or interest were to belong to Goldman, Sachs & Co., and they were to have the profits on them? A. They were to have their half of the profits, or they were to have their bonds in case the joint account was discontinued. Q. You have also produced a statement headed "New York Life Insurance Co. firm bonds, Chicago and Alton Railroad Co. 49 1 ? Testimony of Frederick H. Shipman 3 per cent refunding 50 year gold bonds, due October 1st, 1949." Is that a correct transcript from the books of the company? A. It is, sir. MR. HUGHES : I offer it in evidence. (Marked Exhibit 50). Q. I note that the account Exhibit 49, to which reference was first made, closed on October 31st, 1901 ? A. Yes, sir. Q. This last account, marked Exhibit 50, begins on October 31st, 1901? A. Yes, sir. Q. And the first entry on the debit side is to joint account $4,727,040? A. Yes, sir. Q. What does that mean? A. That means that was trans- ferred as our share from the joint account. Q. What you had left as an investment ? A. As an investment. Q. Then subsequently that was added to? A. Subsequently we bought about 416 bonds in the market. Q. At prices ranging from . A. Prices considerably in Q. 86 to 87? A. Yes, sir. Q. The original price at which you took the ten millions of bonds being 96 and interest? A. Yes, sir. Q. The five million bonds which you thus carried on invest- ment, or approximately that, with the object you have stated, are still owned by the New York Life? A. Still owned; yes, sir. Q. Have you yourself been a party to any syndicate? A. I never have, no, sir. Q. Was the New York Life Insurance Company a participator in the Chicago and Northwest syndicate? A. In the Chicago and Northwest syndicate ? Q. Yes. A. I have no recollection of it, sir. Q. I don't see it there on the syndicate list, Exhibit 38? A. No ; it isn't here. 496 Testimony of Frederick H. Shipman Q. I find in the list of purchases and sales, Exhibit 46 for identification, under date of July 20th, 1899, an entry "Chicago and Northwest syndicate profits, $7,689.44" ? A. I think that is an error. That should be Chicago and Northwest joint account. That is my recollection — so long ago. Q. I think in that list you will find a number of entries of Chicago and Northwest syndicate profits? A. Yes. Q. As a matter of Tact it was not in the syndicate? A. No; I think it was wrong in calling it a syndicate. Q. What was it ? A. It never was a syndicate ; it simply was a joint account, as I recollect. Q. What sort of a joint account? A. Between ourselves and Goldman, Sachs & Company. Of course, it is some time ago, and I am not clear on that; simply for selling the bonds, the Chicago and Northwest bonds. Q. Did you, as in the case of the Chicago and Alton, buy a large amount of bonds in the first instance ? A. I don't think we did. I think it is" an account we had on our ledger, that is a lot of bonds that we bought for investment and decided to sell. That is my impression. Q. How were you allotted bonds? A. What do you mean? Q. Oh, you said a lot of bonds ? A. A lot of bonds. Q. Did you carry bonds or were they sold in the office of Gold- man, Sachs & Company and sold out and profits made ? A. They were bought by the New York Life Insurance Company; it had the bonds in its vaults and the account on its books. Q. Then it was substantially the same as the Chicago and Alton, was it not? A. Well, it was, of course a mode of selling bonds that we had on our books. Of course, I am not clear on this subject, and I am simply stating from memory, that is all. I may make some mistakes. Q. Your present recollection of the transaction is that there was a joint account between your company and Goldman, Sachs 497 Testimony of Frederick H. Shipman & Company for the marketing of Chicago and Northwest bonds, with an agreement as to an equal division of profits? A. That is my recollection of it. Q. Now, if you will look in the list, Exhibit 46 for identifica- tion, under date of July i8th,i899, you will find under the head of purchases the item "July 18th, Chicago-Northwest syndicate, 750,000 at 143.54, cost $1,076,550," and, on the same date, July 1 8th, 1899, under the head of sales "Chicago & Northwest 7's, 750,000 at 143.54, realized $1,076,550, sold to syndicate." Can you explain how it is that you buy 750,000 of those bonds, and on the same day sell them at the same price, buying them from the syndicate and selling them to the syndicate the same day? A. The only way that I could explain that is this : The New York Life Insurance Company owned the bonds, 750,000 Chicago and Northwest; they decided to sell those bonds, and they formed a joint account to sell them. They wiped the bonds, or charged them off their books at a fair price, and they were transferred to a joint account for selling purposes. That is the only way that I explain it. Q. Well, what is this entry of "bought" from "syndicate on July 18th, 1899, $750,000?" What does that mean? Was there such a purchase? A. This simply says "syndicate." Now this ought to be 0. Bought? A. Oh, the bought. Well, I can't explain that, sir, just at this time. If I had our records I could probably ex- plain it fully. Q. The natural import of it is, taking the entries, as they are there, that the New York Life Insurance Company bought bonds at a certain figure and sold them at the same figure on the same day. A. I would take it a little different, sir. 1 would say that the New York Life sold to syndicate on the 18th of July 750,000 of those bonds. 498 Testimony of Frederick H. Shipman Q. And then bought them back? A. No; they sold them to the syndicate. Q. Is it fair to say . A. As a sale, it appears here, Chicago-Northwest 7's, 750,000 to syndicate. It means a syndi- cate, as a sale. Q. Yes. A. Now, the purchase by the syndicate is 750,000 dollars. Q. No, the purchase pardon me, are you a bookkeeper? A. Well, I don't pretend to be much, no, sir. Q. You didn't mean to point to that purchase side and lead me to suppose that meant a purchase by the syndicate, did you? A. For syndicate account or joint account. Q. Don't you know that means a purchase by the New York Life Insurance Company? A. Well, I mean for joint account; the New York Life Insurance Company for joint account. Q, Follow the questions as they are asked. That is a purchase, not by the syndicate, that is under the heading of purchases there, and a purchase by the New York Life Insurance Company, and that is what I want you to explain. A. Well, I cannot explain it at this — of course these occuired six years ago, and I prefer looking at our records before O. I would be glad to have you do so. Now, is it fair to say that in these joint transactions the New York Life Insurance Company furnished the money for the securities and entered into a joint account with other parties who eventually would take one half of the profits through their sale? A. I think that has been the case, sir, in a number of instances. Q. Does that mean in effect that the New York Life gives half the profits on the securities which it pays for to bankers in order to get the services of the bankers in making sales? A. Not al- ways, sir; only in rare cases just as we are speaking of. Q. Well, in these cases that we are. speaking of that is what it amounted to ? A. It amounted to that, yes. 499 Testimony of Frederick H. Shipman Q. Now why should the New York Life Insurance Company do that? A. Well, because the bankers can more readily find a market for the bonds for them; better facilities for selling. Q. Yes, but is it necessary to get the facilities of bankers in selling bonds that the New York Life Insurance Company owns to give them half the profits ? A. I think it is in some instances. Q. Do you think it was in these instances? A. I think so, sir. Q. In Chicago and Northwest bonds? A. If we want to sell a block of Chicago and Northwest bonds it is very hard for us to find a market, and we can do so much more readily through the bankers. Q. I understand that, but the point of my inquiry was the amount which you paid for the bankers facilities, to wit, one half of the profits? A. I don't know, of course, what the idea was ; I simply know the transactions, and that is all that I have any knowledge of — what the motive was for doing that. Q. Now, the New York Life Insurance Company was a party to a joint account in Chicago, Burlington & Quincy, wasn't it? Are you familiar with that? A. I can't recall just at the present time, sir. 0. I show you under the head "Purchases" in Exhibit 46 for identification, under date of October 3d, 1904, entries as follows: "C. B. & Q. J.'s, joint account." Then there are some $50,000 in par value mentioned, at prices ranging from 96.47 to 96.85, and the seller is stated as Wm. S. Fanshawe. What are those joint account transactions? A. That is a joint account of purchase of bonds for sale, a joint account between Messrs. W. S. Fan- shawe & Company and ourselves. Q. Do you mean that is a case of purchases of bonds for re- sale? A. For resale. Q. At a profit. A. At a profit, yes, sir. Q. Not a purchase for investment? A. Not a purchase for investment. S°° Testimony of Frederick H. Ship matt Q. But an operation in the market for the purpose of realizing the profits on resales ? A. Yes, sir. Q. And how extensive were those transactions in Chicago, Burlington & Quincy in 1904? A. Well, I don't recollect just the amount. I don't think it was very extensive, but probably five or six hundred thousand dollars, I should say. Q. Why should the New York Life Insurance Company seek to make money by speculating in the market and buying for the purpose of immediate resale on joint account? A. I don't know, sir, except that we think we are there to make all the money we can for our policy holders. Q. And those transactions you have found to be profitable ? A. We have always found them to be profitable. Q. I find in this list you have given me a large number of profits which are stated to be joint account profits? A. Joint account profits, yes. Q. Under the head of purchases. Is it fair to say that those are similar cases where an arrangement has been made for the purchase on joint account? A. Yes, sir, I think it is. Q. When purchases are made for the purpose of resale, on joint account, the other party to the joint account is a banker, as a rule? A. As a rule, yes. Q. In this particular case the Chicago, Burlington & Quincy last fall, it was W. S. Fanshawe? A. Yes. Q. And W. S. Fanshawe got half the profits? A. He got half the profits of the sale. Q. So that in such cases the New York Life employs the facilities of the bankers in the purchase and resale of the secur- ities, and for those facilities gives him half the profits ? A. As a rule, yes, sir. Q. The New York Life supplying the money for the purchase of the bonds? A. Yes, and they get the interest by collecting coupons on the bonds. 5 DI Testimony of Frederick H. Shipman Q. They get interest on the amount they advance, but they supply all the money? A. They supply the money. Q. And the bankers attend to the purchasing and selling, and then the profits are equally divided? A. That is it as a rule, sir. Q. Are there a good many transactions like that? (No an-' swer.) Q. Who is W. S. Fanshawe? A. He is one of the firm of Harvey, Fisk & Sons. Previously Q. And dealing in this matter? A. Yes, now he is. Previ- ously he was a bond broker by himself. THE CHAIRMAN : I do not think the witness has answered your inquiry as to the number of transactions. MR. HUGHES : Yes, I will come to that in a moment. Q. Since January i, 1905, he has been a member of Harvey, Fiske & Sons, and prior to that he was on his own account? A. Yes. Q. Prior to January 1, 1905, what were his relations to J. P. Morgan & Company? A. I really don't know, sir, about his inside affairs. Q. I asked you a moment ago how many transactions of this class there were, that is to say, where the New York Life buys for the purpose of reselling and divides the profits with the bank- ers? A. How many accounts? Q. Yes. A. Well, I could not tell you. It has ranged over a number of years, as you can see. Of course it is possible we may have four or five or six a year that way. Q. Have you any such now? A. I don't remember that we have just at the present time. Q. Those transactions do not appear here as syndicate trans- 502 Testimony of Edmund D. Randolph actions at all. You have distinguished in your classification be- tween syndicate and joint accounts? A. Yes, sir. Q. I would like to have you prepare for me a statement of the joint account operations of your company, showing with whom the joint account has been, the securities, the amount dealt in, the amount put up by the New York Life, and the disposition of the securities with the resultant profit, in case profits have been made, or losses, if any. In case any securities handled on joint account in this manner should decline in the market so a loss should be entailed on the resale, that loss was also to be equally divided, I suppose? A.That is the understanding. Q. With the banker? A. With the banker. Q. This arrangement was entirely distinct from the Chicago, Burlington & Quincy purchasing syndicate which is mentioned on Exhibit 38? A. Yes, I think it is entirely distinct. Q. What was the Chicago, Burlington & Quincy purchasing syndicate? A. May I have the date of that, Mr. Hughes? Q. The date given here is April 25th, 1902. A. It was a syndi- cate formed for the purchase of the Chicago, Burlington & Quincy stock. Q. To stand as collateral against the Northern Pacific and Great Northern collateral trust bonds ? A. Yes, sir. MR. HUGHES: Will, you step aside just a moment. Mr. Randolph, will you resume the stand, and will you bring the minutes of the Finance Committee with you ? EDMUND D. RANDOLPH, resumed. BY MR. HUGHES: Q. Mr. Randolph, I would like to have you point to whatever action was taken by the Finance Committee of your company 5°3 Testimony of Edmund D. Randolph authorizing or approving transactions in which you purchased on joint account stocks or bonds for the purpose of resale, with an arrangement with the bankers to divide the losses or profits? A. Will you allow me to let someone else do that? Q. Certainly. Who would be able to do that quickly? A. Well, anyone sitting there. That would be a matter of search, you know. Q. I would like to have it made as soon as it can be done con- veniently. I have some dates which will help you in your search. Let us take the recent one, for example, of Chicago, Burlington & Quincy joint account, as to which I find entries of profits under the head of purchases in the list of purchases and sales Exhibit 46 for identification under date of October 3rd, 1904. Please read the authorization, and who were present at the meeting of the Committee? A. The meeting of September 29th, 1904. Present, Mr. Perkins, in the chair and Messrs. Langdon, Ran- dolph, Morrison, Claflin and Kingsley, secretary. Q. What is the authority? A. Well, out of various other things, here is this entry. 'Authority was also given the chair- man to buy on joint account with W. S. Fanshawe up to $1,000,000 Chicago, Burlington & Quincy joint 4's at from 97 to 97%- Q. Is there a later minute at a subsequent meeting? A. On October 3, the next meeting, the treasurer reported purchase on joint account with W. S. Fanshawe as per authorization- of September 29th of Chicago, Burlington & Quincy joint 4's amounting to 767,000 dollars at prices ranging from 97^ to 97yg flat. Q. Do you recall whether there was any discussion in the meeting of September 29th as to the propriety of your company engaging with W. S. Fanshawe in such a joint transaction? A. I don't recall any such discussion. Q. The practice was well established — I mean that there were 5°4 Testimony of Edmund D. Randolph precedents for such action, so it did not require discussion? A. The practice had long antedated me in the office. Q. If you will go back to 1899 I would like to see what authori- zation there was for the joint operations in Chicago and North- west? A. 1899? Q. I believe that that is the year, or I find under the dates in 1899 entries of profits which I understand Mr. Shipman to say should be joint account profits instead of syndicate profits. A. Can you give me the approximate dates of the figures either way ? Q. July or August. A. July or August of 1899? Q. Yes. A. Who does it say the joint account was with? A. It said syndicate, and he says it was joint account. I don't know who was the other party. A. It was Goldman & Sachs, I think he said. 0. Oh, yes. A. I find one portion of it here. Q. Give the date, please? A. February 7th, 1901 present the chairman, Mr. Perkins and Messrs. Claflin, Fairchild, Langdon, Grace, Morrison and Randolph and Mr. Kingsley, secretary. The sale was also reported. The treasurer reported sale by Goldman, Sachs & Company of 646,000 dollars Chicago & Northwestern 7's at $141.75 and interest for joint account with them at a profit of $12,102.18, our portion of which being $6,051.09. Q. Can you go back to the time when the operations in Chi- cago & Northwestern on joint account were started? A. I looked for the date but did not find it. The minutes are not infallible, of course. That does not give any clue. Q. Well, not to stop longer on that matter, I would be glad to have you get for me whatever entries there are in the minutes of the finance committee showing the action by that committee either of the authorization or approval with reference to such purchases and sales on joint account? A. There is, of course, the reflex approval in the minutes that I read to you, and I will find all the rest as they may appear. S°5 Testimony of Edmund D. Randolph Q. That minute that you read to me was a minute of a report of the sale? A. Yes. Q. How had that been made? A. For joint account, as stated there. I merely said it was a reflex approval. Q. That leads me to ask you whether, in such cases of trans- actions on joint account, the matter of sale is left to the discretion of the bankers? A. No, there is consultation. Q. Who passes upon it, before the sale is made on behalf of your company? A. It is a matter invariably of consultation, and would probably be discussed, if there was a sub-committee at that time, by the sub-committee. O. Is it a matter upon which the Finance Committee takes action in advance of sale ? A. I think that it should be and prob- ably is. I mean it should appear on the minutes as such. O. According to your recollection . A. According to my recollection, yes. The minutes are not infallible, everything does not get down' on the minutes, I am sorry to say, purely by acci- dent, but not by intention. Q. Where does the Finance Committee hold its meetings? A. Now it holds — well, it now holds part of the meetings at the uptown or main office and part at the Hanover Bank building. The meetings which are for the daily administration of business are held at the downtown office. The meetings which are for the examination of securities and the proof of the vault and every- thing of that kind are held in the uptown office. Q. Will you be good enough to point out if you can every- thing in regard to the case of the Chicago, Burlington & Quincy operations on joint account last fall in which the Finance Com- mittee by resolution authorized the sale. A. When was that? I would like to prepare as I have done before — have that got out of the minutes and give it to you in tabulated form. Q. Very good. What I refer to now is to transactions result- 506 Testimony of Edmund D. Randolph ing in the profits dated' last October of Chicago, Burlington & Quincy bonds ? A. October 3d, I will look and see. Q. 1904, those entries to which I just referred appear to be entries of purchases which I think are within the resolution to which you have already called attention. A. No, you were speak- ing of Chicago & Northwest. These are Chicago, Burlington & Quincy, you know. Q. Well, if we cannot find that just at the moment, have a statement prepared, please, of the various entries in the minutes of the Finance Committee relating either to purchases or sales on joint account? A. I would rather not say I cannot find it. I would rather say that not to detain you I will have a list made. Q. Of course, I understand that, prior to December 31st, 1901, when you closed out the stocks you held in the manner you have stated, did you have from time to time transactions in stocks on joint account? A. I don't recollect an instance. I won't say that there were not. Q. Since December 31st, 1901, such transactions on joint account have been in bonds? A. Altogether. Q. Altogether ? A. I don't know of any transactions in stocks that I can recall at any time. There may have been, but there was no reason prior to that time why there should not have been just as well in bonds. That all antedates back into a previous administration, so I can only speak in general terms. Q. You mean as to transactions before December 31st, 1901 ? A. Yes. Q. I omitted asking you yesterday, as I had the other gentle- man upon the stand, as to your own syndicate participation. Have you been in any syndicates ? A. I have never had any par- ticipation in any syndicate, either connected with the company or at any time. I never have been in any syndicate. I have never derived a penny of profit either in name or form from the company except my salary. I have never had a speculative interest, either 507 Testimony of Frederic Cromwell inside the company or outside the company during my entire con- nection with the company. My salary has been my sole source of revenue and my sole receipt of revenue of every kind from the company. MR. HUGHES : That is all, Mr. Randolph. Mr. Cromwell, will you take the stand? FREDERIC CROMWELL, resumes : BY MR. HUGHES : Q. Mr. Cromwell, have you produced a list of the syndicates in which the Mutual Life Insurance Company has been a partici- pator, as requested by me? A. I have. (Paper is produced). MR. HUGHES : The Mutual Life Insurance Company, in re- sponse to a request, produces a statement headed "Syndicate Operations, January ist, 1900, to June 30th, 1905, showing date, syndicate managers, syndicate profits, bonds taken on account of syndicate, bonds purchased from syndicate, bonds purchased from other sources, total purchases, bonds sold, profit and loss, total profit and loss, amount owned June 30th, 1905, market over book value June 30th, 1905, with sundry remarks. I will have it marked for identification. MR. BECK: We have given you every possible detail which has suggested itself to us, and if you desire anything further we shall be glad to furnish it. THE WITNESS : May I make a correction in my previous testimony ? S08 Testimony of Frederic Cromwell MR. HUGHES : Certainly. THE WITNESS : I think I testified when I was here last that the sub-committee had one meeting each week. I don't know why I should have made such a mistake, because I meet with them myself Tuesday and Friday each week. It should be two meetings. Q. You are now referring to the sub-committee of the Finance Committee? A. Yes. The other thing I wish to correct is this. I seemed to have been confused as you handed me the papers, as to the Mutual Alliance Trust Company stock. The Mutual Alliance stock cost us the subscription price, 200, always, there being an odd figure there I misinterpreted it. I said there was a loss in it which was not true, which was not true. Now, Mr. Hughes, before you interrogate me upon the syndicate I am going to ask you to let me say a few words. I shall not detain you long. Q. Go right along. THE WITNESS : They are these, that I want to speak to the effect — and there is nothing that I have to conceal in anyway here — to the effect that going into syndicates has become a neces- sity. The law of combination in finance was brought necessarily to the attention and practice of the life insurance companies. When I became president of the Mutual Life Insurance Company, its total assets — and I want these gentlemen here to get this — were $100,000,000 — $103,000,000. The transactions in my de- partments are over one hundred millions dollars in a year. And I say frankly that, while when our premium receipts were less twenty years ago, it was quite possible for us to buy from bond dealers and pay the successive profits that might come with brokers, now it is an absolute impossibility. All large blocks of securities are floated by the combination of capital, and we have 5°9 Testimony of Frederic Cromwell to go into those to get our investments and get them of sufficient size. We could not make our investments without syndicates, and we are partners in every syndicate which we go into. A syndicate has its manager, the bankers. We do not do the bank- ing business. We are partners in them all, and I go so far as to say that unless we went into the syndicates we would not be able to invest our funds. I ask you, Mr. Hughes, and the Committee, to consider that we have now over $450,000,000 of assets, and while we have over one hundred millions invested in bond and mortgage — exceptionally so, I think — and have pushed that as far as we can safely, we are constantly brought to the necessity of finding additional investments for our large accumu- lations of funds. That is no theory, it is a condition which we have to meet, and that is why we have to employ .them. Our in- vestments are such that when Mr. Tappan, I suppose about the most widely known and honored bank president in his day, died, he left it as a condition, the one condition only or stipulation in his will, that while the restrictions of the law should bind his trustees, they should have one privilege, and that was to invest in securities parallel and like those of the Mutual Life Insurance Company, to invest in the securities of the Mutual Life Insur- ance Company. That is the way we invest our money, but we could not invest the millions that come in. We could not make transactions of one hundred million dollars a year of the secur- ities of this company without entering these syndicates. Pardon me for keeping you so long, but I feel it was necessary for me to make this statement. Q. Certainly. That suggests a very interesting inquiry. I understand the sum of your contention to be that you have out- grown the investment field? A. Yes. Q. Which formerly you tilled with complete success. And that the growth of your business and the large accumulation of monies 5io Testimony of Frederic Cromwell that you now have make it necessary for you to go into these syndicate operations? A. It does. Q. Even though you might not favor such operations if you were doing business on a smaller scale ? A. That is true, that is true. Q. So that the great effort on the part of your company and other large companies to roll up new business, to increase the surplus and to get gigantic amounts of money has a result that you are forced into the syndicate operations in order to find an opportunity profitably to invest funds you have thus accumu- lated? A. I will take this exception to your remark. In the first place we have no surplus. We do not call it any surplus. It is a contingent liability which belongs to the policyholders, and which must all go to the policyholders, and it is only held for their benefit. The second part, we do not go into investments for the profits. We are glad to make the profits. We go into them for their safety. As I stated, there is a limit even to in- vestment in Government bonds. We have but one consideration, or the first consideration in our minds is whether the security is safe. Then we buy those securities in the best manner the Finance Committee can conceive, and they go into our box and we pay for them. Q. Without pausing to consider the accuracy of the word "surplus" the point I had in mind was that the large accumula- tions of money which you are getting, make it necessary for you to go into these syndicate operations? A. Yes. Q. That is the point? A. That is the point. MR. BECK: Will you ask him in that connection, what is the advantage of going into a syndicate over the old method of going and buying them from a broker. I would like to have him explain his meaning. 5" Testimony of Frederic Cromwell Q. I would be very glad to have Mr. Cromwell expatiate as fully as he desires upon the advantage of the syndicate opera- tion. A. I think I have covered that. I do not want to take your time. You can readily see that we or anyone buying now without the syndicates, buying from a broker, or buying after one or two dealers have had it, would pay a very different price. You can also see the very decidedly mistaken course it would be for us, having such vast sums, to keep out of these large banking interests, where they are absolutely safe. We never went into a syndicate in our lives when we considered it was not safe. You can see what it would be for us with these large accumulations to keep out of banks or syndicates. We could not do it. That is the means. And the advantage is that we get the ground-floor price instead of paying the third or fourth price. Q. Let me test that by the facts. A. I can show you the facts. Q. Let me test it by a few inquiries. I notice on February 15, 1904, you were in a syndicate having in charge the Republic of Cuba bonds to an amount of five millions of dollars participation. Did you take any of those bonds ? A. We took all that we could of those. Q. What did you take? A. I will get, if you will allow me, the syndicate paper, and explain. Q. Does not this show? A. No, sir, because it gives — they are all one transaction. This is it. Q. Then I understand that these three Cuba transactions that are mentioned here are really all one? A. One. Q. Then let me put my question so as to embrace all. I find that in the three transactions relating to the Cuba bonds you were participant in syndicate to the extent of $9,375,000? A. No, sir, that is why I wanted to explain. This will explain. Q. It says here, $5,000,000, $2,500,000 and $1,875,000; that S12 Testimony of Frederic Cromwell makes $9,375,000. A. That does not — it conveys a wrong im- pression to you. Q. Well, go on. A. There was a syndicate first formed. This is the way the syndicate was made up. Entirely with the Cuban Government, I mean. $5,000,000 first subscription syndicate. Let me read this letter from Speyer & Co., if you will : "We beg to inform you that we have contracted to purchase from the Republic of Cuba $35,000,000 forty-year 5% gold bonds at a price which, including expenses, is equal to about 89. The payment for bonds is to be made not earlier than June 1, 1904, in such instalments as arranged to be made. In accord- ance with our understanding you participate to the extent of five millions of bonds, the acceptance of which please confirm," and so on. "As we have already informed you, we have sold to a syndi- cate $20,000,000 at 91 with an option to September 1, 1904, to buy all or any part of the remainder." Now, we took a part of the $35,000,000 to the extent of $5,000,000 at 89. They had sold 20,000,000 of those 35,000,000 at 91, and they afterwards sold all the balance, the 15,000,000 at 92%. Now, our five million were eliminated, our first sub- scription at 91. That was the condition on which we went in. Then at 91 we went in and have two and one-half millions. Then we got the proportion of two and one-half million or one million eight hundred and seventy-five thousand, and got alto- gether 4,375,000 bonds, which is all we had. That was so un- derstood when .we subscribed. The $5,000,000 syndicate was a preparatory syndicate in making the bid. Q. As a matter of fact, you took no bonds from that syndicate for investment? A. We did. As a matter of fact, we did. Q. Are they on these statements you have given me ? I mean to say, you took no bonds under your allotment, but you bought from the syndicate managers at the open market price? A. No; Si3 Testimony of Frederic Cromwell we took four millions of those bonds. We agreed in the end to take $4,000,000 of those bonds, and we took them by pur- chase. Q. Follow my question? A. From the syndicate. Q. Pardon me. Follow my question. You bought those $4,000,000 at 92 9-16 from the syndicate managers. You didn't take them by an allotment at the ground-floor price, but you bought them at the price made to the public and allowed the syndi- cate managers and the participators in the syndicate make the profit on that transaction? A. Pardon me, you are wrong. Pardon me, sir ; you are wrong. We took them at the syndicate price. Q. Then your statement is wrong? A. No sir. Let me read it. Q. Look at the statement. Is that a copy (handing paper to witness) ? A. Yes. Q. Now, look at the heading, or opposite the item "Republic of Cuba" and then under the column headed "Bonds purchased from syndicate" you will find $4,000,000. A. Yes, sir. Q. Now, look under the next column "Price" you will find 929-16? A. I presume there was interest included in that. Q. Now, look under the column headed "Bonds taken account syndicate" you will find nothing, and so your four million of bonds, according to your statement, were bought at 929-16 from the syndicate managers on the public offering? A. Well, I distinctly remember buying those bonds of Speyer. That is why I say that. Q. I don't dispute you bought them of Speyer, but you bought them at 92 9-16 and you bought at the price on the public offer- ing. You didn't take them at 89, the syndicate price? A. No one took at 89. They were all sold at 91. Q. That is the point. A. They were all sold at 91. The $35,000,000 were sold at 91. 5*4 Testimony of Frederic Cromwell Q. But you didn't take them at 91? A. No one could. Understand the entire subscription of $35,000,000 when it was subscribed had been sold at 91. We went into a sub syndicate — we went into that sub syndicate, in order to get our bonds at 91. Now, I see what you are after. And afterwards we got two millions and a half at 91, and then a like proportion, $1,875,000 at 92%. Q. Let me follow the steps of that transaction a little more slowly. In the first place, who got the bonds at 91? A. The syndicate — the sub syndicate. Q. Oh, no. A. Yes. Q. Yes, the sub syndicate. From whom did they get them? A. From the syndicate. Q. And who were the first people that sold them at 91 ? A. The syndicate of which Speyer & Co. were the managers. Q. Mr. Speyer, James Speyer, is one of your trustees ? A. He is. Q. He was in a syndicate to take these bonds at 91. Just follow me. A. No, he was in the first syndicate to take them at 89 from the Cuban Government. Q. I should have said that. He was in the first syndicate that took these bonds from the Cuban Government direct, paying the Cuban government 89 for them. A. About that. I don't recollect. Q. Now, was the Mutual Life in that syndicate? A. They were. Q. In the first syndicate? A. In the first syndicate. Q. Were you in the first syndicate? A. I was. Now, let me say, Mr. Hughes Q. Who else of your Finance Committee was in that syndi- cate? A. If you are going to ask this question let me say here, and I want this understood, that I have handed you here a list of the syndicates in which the Mutual Life was interested, and ir 5*5 Testimony of Frederic Cromwell which I am interested. I have nothing to excuse in them. There has never been an intimation by the Committee to any trustee of this company or any member of the Finance Committee in which a condition could be imposed that they should not go in. I want it understood they have never gone into a transaction that affected any interest of the Mutual Life, but quite entirely dis- tinct from it. I conceive the fact that if I, as treasurer of the Mutual Life, should make an investment — found myself un- willing to invest in the same thing that the Mutual Life invested in, it would be a curious thing. Those gentlemen interested in the Mutual Life do go into these syndicates to a very limited extent. They have never — I have been twenty-one years treasurer of the Mutual Life — I have never seen a man make a commission from the Mutual Life or a percentage made on a loan in connection with it, or do anything in the world that I can conceive would damage one dollar of the Mutual Life. I believe that is plain enough. Q. Very plain. A. Now, sir, I would like my syndicate trans- actions brought here. I have had a list made and have it read, and I have had my bookkeeper make up a list of my syndicate transactions for five years, and I went in entirely separate from the company, and the company took $5,000,000, couldn't take any more; quite irrespective of the company, and the total amount of profit that I made from the syndicates in which the Mutual Life was interested — I asked my bookkeeper — I will give you the exact — for the amount — amounted to $26,000 in five years. I have been in a great many syndicates otherwise, but in those in which the Mutual Life was interested amount to $26,000. Q. Have you that list here, as you have spoken of it? A. I gave it to you. Q. No ; I haven't got it. A. Yes, sir. MR. BECK: We had it here yesterday. 5i6 Testimony of Frederic Cromwell Q. If you will send for it. A. No, I have got it. I want this syndicate matter all gone to the bottom, if you will allow me. Q. Why, certainly, Mr. Cromwell, that is all right. A. There is the list in part. I can give you the remaining part. MR. HUGHES : The witness produces a list, which I offer in evidence. Marked Exhibit 51. THE WITNESS : I say at the same time that I regret very much to have my private affairs . 1 suppose I might in some way resist some such thing as that, but I don't propose to. O. I think your frankness and candor are admirable and mem- orable, Mr. Cromwell. A. I want you to feel when we go over this that we haven't concealed anything. You can demonstrate it if we have. Q. I hope not to be put to the necessity of any such demon- stration. I do not anticipate it at all. Now, let us follow the line of inquiry under which I was proceeding a moment ago. Speyer & Co. got up a syndicate to take the Cuban bonds at 89? A, Will you pardon me, Mr. Hughes? I have here the exact list of the transactions of The Mutual Life Insurance Company — of the committee in connection with that syndicate. I think that would cover it. Q. May I look at it? A. Do. (Papers handed Mr. Hughes.) Q. Now, if you will follow me slowly, noticing my questions, we will get each one of these facts in to your entire satisfaction, I am sure, in its proper relation. The first that I want to call your attention to is the action of Speyer & Co. in getting up a syndi- cate to take the Cuban bonds. Now, I Understand that syndicate took the bonds at what price ? A. About 89. I couldn't tell you. Q. About 89 — direct from the Cuban Government? A. Yes, sir ; let me add this, that in treating with the Cuban Government after consultation, you might say, I . told Mr. Speyer he might 5i7 Testimony of Frederic Cromwell rely on our taking a share of $5,000,000 in it — a great help to him in treating with them. Q. So that Speyer & Co. were the successful bidders for those bonds? A. Yes, sir; we had the bonds inspected by our own counsel. We were part bidders, you might say. Q. And Speyer & Company were facilitated in bidding on those bonds by knowing that the - Mutual Life would be ready to stand backofthemtotheextentof five million dollars? A. Very much. Q. Now, you have a minute, I believe, relating to the first transaction. Please don't go beyond this first transaction for the moment, but tell me what that minute is on the records of the Finance Committee? A. January 9, 1904. The Committee authorized the treasurer to take an interest of five million dollars with Speyer & Company at their bid of 90, the Company to have the same standing as Speyer & Company and pay no commission to the syndicate. That is not an unusual thing. The transac- tion may be 89 and a fraction and they put it at 90 to cover it. Q. Now, to what extent did you participate in that original syndicate? A. Either $50,000 or $100,000, I don't know which, that is, in the first original syndicate, and not even through Speyer & Company. That is an in- stance, as I told you, where I recommended — after we — we were early in the Cuban purchase and knew about it and we had our interests fixed, and I told more than one person I knew that they could go under that Cuban bond, it was a good one, that I felt that the United States Government was in effect behind it ; it was an especially good bond ; and I made my subscription through a large banking house which took a large block of it in the syndi- cate. Q. That was Strong, Sturgis & Company? A. Strong, Sturgis & Company. 0. Who were the members of Strong, Sturgis & Company? A. The members were Mr. Strong, he is the head of the firm; 5i8 Testimony of Frederic Cromwell Mr. Sturgis, Frank Sturgis, George G. Haven, Jr., my son and one other. MR. BECK: Mr. Eldridge. Pardon my suggesting the name? A. Eldridge. MR. HUGHES: Certainly. Q. What is your son's name ? A. Sernour L. Cromwell. Will you pardon me, Mr. Hughes. I have here the exact list of the transactions of the Mutual Life Insurance Company — of the Committee in connection with that syndicate. I think that would cover it. Q. May I look at it? A. Do. (Paper handed Mr. Hughes.) Q. Now, if you will follow me slowly, noticing my questions, we will get each one of these facts in to your entire satisaction, I am sure, in its proper relation. The first step that I want to call your attention to is the action of Speyer & Company in get- ting up a syndicate to take the Cuban bonds. Now, I under- stand that syndicate obtained the bonds at about what price? A. At about 90; I couldn't tell you. Q. About 90, direct from the Cuban Government? A. Yes, sir. Let me add this, that in treating with the Cuban Govern- ment after consultation, you might say, I told Mr. Speyer he might rely upon our taking a share of five millions in it, and a great help to him in treating with them. Q. So that Speyer & Company were the successful bidders for those bonds? A. Yes, sir. We had the bonds. Q. And George G. Haven, Jr., is a son of George G. Haven of the Committee? A. Yes, sir. Neither he nor I have any interest in the firm, I will say that, personally. Q. Of course not. You, of course not, will be able to tell me just what your interest was in the original syndicate? A. I will bring it to you. I think it was $100,000. I will bring it to you. Q. I asked you the other day whether you knew the interests ;i<3 Testimony of Frederic Cromwell of any of the others of your members of the board? A: No, I don't know any of the others. Q. Now, then, Speyer & Company being the successful bidders for those bonds from the Cuban Government and acquiring them at about 89, sold them at 91, and to whom did Speyer & Company sell them at 91 ? A. To a sub-syndicate. Q. The Mutual Life didn't get any bonds on account? A. They sold twenty millions at 91 and gave an option — Speyer sold them largely in Europe, and they sold twenty millions at 91 and gave an option on the remaining fiteen millions at 92%. I couldn't tell you exactly. Q. To whom did they sell the twenty millions at 91 ? A. That I couldn't tell you. They gave us our proportion, they sold to us, at 91. Q. They did? A. Yes, two millions and a half. That is why there are different statements of the syndicates, Mr. Hughes. That is why the two millions and a half were bought Q. Yes, but on the list you have given me, Exhibit 50 for identification, there is no statement of your having any Cuba bonds at 91. A. That is the second syndicate. That is here. Q. But there is no statement of your actually having taken any bonds ; there is a statement of your participation in the syndicate, but there is no statement of your having acquired any bonds at that figure. A. Will you let me read this? Q. Certainly. A. On February 15th, the treasurer Q. Pardon me a second. A. I have got the whole thing here. It is all here. I have got it. Q. Suppose you step down for a moment and talk with Mr. Beck and Mr. Timson, and get the exact fact with this record be- fore you, and then tell me whether this record is right or not, and if it isn't right tell me so I can have the exact facts. A. These two cover all of it. Q. Now, Mr. Cromwell, looking at this list, Exhibit 50 fo'r 520 Testimony of Frederic Cromwell identification, opposite the entry relating to Republic of Cuba syndicates, you will find that none are stated to have been taken from the syndicate. Is that an error? A. They were bought from Speyer & Company, whom we regarded as a syndicate. Q. This list is accurate in stating thtat no bonds were taken from the syndicate, that is, withdrawn, but that all that you took of Cuban bonds were bought at 92? A. Now, will you let me see if I cover it. Q. I want to get this record straight first. A. I don't think it is an error. He can't tell me anything about it, because I did the thing myself. Q. Go ahead and say what you did. A. We subscribed to five millions of bonds at 85. This was done with the Cuban govern- ment ; we were parties to it ; we couldn't get any more ; five millions was our share; didn't want any more. We had five millions of those bonds. Now, when that syndicate was got up it was decided by Speyer & Company, as the managers, that it would be wise in marketing those bonds to first get the price and satisfy the European market, and make the first syndicate ter- minate at 91, and sell the whole first five millions to the second syndicate at 91. Our five millions — this is a matter of bookkeep- ing — was sold at 91 ; at 92% twenty millions were sold. Now, if you will take the proportion of five and twenty millions, we were entitled to our same share, therefore, at 92I/2 we took two millions and a half — bought them. Am I right in the figures? MR. TIMPSON : I think you are mistaken. THE WITNESS : That don't make any difference. Q. It does make a difference. A. Then the fifteen millions came to a third syndicate that bought those. Q. At what price? A. 91 — 92V2 — what were the prices? 521 Testimony of Frederic Cromwell MR. TIMPSON: May I answer? MR. HUGHES: Certainly. Get it right. MR. TIMPSON : There was twenty millions of bonds sold at 91%. and the balance amount of the total of thirty-five milliion, fifteen million was sold at 92I/2. We withdrew four million bonds from that syndicate, taking the two millions and a half at 91% or 9 1 . whatever the price was, and two millions at 92%, Q. If you bought two millions at 91% and two millions at 92%, you didn't buy four millions at 92 9-i6ths. Even a lawyer can see that. The first thing I want to get before we go further is an accurate statement, and if you will take this list that you have furnished me and state on that list according to the facts, I will be much obliged. MR. TIMPSON : That list is in error, sir. I will have that list correct. We did not buy four million bonds. We withdrew four millions bonds. Q. Will you have that corrected? A. That is what I was asked. Q. Now, let us go back. The statement is, you withdrew four million bonds. Now, did you withdraw those from the first syndicate, or did you withdraw them from the second syndicate? A. From the second and third. Q. From the second and third? A. We were only allowed to withdraw two and a half millions. Q. You did not withdraw any from the first syndicate? A. No ; there were none withdrawn from the first syndicate. Q. In that syndicate, then, in which you were a participator 52?, Testimony of Frederic Cromwell to the extent of five millions, it was deemed advisable to sell the entire lot to the seGond syndicate at 91 and to divide the profits . A. No. Q. that accrued to the first syndicate by reason of the resale at a higher price? A. That was the condition on which we went into that syndicate. Q, Now, the Mutual Life g'ot its share of the profit? A. It did. Q. You got your share individually? A. Yes. Q. And who were the members of the second syndicate that bought the bonds at 91 ? A. I can't tell you. Q. Was the Mutual Life Insurance Company a participator? A. Two millions and a half. Q. Two millions and a half to the second syndicate. Were you individually a participator? A. Every man who participated in the first; simply one syndicate; simply one syndicate; it was a method of marketing the bonds. Q. We have called it two syndicates, and you will keep them separate for the sake of convenience? A. Every man who was a participator in the first syndicate was a participator in the same proportion in the second and third. It was really one syndicate. That really oughtn't to have been put down as three. Every man who had a participation in the $35,000,000 was a participator in the $20,000,000 that were sold at 91 — I think that is the fig- ure — and in the $15,000,000 that were sold at 92. Q. Then the transaction simply was that Speyer & Co. took $35,000,000 at 89, and marketed $20,000,000 at 91, and divided the profit, and then they had left $15,000,000, of which you withdrew — or your company withdrew — $2,500,000? A. We withdfew $2,500,000 the first and $1,875,000 the second; $4,000,000 of the two. You see the amount we withdrew from each syndicate — that was a condition when we went in, that we could withdraw that amount. 523 Testimony of Frederic Cromwell Q. You didn't withdraw any at 91 ? A. No, sir ! nobody did. Q. Then the entire A. One moment. We didn't with- draw any at the first price. Q. Now, at that price how many were sold ? A. The $35,000,- 000 were sold. Q. The whole $35,000,000 and not $20,000,000? A.' The whole $35,000,000 were sold. The whole $35,000,000 were sold. This is a method arranged by the syndicate managers. Said he, "I will tell you what we will do, we will sell this entire block of bonds at an advance of two points " I am just giving you roughly Q. Yes. A. Then we will sell $20,000,000 of them at an ad- vance of one point, and give an option on $15,000,000 at two points and a half. That was left to the bankers. Q. To whom did they sell the $35,000,000 at an advance of 1 per cent? To themselves? A. Yes, largely. Q. Then Speyer & Co. got the bonds at 89, and to establish a market marked them up two points to the same syndicate that bought them at 89, that syndicate taking them at 91 ? A. Well, now, I will tell you. I think it is fair to ask Speyer & Co. about that. I will give you all of our relationship with them, but I can't tell. Q. You must have known how it would affect the Mutual Life Insurance Company? I know what we did. I know we drew two millions and a half out of the one and out of the other syndicate, according to the agreement set forth in writing, and then drew four millions of bonds. Q. Where is that agreement in writing? A. That is here. Q. Please produce it. (Produced by the witness). Q. That is No. 32? A. We have every syndicate agreement here. Q. Thank you. S 2 4 Testimony of Frederic Cromwell MR. HUGHES : There has been so much said about this on the record that for the purpose of adequate correction I will offer the agreement in evidence. (Marked Exhibit No. 52.) THE WITNESS: Will we get that back? These are our only copies. i MR. HUGHES : Oh, yes, you will get it back. Q. This agreement was made February 16th, 1904? A. Yes, sir. Q. It recites that Speyer & Co. theretofore had purchased from the government of Cuba the thirty-five millions of bonds and that they had agreed to sell to a syndicate, of which they are to be the managers and in which the subscribers desired to join twenty million of these bonds at 91 and accrued interest with the option to the syndicate until September 1st, 1904, to buy the remaining fifteen millions at 92^ per cent, and accrued interest. Now, with that recital before you you see that Speyer & Co. had bought the entire thirty-five millions ? A. Yes, sir. Q. And in doing so they had, as you have already testified, the backing of a syndicate and you individually and some other indi- viduals and the Mutual Life Insurance Co. were participators in that original syndicate which underwrote the purchase by Speyer & Co. of the entire issue of Cuban bonds. Now, having in that way acquired the Cuban bonds, Speyer & Co. became the syn- dicate managers of the syndicate, the subscribers of which made this agreement, and those subscribers agreed to take their pro- portionate subscriptions, aggregating twenty millions for twenty millions of bonds at 91 and got an option to take all or any part of the remaining fifteen millions at 92 y 2 per cent. Is that it ? A. That is it. S2S Testimony of James Timpson Q. Now, how many bonds did the Mutual Life Insurance actually withdraw under that at 91 ? A. You see eventually we only withdrew three millions. Would you allow Mr. Timpson to tell this? MR. HUGHES: Step aside one minute, Mr. Cromwell, if you prefer, and Mr. Timpson can go on. JAMES TIMPSON, called as a witness, being duly sworn, testified as follows : BY MR. HUGHES : Q. What is your occupation, Mr. Timpson? A. Assistant manager of the Mutual Life, sir. Q. How long have you been such? A. Since October or No- vember, 1902. Q. You are familiar with this Cuban bond transaction? Yes, sir. Q. This original syndicate was merely an underwriting syndi- cate, that is to say, Speyer & Company took all the issue of bonds from the Cuban government and they had an underwriting? A. The original syndicate I should call a purchase syndicate, sir. Q. Yes, but the relation of the subscribers to that syndicate was the relation of underwriters? A. The original syndicate, as I understand it, was not an underwriting; it was a joint pur- chase by Speyer & Company, and five million the Mutual Life had were to be without commission from Speyer; it was a joint purchase. Q. Then the participators of the original syndicate were co- purchasers with Speyer & Company of the entire issue of five millions of bonds? A. I should say so. 526 Testimony of James Timpson Q. Which, after the purchase, stood in Speyer's name? A. I don't know in whose name they stood. Q. They were the parties who stood in the transaction? A. Yes. Q. Then this agreement was entered into which has been marked as Exhibit 52, pursuant to which the subscribers agreed to take twenty millions of those bonds at 91, with an option to take all of the remaining part at 92J4, in each case with accrued interest? A. Yes, sir. Q. In the first place what was the participation of the Mutual Life Insurance Company in that syndicate evidenced by this agreement Exhibit No. 52 ? A. They were entitled to two mill- ions and a half on the first option, and $1,875,000 on the second option as shown on that syndicate list you have there. Q. How many bonds did the Mutual Life actually withdraw in virtue of that syndicate participation ? A. Four million of bonds, two and a half million on the first syndicate, and a million and a half on the second syndicate. Q. Don't say, if you will pardon me, the first syndicate and the second syndicate. You mean you withdrew two and one- half millions on this Exhibit 52 and the twenty million subscrip- tion ? A. That is right, sir. Q. And you withdrew a million and a half under the option referred to in the same agreement? A. That is right, sir. Q. Then this list is inaccurate in stating those were purchased from the syndicate? A. No, sir, I think not. Those bonds are headed taken on account of the syndicate. Q. What does that mean? A. Taken from the syndicate to hold on syndicate call; not actually purchased. Q. When you take bonds purchased on the syndicate call you pay the syndicate for them and hold them subject to recall by the syndicate on repayment of the pro rata amount of the bonds called for? A. Yes, exactly. S27 Testimony of James Timpson Q. When you say under the column "Bonds purchased from syndicates" that a certain number were withdrawn, they may have been bought in the open market? A. Not if it says pur- chased from syndicate. Q. That means withdrawn? A. If it says purchased from syndicate. Q. When it says purchased from other sources, what does that mean? A. That may mean purchased in the open market or any other sources. Q. Doesn't the Mutual Life Insurance Company sometimes buy bonds from the syndicate managers at the price at which they are offered to the public? A. Yes, sir; in all cases. Q. What did the Mutual- Life pay for these Cuban bonds, four millions of which were taken? A. They paid the price as stated in the syndicate agreement, if I am not mistaken — I am giving you this entire from memory — there was a commission charged by Speyer & Company as managers ; I don't know whether the prices were 90^ or 9 1 3^ or 9 2 as you read them, but the result was we paid for them as described in the agreement, and the net price was 92 9-16. Q. What do you mean? A. What anyone paid. Q. What do you mean by what anyone paid, you mean any- one in the syndicate ? A. Exactly. We had a right in the syn- dicate agreement to withdraw our bonds. We withdrew our bonds and paid the price the agreement provided for. Q. Then was there a sharing in the profits of the syndicate? A. There was a sharing in the profits of the syndicate. No, not at that time, sir, I think. Those bonds were not offered. We didn't withdraw all our bonds; if you notice there was 375 bonds not withdrawn and those not withdrawn were sold to the public later. Q. Yes. At what price? A. I think the issue was made at 97; it may have been higher; I don't remember. 528 Testimony of James Timpson Q. What was done then in the distribution of the profits so made ? A. We received our syndicate profits. Q. How much were they? A. There are two items of syn- dicate profits, sir; on October 5th, 1904, we received $172,531.32. My recollection is that was the profit we received on the original purchase. Q. What do you mean by the original purchase? A. I mean the purchase of the five millions of bonds. Q. That was your share of the profits made on the original purchase of the bonds from Speyer & Company in which you participated to the extent of five millions? A. Yes, sir; that is my recollection of it. Q. Are you quite sure of that? A. I think I am right on that, sir. Q. Did you get subsequently further profits? A. We did. Q. To what amount? A. We received profits on October 19th and December 13th. On October 19th syndicate profit of $5,826.36; on December 13th syndicate profit of $1,341.42. Q. Those statements of profits were made to you from time to time as the sales to the public progressed ? A. No, sir. Q. When were they made? A. They were made — I don't understand what you mean by a statement of profits. Q. Well, when you got checks for this amount you got a state- ment of profits ? A. We got a check from Speyer & Company stating they were profits. We never received any statements. Q. Did you ever ask for any? A. No. sir. Q. When you got these checks with a statement that they were profits you understood that they were received from the sales that had been made by Speyer & Company? A. You are re- ferring to these last two items ? Q. Yes, sir. A. Yes, sir. Q. Now, in fixing the price at 92 9-16 for the bonds do you fix that by taking the amount received as profits? A. No, sir. 529 Testimony of Frederic Cromwell Q. That is the price you originally put in? A. That is the price we paid for the bonds. Q. Where in this statement do the profits which you have stated appear? A. You will find them, sir, under the heading "credited securities account." Q. I see there these three items of profit are applied to these three participations, the original five millions and two million five hundred thousand which was part of the twenty million subscription and one million eight hundred and seventy-five thousand under the option? A. I beg pardon. That is headed credit security account. These profits were credited to reduce the price of the securities. They were credited not against five millions, but credited against the four million of bonds to re- duce the price on our books. Q. But it doesn't reduce the price as stated here? A. That just shows the price to show what became of those profits. FREDERIC CROMWELL resumed the stand. BY MR. HUGHES: Q. What was the amount of the' profit which you received, Mr. Cromwell, on the Cuba participation? A- I don't remember. Q. Have you a statement here of those matters? A. No; I can have it made up. Q. I thought you said it had been made up? A.. Oh, the individual profits— undoubtedly ; I haven't it here. Q. Well, will you kindly have that for me? A. Yes. I re- sent going through my private books to bring it out, I am frank to say, but I will do it. Q. I deem it my duty, Mr. Cromwell, or I wouldn't ask you. A. Yes. I don't at all like to go through my books for five years, but I will do it. 53° Testimony of Frederic Cromwell Q. You have already stated it and asked me to go to the very bottom of it; invited me to put it to the severest scrutiny, so don't blame me for accepting your invitation. A. I don't like to have my own affairs gone into, still I will do it. It isn't pleasant is what I mean, not that I am a bit ashamed of it; but it isn't pleasant. Q. Well, let us look at the item of Navigation syndicate, April 24th, 1902. A. What number is that. Q. That is No. 21. The Managers were J. P. Morgan & Company. The Mutual Life had a participation of $1,000,000. Were you a participator in that? A. I was not. Q. The Mutual Life took from the syndicate its entire interest of $1,500,000, paying therefor that amount at par, did it not? A. It did. Q Now does it carry that amount upon its books? A. Yes, sir. Q. In what way? A. Pardon me until I get the place. I would rather read the exact record if you will allow me. I don't seem to find it here. The Committee considering that matter made up its mind that the future was, while promising, perhaps, in some regards problematical and instructed the treasurer, of which we have the minute, to put $500,000 of it to profit and loss and to put the balance to suspense account, nine hundred thousand odd dollars, to suspense account, and that is where they stand now. That amount in the suspense account $900,000 has been reduced by $363,320 interest. In other words the bonds are paying their interest, but that stands divided in that way. Q. You have in other words charged $500,000 out to profit and loss and are carrying that other in suspense account as a doubtful asset awaiting the results? A. Yes, sir. That is the only charge we have in the suspense account. It is an account which is on our books in full form, like all the other, but not S3i Testimony of Frederic Cromzvell inspected by the insurance department It is simply as a sus- pense account. MR. BECK: As you brought out the International Naviga- tion isn't it fair to show what the profit was on the Cuban bondsr MR. HUGHES: Why, yes, I don't mean to suggest by calling attention to some of these transactions that the business of the companies, either the New York Life, the Mutual. Equitable or any of the companies, has not been conducted very profitably and that their assets are not growing at a tremendous rate. That is all right, and I would be glad to have any statement he wishes tc make about those profits appear on record. THE "WITNESS: I don't care about the exact figures, but we made close to half a million dollars. Q. On the Cuban bonds. Now, the exact amount you made was about $354,000 exclusive of what you got on youi syndicate participations? A. Yes. I don't know whethei that takes in the market value. Q. No, that doesn't. That is what you actually got on a resale of three millions or four millions? A. We have got a million of them to-day which are demanded at a 108. There is 3 great demand at 108, on which the profit must be very large. Q If you were to take the market value of the Cuban bonds which you still hold and add that to the profit you actually realized on the Cuban bonds which you sold, you would have a profit of $530,000? A. As much as that. Q. And in addition to that you have already received moneys from the syndicate participations of about $180,000? MR. BECK: That was credited to reduce the price. MR. HUGHES: That was credited. A. Leave out the $180,000. 532 Testimony of Frederic Cromwell Q. So anyway $530,000 we have. MR BECK: Yes, leave out the $180,000, THE WITNESS: Leave out the $180,000. Q. So it was a very profitable transaction? A. Yes, we "bought right from the government Q Now take the syndicate, Chicago, Burlington & Quincy purchase, that is No. 16, J. P. Morgan & Company, the syndicate's -managers, participation of the Mutual Life Insurance Company $3,000,000, bonds taken from the syndicate $675,000 at par, bonds purchased from other sources $6,000,000 at prices ranging from 94.44 to 99.15. Who were the parties from whom you bought those bonds? A. Well, that would have to be taken from the books — they are brokers; different brokers. Q. By the way. I haven t the list of purchases and sales back of 1894. Have you it here? MR. BECK: Yes, sir. Q. Will you let me have that? A. That list, Mr. Hughes, will show that. MR. HUGHES: These lists now handed me are transactions from 1900 to 1903, inclusive. Q. If you look at the purchases in 1901 under date of August 5th, 6th and 8th, and also under date of September 3d, 4th, 5th, 6th and 9th you will find ■ A. Pardon me, that is what? Q. You will find a series of purchases recorded of Northern Pacific, Great Northern, C.B &Q. collateral 4 's. Thosewerethe securities which were floated by the syndicate managers of the 533 Testimony of Frederic Cromwell Chicago Burlington & Quincy purchasing syndicate to which reference has been made? A. Yes, sir. Q. Are they not? A. They are. Q. And these purchases were made from J. P. Morgan & Com- pany, who were the syndicate managers? A. They were, but they were made from them as bankers and not as syndicate managers — as dealers. Q. I understand, on the same terms at which they were offered to the public? A. Well, I suppose we probably got a little better than the general public, because we bought such blocks of bonds, that is all. Q. Well, the blocks are not so very large. Here, for exam- ple A. Well, there is one good sized purchase $1,403,000, on August 5th, but there are also in September several small purchases, $91,000, $57,000, $22,000, one as low as $2,000? A. Without doubt we left an order asking them to buy up two millions of those bonds at the limit and they probably sold them for us. Q. You hardly mean left an order with them to buy, because they were the sellers? A. Well, they had all sold at that time. I don't know, but they probably had distributed the bonds. Q. Had they? A. They had probably distributed the bonds, not sold but distributed them. Q. Let us see if that is the fact. MR. HUGHES: Have you the syndicate agreement of the Chicago, Burlington & Quincy purchase that is number 16? (Produced by Mr. Beck.) MR. HUGHES: Mark this for identification. (Marked Exhibit 53 for identification.) 534 Testimony of Frederic Cromwell Q. Now this syndicate, the C. B. & Q. Purchase, was an underwriting syndicate, was it not? A. Yes. Q. J. P. Morgan & Company were to make purchases from time to time, on account of the syndicate? A. That is right undoubtedly. Q. And they could make sales from time to time on account of the syndicate? A. Until they got — in an effort to get in all the collateral security, wasn't that it, Timpson? Eventually gathered in the bonds, consummating the whole purchase. Q. That is correct, isn't it? A. The agreement shows it there. Q. I don't want to read the whole agreement on the record. I want to get a minute of it so we can understand it. MR. HUGHES: Mr. Cromwell knows so little about these syndicate agreements, and we have such absolute confidence in your fairness, that I would suggest that whenever you want to read one of those agreements and not to spread the whole thing on the record, if you would give the substance on the record we would be glad to have you do so. MR HUGHES: If I can. Q. You actually withdrew or received from the syndicate, according to the statement here, $675,000 of these bonds. That appears to have been at par. Can you explain whether that was in exchange for stock which the Mutual Life had previously held and which was to be acquired and paid for through this syndicate operation? A. No, I don't know the origin of them, no sir. Q. How much of the stock of the C. B. & Q. did the Mutual Life hold prior to the carrying Out of this syndicate arrange- ment for the purchase of the stock of that road and the issuing against it of collateral trust bonds known as Northern Pacific 535 Testimony of Frederic Cromwell Great Northern? A. Not a share, if I recollect right of C. B. & Q. stock. Q. I find here in the entry A. It is getting some years back, but we didn't have a share of C B. & Q. stock. Q. I find here under the entry of 1901 two millions Northern Pacific-Great Northern-C. B. & Q. collateral 4s due 192 1 at 19.15, exchange. That looks as if there had been that amount stock exchanged for that amount of collateral trust bonds? A. Then we bought the stock feeling it was a profitable thing to exchange in that way ; but not to hold it Q. Is that a conjecture, or is that a fact? A. That is a con- jecture. We never were long holders of C. B & Q. stock. Q. What was your individual participation in the C. B & Q purchase? A. I don't remember; I will give that to you. Q. Now under the' head of credit security account I find an entry of credit of profit $74,000. Was that the profit that was received by the Mutual Life on the C. B. & Q. transaction? A. That is a profit credited to security account. Q. Well, was that money actually received? A Actually re- ceived. Q. Of three millions? A. Of three millions. Q. As a matter of fact six millions were bought in all or bought from other sources? A. From other sources Q. And were those bought by J. P. Morgan & Company upon the request of the Mutual Life or were they bought from J. P. Morgan & Company as syndicate managers? That is, had J. P Morgan & Company acquired that for the syndicate? A. How they acquired them I don't know, but we bought them from J. P. Morgan & Co. as bankers. We always bought from out- side sources. We simply and undoubtedly went to them because that was the channel through which we could get a large block of those bonds. Q. Take the Oregon Short Line participation, No. 24, of July 536 Testimony of Frederic Cromwell 17th, 1902. The participation was $750,000, the bonds pur- chased from other sources were $2,000,000. Were those pur- chases made from the syndicate managers? A. They were bought — simply the entry of the committee here was in 1902 treas- urer was authorized to buy 20,000 at 94; the general com- mittee authorized the Treasurer to increase the Company's hold- ings in his discretion, and afterwards in 1902, January 27th. the Committee authorized to buy from Kuhn Loeb & Co. one million at 95, also to exchange with said firm one million listed for equal amount of unlisted; committee authorized to exchange Com- pany's holdings of one million at 102^ for like amount of Ore- gon Short Line refundings That was the transaction, though they were all — the balance were bought. Q Were they bought as a part of the public offerings by trie syndicate manager of Kuhn, Loeb & Co.? A. No they were bought August, October and January; they were bought in the market, Mr Hughes Q. I know but bought in the market from syndicate managers? A. I should think probably. That is all I can say — Kuhn. Loeb & Co. Q. Well, I find in youi list of purchases under 1902 in October Oregon Short Line A Kuhn, Loeb & Company. Q. From Kuhn, Loeb & Co. several purchases. That was the time of the public offerings, wasn't it? A. The time of the public offering was in July 1902, and we bought August, October and the following January, which was six months rlterwards. We bought from Kuhn Loet & Co. a block of one million on January 27th, 1903. MR. BECK: There was no public offering, Mr. Hughes, of this. Q. Have you the syndicate agreement of the Oregon Short Line, No. 24? A. It is more than likely; in most of these cases 537 Testimony of Frederic Cromwell we go to the bankers and place them first because we can get the bonds from them. Q. Mr. Timpson suggests that those bonds were offered to the stockholders at 90, and there was no public offering at all. Is that accurate according to your recollection? A. I don't re- member that. I know we bought them. I don't remember whether it was a public offering or not. It is sometimes, and sometimes not. That is a matter of memory. MR. HUGHES: The syndicate agreement relating to the Oregon Short Line is produced and we will have it marked for identification - (Marked Exhibit 54 for identification.) THE CHAIRMAN: The Committee will now take a recess, and I want to announce a change in the hour, 2.15. From 1 until 2.15 sharp. (Recess for luncheon.) 538 AFTER RECESS. FREDERIC CROMWELL resumes: BY MR. HUGHES: Q. Mr. Cromwell, you have produced in accordance with our request a statement of your individual syndicate participations showing the profits derived by you individually from the same. during the last five years? A. Yes, sir as taken off by my young man. He has gone all through my books Q. And we may take that to be correct? A. Yes, sir MR. HUGHES : I offer that in evidence, and will read it upon the record. (The paper was admitted in evidence and marked Exhibit No. 55- ) Q. Referring to the first item on this statement, Republic of Cuba, original syndicate participation, $100,000, profit $3,450.63 those profits as I understand were your individual share of the profits derived by the syndicate from the turning over of the bonds by the original syndicate to the syndicate formed under the agreement which has been read in evidence. A. Yes, sir. Q The Mutual Life Assurance Company participated in that second syndicate which took the bonds from the first syndicate, and furnished a portion of this profit to the extent of $2 500,000, as I understand it? A. I would not put it that way The Mu- tual Life did exactly what I did„ and I did exactly what the Mutual Life did. They subscribed a certain amount in the first 539 Testimony of Frederic Cromwell syndicate and that gave them a privilege of a certain amount in the second syndicate and an option of the syndicate ; in fact , the first syndicate was constructed in that way. Now, I cannot see how my subscription affected — they withdrew four millions cf bonds and kept them. And they have one million now. I cannot see myself — I am ready to be shown — how my subscrip- tion affected them in anyway. I did just what they did in the syndicate. Q. Without drawing any inferences or forming any conclusion in regard to the matter, but simply for the purpose of eliciting the facts, I want to know how this profit on the original syndicate participation was derived? A. It was undoubtedly the deter- mination on the part of the bankers that the purchase of 89 warranted the marking up of the cost to 91. I have not the figures exactly. Q. Yes, but there was actual money obtained for distribution, and the Mutual Life Insurance got its share of $172,531.32, and the individuals got their shares. Your original share in the original syndicate being $3,450.63. Those profits divided on the original syndicate were the result of the taking on by the second syndicate under the syndicate agreement in evidence. They must have been. And the Mutual Life participated in that second syndicate as you did and several others, and the Mutual Life participation being $2,500,000. A. Yes, but the subscription was two syndicates at one time Q. Pardon me. When the Mutual Life Insurance Company participated to the extent of $2,500,000 in that syndicate which took over the original syndicate it withdrew those bonds and paid to the syndicate manager at 91 for them, did it not. A. Yes, sir. Q, Thereby furnishing a profit to the members of the original syndicate, that is, furnishing a part of the profits? A. The Mutual Life Company was entitled, of course, not to ask the bonis, but to take its profits, as did the others 54° Testimony of Frederic Cromwell Q. Please do not let us reach any arguments, or inferences, but get at the precise facts. When the Mutual Life subscribed to the extent of $2,500,000 to the second syndicate it withdrew its bonds to that amount at 91, the price at which the second syndicate was entitled to take the bonds. A. Yes. Q. And by withdrawing them at 91, the original syndicate having acquired them at 89, the Mutual Life thus furnished a portion of the profits which the original syndicate divided? A. Yes. Q. And similarly when you went into the second syndicate at $50,000 you withdrew bonds, did you, to the extent of $30,000? A. To the extent of $50,000. Q. At 91. What? A. At 91. Q. Thereby paying for $50,000 at 91 you furnished a part of the profit of the original syndicate which was divided? A. Yes. Q. And so did everybody else who participated in this second syndicate, and who paid the second syndicate at the rate of 91 for the bonds so subscribed for? A. Yes. Q. And that profit of the original syndicate thus derived has been distributed ? A. Yes. Q. And the Mutual Life Insurance Co. got its share according to its subscription of $50,000,000 to the first syndicate, which amounted to $1 7 2,53 1 .3 2 ? And you individually got your profit which amounted to $3,450.63 on your original participation in the original syndicate of $100,000? A. Yes. Q. Now, then, the second syndicate made a profit, and as we have already seen from the evidence, this second syndicate which took the bonds at 91, or 20,000,000 at 91, upon those 20,000,000 bonds made a profit in which the share of the Mutual Life In- surance Company was $5,826.36? A. Yes, sir, that is right. Q. That being the share of the profits on the second syndicate to the Mutual Life by virtue of its participation to the extent of $2,500,000. Now, you participated in this second syndicate S4i Testimony of Frederic Cromwell individually to the extent of $50,000, and you received in profit $2,422.49. Now, the profits that were thus derived by the second syndicate were derived from a sale of the bonds by the syn- dicate manager in the market, were they not ? A. That it would be impossible to say. I suppose so. That would be the Q. That would be the natural inference? A. The natural inference. Q. Now, there was an option to this second syndicate to sub- scribe at 92^ for the remaining 15,000,000 of bonds issue ? A. Yes. Q. And the participation- A. No, don't put it that way. The remaining 15,000,000 had an option to sell at 92^ and they were sold at 92^ and the people who were in the syndicate had their share in that sale. It was not an option to sell. Q. It was an option on the part of the syndicate to take A. Yes. Q. (Continuing) at 92^, according to their subscriptions, the remaining bonds after the first 20,000,000 had been sold? A. Well, the meaning is the same — no, it was an option on the part of certain people to buy, and they signified later their determination to buy. Q. The Mutual Life availed itself of that option and par- ticipated to the extent of $1,875,000? A. Yes. Q. So that by its agreement to take at 91 it participated to the extent of $2,500,000, and by its availing itself of the option to buy at 92^ it participated to the extent of $1,875,000, making the aggregate of the two $4,375 .000. Then it withdrew four millions, leaving $375,000 to be sold for the syndicate managers, and the profits which I find opposite these items, of $5,826.86 and $1,341.42 were the profits derived on the sale of the $375,000? A. Well, Mr. Timpson can tell better than I. MR. TIMPSON: Yes, that is right. 542 Testimony of Frederic Cromwell Q. That is the understanding Mr. Timpson has given me. Does that accord with your understanding? A. Yes, I know we sold them Q. No, the syndicate sold them. That is they sold them, but the Mutual Life Company did not sell them. A. Yes, the Mutual Life sold $375,000. Q. Hold on. You withdrew four millions? A. Yes; that leave? $375,000. Q. That leaves $375,000 that the Mutual Life did not with- draw? A. Yes, they did withdraw Q. No, that they did not withdraw ? A. Well, the principle of that question is that they simply sold the bonds, they took them Q. Those were sold by the syndicate managers. Of course, if you did not withdraw them you did not have the bonds to sell. You only withdrew four millions in all? A. Yes, it was not necessarily by the syndicate managers. At that time the Cuba bonds became a widely quoted thing and Q. Your counsel nods assent to what I have said. Do not let us have a dispute about a thing which is perfectly clear. A. All right. Q. You only withdrew four millions of bonds, and you were entitled in this participation in the second syndicate, taking the option with the second syndicate, to $4,375,000? A. Yes. Q. But there were $375,000 left for sale which were sold; that is, left for sale on your Mutual Life Company subscription? A. Yes. Q. I suppose there were other people in this that did not take these bonds, and that left some of their bonds in the hands of the syndicate managers for sale, and when the bonds were all mar- keted, the syndicate managers withdrew the profits that were made on those bonds? A. Yes. Q. And these moneys I have referred to were the Mutual Life 543 Testimony of Frederic Cromwell Company's share of those profits and the moneys that you got on your individual subscription to this second syndicate of $50,000, to wit, $2,422.49, was your individual share of those profits thus derived? A. Yes. Q. Now on this participation of the $50,000 which you in- dividually took in this second syndicate, did you withdraw all your bonds or didyou leave some of those for sale bythesyndicate managers? A. I don't remember. I don't remember. I have not any of the bonds now and I have sold them all, but as to whether I sold them then or not I cannot say. Q. Now the Mutual Life having thus taken four millions of the bonds afterwards sold three millions of them ? A. Yes. Q. And sold them at a large profit ? A. At a large profit. Q. Which I have already noted, $354,813.89, which however includes the credit already given to the security account -of profits on the syndicate amounting to about $179,000, leaving about $165,000 which the Mutual Life made on the resale of the three millions? A. Yes, and we have a million left. Q. Did you also sell your bonds which you took under the syndicate A. I have sold them all. I cannot tell you when. Q. You don't knowwhatyou sold orwhatyoumade on the sale? A. That is all I made on the Cuba bonds from beginning to end. I told them to pick out the amount. Q. This amount you have on Exhibit 55 is the amount you got from your syndicate participation, is it not? A. Yes, sir. Q. And that does not include what you may have made later when you came to sell your bonds that you had withdrawn, if you did withdraw and sell them? A. I think the inference is that I did not withdraw them. Q. I see. That would seem to be the inference. A. Yes. Q. In other words, you took a participation of $50,000 and the bonds that you were entitled to were not withdrawn but were sold, and the proceeds went into the general fund out of which 544 Testimony of Frederic Cromwell you and the Mutual Life Insurance Company got your respective shares of the profits? A. It would seem to me so. Q. Now the next item I find here, Pennsylvania Railroad $yi per cent, convertible bonds, in which no profits are mentioned, is that because that has not been closed up ? A. It has not been closed up. Q. That is a recent transaction? A. I have a good deal of Pennsylvania stock of my own, and I have not closed that up but — well, as it happens in that I bought $50,000 of those con- vertible 3s, and I have them in my box. Q. When you say you have bought $50,000 of the converti- ble— 3^'s A. Yes. Yes, 3^'s. Q. (Continuing) of the Pennsylvania, do you mean that those are the same bonds which are referred to in this list as the amount of your participation in the syndicate. A. That is the same amount — no. Q. Not the same bonds. A. I sent down there when they offered the bonds for sale and I subscribed for these. Q. You mean you bought them on the public offering? A. No, I will tell you exactly. They offered these, and the com- pany took a large subscription and I took $50,000 and I wanted the bonds, and as soon as they were offered — it was a public offer, or offered openly I mean, by Morgan & Company and Kuhn, Loeb & Company, and as soon as they were offered I sent down for $50,000, getting by that the lowest' price, getting the bankers' commission off on my purchase. Q. But that did not affect your original participation in the syndicate? A. No. Q. Because you did not withdraw the bonds? A. No. Q. That participation you still have? A. Yes. Q. And you will be entitled to your share of the profits made by the syndicate managers as the result of the public offering ? A.^Yes. 545 Testimony of Frederic Cromwell Q. That matter is the same as the one referred to on the Mutual Life list of syndicate, Exhibit 50 for identification, No. 40, is it not? A. No. 40? Q. As follows, November A. Hold on. Is that the same? No, I don't think it is. MR. TIMPSON: It is No. 46. Q. No. 46, March 30th, 1905, Pennsylvania Railroad 3^ 10 year convertible, syndicate managers Kuhn, Loeb & Company, participation five million dollars, syndicate profits June 12th, 1905, $68,542.52, which is credited to the security account; apparently the Mutual Life has realized a profit there? A. They have had their notification and I have not. Q. The Mutual Life got that participation to the extent of $3,000,000 through J. P. Morgan & Company and to the extent of $2,000,000 through Kuhn, Loeb & Company; is that right? A. That is right. Q. Were they both interested in the management of the syndicate? A. Both of them. We applied to each one and got all we could — got all we wanted. We wanted five millions. Q. I find that the bonds taken by the Mutual Life were $4,569,- 500. Were those withdrawn or purchased from the syndicate managers? A. Those bonds are to be withdrawn as the syndi- cate managers call for them. The whole issue is $100,000,000 is it not, and they are gradually selling them. Q. Did you follow my question? I find on the list of the Mutual syndicate operations that the Mutual Life has taken from the syndicate $4,569,500. Now the Mutual Life got those bonds? A. Yes. Q. And paid for them the amount stated? A. That is the amount in money. Q. At par? A. Oh no. The price is not par. 546 Testimony of Frederic Cromwell Q. Just look under the head of price there at the bottom. A. Yes. Q. Now were those bonds withdrawn by the Mutual Life under its allotment by virtue of the syndicate participation, or were they bought on the public offering? A. Those are the bonds, \vc have got left after the withdrawing? A. We have not withdrawn any bonds. Q. You have not withdrawn any? A. No. Q. How did you get those bonds? A. This is one of the syndicates which was too large, the bonds did not sell. Morgan & Company, and Kuhn, Loeb & Company did not sell, and we had to take our share, and then the sale still being continuous, we are liable to be called on for the bonds. Q. Then as I understand, instead of withdrawing them orig- inally for investment, you were called upon for this amount of money? A. Yes. Q. And you paid that amount of money to the syndicate managers, according to the agreement? A. Yes. Q. But have )-ou the bonds? A. Yes. Q. And the bonds are subject to withdrawal when called for by the syndicate manager ? A. Until the syndicate is closed. Q. Until the syndicate is closed. In other words, you put up the money to the extent stated, awaiting the public sale of the bonds at the close of the flotation ? A. Yes sir, of course, receiving interest. Q. You have not been called upon to the full amount of your subscription? A. No. I will say right here and ask you to bear in mind, of course the matter of one hundred millions of bonds is a serious thing to place. It is a vast number, and the reason we took that interest and why we are particularly anxious among other things to further thess s because we are among the largest 547 Testimony of Frederic Cromwell stockholders in the Pennsylvania Railroad , we have a great in- terest in the Pennsylvania Railroad. Q. Oh, I see. What is the amount of your holdings in the Pennsylvania Railroad ? A. Five millions at par, a par value of five millions. Q. Then this profit which is put opposite of Pennsylvania $%5 No. 46 amounting to $68,542.50 is a profit that has been realized thus far through the public sales ? A. On what has been sold. Is that it, Mr. Timpson? Q. An explanation has been made by Mr. Timpson off the record. Let us see if we have it right, for the purposes of the record. The call was made at par and there was a commission allowed of s.% per cent., so that you made your check, that is the Mutual Life Company's check, to the syndicate managers accord- ing to the call and received a return equal to 1^ pei cent., which you credited against the price ? A. It is merely a book entry. Q. Let Mr. Timpson state just what it was. MR. TIMPSON: The Mutual Life had an interest of five mil- lions in that syndicate, and the bonds were offered to the stock- holders and the stockholders took about ten millions of the one hundred millions, leaving about ninety millions not taken. The Mutual Life participation of the five millions they subscribed which were not taken by the stockholders was about four and one half millions. When that condition arose, Kuhn, Loeb & Com- pany received a check from the Railroad Company for under- writing the bonds and sent it to the underwriters, of one and one- half per cent, which they took up. We took up four and one-half millions and received one and one-half per cent, commission, which was credited to security account. When they take bonds back from us, they take back bonds from us at par and interest less that one and one-half per cent, and the profits if there are any will come when the syndicate is closed. 548 Testimony of Frederic Cronnvell Q. Then the one and one-half per cent, is really a credit against this $4,569,500? MR. TIMPSON: That is as I understand it. Q. Being one and one half per cent of that amount? A. Yes. Q. Now did the Mutual Life, when the offer was made by the Pennsylvania Railroad to its stockholders take any of these bonds direct? A. No, we have not subscribed for any direct. Q. The Mutual Life did not avail itself of the option as stock- holders to take bonds? A. That is an exact case in point. We did not for this reason Q. Let us get the facts first and then the explanation later. A. We did not. Q. Why not? A. Because we are such large stockholders in the Pennsylvania system that we did not wish to increase it. Q. Yes, but you took it through the syndicate ? A. Yes. Q. How many bonds would you have been entitled to take by virtue of your stock interest in the Pennsylvania Railroad, irre- spective of any syndicate operation? A. I would have to see the syndicate paper for that. Q. Have you got that No. 46 ? MR. TIMPSON: I will get that in a mom-mt. Q. By the way, that would not be shown by the syndicate paper because the syndicate paper related to an agreement to take the bonds which the stockholders have not taken. A. We are entitled by this agreement to take stock at 1 50 at any time. Q. That is another proposition. Mr. Timpson states that the proportion that the Mutual Life would have been entitled to subscribe for by virtue of its ownership of stock in the Pennsyl- vania Railroad, was about $1,666,000. Now, at what price would you have been entitled to subscribe for that amount? A. ISO- 549 Testimony of Frederic Cromwell Q. What do you mean by that? A. This is convertible bond, convertible into stock. Q. Just wait a moment. A. We had no right to subscribe Q. We are not dealing now with the convertibility of these bonds into stock; we are now dealing with the right of the Mutual Life as a stockholder in the Pennsylvania Railroad originally to take bonds, and I understand from Mr. Timpson that you had a right to the extent of $1,666,000, and I am informed further by him that you had the right to take those at par. Is that right? A. Yes. Q. Will you explain why it was you did not avail yourself of that, but on the contrary preferred to enter into the syndicate participation? A. Simply for the reason that we at that time did not desire to own any more Pennsylvania Railroad bonds and were glad to get any profit that might come from this. Q. But as a matter of fact you stand now with $4,500,000 of these bonds? A. They will be sold. Q. Well, but in the meantime you are taking them awaiting the sale ? A. We are getting 3 % per cent, for our money while we are doing it. Q. By getting $% per cent, you mean, you are getting the regular coupon interest? A. Yes. Q. Which you would have got on any bond which you would have taken in the first instance? A. But we avoid buying any more of the bonds unless we have to. Q. Of course, if you had taken your $1,666,000 of the bonds you could have held them and marketed them if you had seen fit? A. We did not think it' was. Q. And you could have gotten your interest in the meantime according to the coupons. Was it because you wanted as the Mutual Life Insurance Company, to aid, so far as you could, the operations of the syndicates which would be formed? A. That is it, and not take any more bonds unless it was necessary. 55° Testimony of Frederic Cromwell Q. Were you individually a stockholder in the Pennsylvania Railroad? A. I am now considerably; that is, in the name of my family. Q. Did you take any bonds under that syndicate? A. I bought $50,000 of these bonds. Q. You have a participation in the syndicate of $50,000 and you also bought as you have stated $50,000 of the bonds at the public offering. I am now asking you whether by virtue of your right as an individual stockholder, you took before this syndicate operation any of the bonds as a stockholder? A. I did not. Q. You likewise preferred to take whatever bonds you were "willing to take through the syndicate operation? A. I pre- ferred to buy them at the lowest price during the pendency of the syndicate. It is a matter entirely — to get them as cheaply as I could. I bought them from Kuhn, Loeb & Co. with one-eighth or some small percentage, and I will get the profit which I will de- duct from the cost of the bonds. I was simply trying to get them as cheap as I could. Q. You thought you could get them cheaper through the syndicate operations than you could in the other way? A. I did think so. Q. Are you a Director of the Pennsylvania Railroad? A. No. I believe the Pennsylvania Railroad only has directors resi- dent in the State. We are not represented on the Board even. Q. So, in the case of the Mutual Life Co. so far as these Penn- sylvania convertible 3 }4 bonds are concerned, it is the intention to allow all the bonds to go to public sale, and realize the profit through its syndicate participation? A. Yes. Q. And so far as you individually are concerned A. Now, we may vary, the intention may vary. Q. That has been the intention? A. The intention may vary. An illustration may show you particularly. Pennsyl- vania stock sold a short time ago at 146. It went up. If it 55* Testimony of Frederic Cromwell should go to 1 50 it might be an object to take these bonds. They are convertible at 150. They might be better than holding the Pennsylvania stock. Q. In other words, what your judgment is to-day, does not necessarily mean it will be your judgment to-morrow? A. It may not be. Q. But it is also your intention individually to take the profit on your individual participation ? A. Yes. Q. And both your profit and the profit of the Mutual Life In- surance Company will come from the public notation ? A. Yes. Q. Pro rata, according to your respective interests? A. Yes. Q. Now, the next item on the list is Southern Pacific first — I am referring to Exhibit No. 55 — Southern Pacific first refund- ing 4 per cent, bonds, participation $150,000; profit, $3,726.56. Those are the bonds referred to in the list of the Mutual Life syndicate participations as No. 44, are they not? A. No. 44, yes. Q. The Mutual Life has a participation of $1,500,000 in the syndicate, is that right? A. That is right. Q. And the Mutual Life has bought bonds to the extent of 3,000,000 at 96^, is that right? A. That is right. Q. Does that mean that the Mutual Life withdrew bonds to the extent of $1,500,000, the amount of its participation, and bought $1,500,000 additional, or did it buy the entire $3,000,000 on the public offering? A. We bought 3,000,000 — we bought them. Q. The 3,000,000? A. "We bought them on February 25th. Q. From whom did you buy them? A. We bought them un- doubtedly of Kuhn, Loeb & Co. Q. The syndicate managers? A. Of Kuhn, Loeb & Company and Speyer & Co., the syndicate managers. Q. That followed immediately upon the syndicate participa- 552 Testimony of Frederic Cromwell tion, and was a purchase at public offering made by the syn- dicate managers? A. I do not get that. Q. (Repeated.) A. I don't understand. We accepted one and one-half millions of the syndicate through Kuhn, Loeb & Co. and Speyer & Co. , and bought one million of them through them, undoubtedly, but at the market. Q. The date of the participation was February 3d, 1905? A. Yes. Q. And the date of your purchase from the syndicate man- agers was February 5th, 1905? A. I gave it to you, yes, Feb- ruary 3d, 1905. Q. The purchase? A. The purchase, February 3d it says here. Well, the committee authorized the purchase. It may not have been until a few days afterwards. That was the authority. Q. I would like to have you point to or produce that resolution of the committee authorizing the purchase. A. These are the entire minutes as to the Q. If you will read who were present at the meeting and the action taken with regard to this purchase it will be sufficient? A. Present: Messrs. Juilliard and Haven, the president, vice" president and treasurer. Q. Will you read the resolutions? A. The treasurer sub- mitted a communication in regard to a proposed issue of $160,- 000,000 Southern Pacific Railway Co. "The Treasurer sub- mitted a communication relative to a proposed issue of $160,- 000,000 Southern Pacific Railroad First Refunding Mortgage 4 per cent, gold bonds, of which $75,000,000 have been pur- chased by Kuhn, Loeb & Co. and Speyer & Co. and will be dis- posed of to a syndicate on the following terms: At 93 and ac- crued.interest with the understanding if the net profit exceeds 2 per cent, the Southern Pacific Co. shall be entitled to such excess of profit up to yi per cent. The term 'net profit' is understood to mean profit after deducting all expenses," 553 Testimony of Frederic Cromwell and Speyer & Company informed the treasurer that they had apportioned $1,500,000 in the said syndicate to the said com- pany and request a reply as to whether the company would pur- chase any of the bonds at 97 less }{. The Committee accepted the $1,500,000 offering in the underwriting syndicate and au- thorized the treasurer to purchase 3,000,000 of paid bonds at 97, less a quarter. Q. The purport of that is that the Mutual Life participated to the extent of $1,500,000 in the underwriting at 93K as stated, with the understanding or statement that it would buy three millions on the public offering at 97 less J4 an( i interest? A. Yes, at 97 less a quarter. Q. So that is the three millions stated in this list Exhibit 50 as bought at 96^? A. Yes. Q. Under the head of syndicate profits in this list of the com- pany's syndicate transactions appears the item of $37,265.62. That profit was received on March 7th, 1905. Is that right? A. That is right. Q. And that was a profit on the results of the public sales by the syndicate managers up to that time? A. Probably the result of the entire profit on the syndicate. The syndicate was closed at that time. Q. And that was the share of the entire profits? A. Yes. Q. The purchase of the three millions by the Mutual Life at 96^ furnished a portion of that profit? A. I should think so. Q. Yes. A. No, I cannot say that, the syndicate may have been colsed before March 7th. Our credit to that amount is under that date. Well, whatever the date may have been. I don't know what they offered these bonds for at that time. Q. Yes, but the purchase by the Mutual Life of three millions at 96^ furnished a part of the profits which the syndicate divided? A. That I don't know. 554 Testimony of Frederic, Cromwell Q. Well, you have no doubt of that? A. Well, I have no evi- dence whatever. I think so, but I have no evidence whatever. Q. Let us see what evidence you have. You have the evi- dence that at the time of the syndicate participation, or when the syndicate participation was offered to you you were asked whether you would be willing to take some of the bonds on the public offering and you were authorized to take $3,000,000? A. Yes, I think our action at that time showed that fact. Q. And you did take it so that as a matter of fact to the ex- tent of that purchase you furnished some of the syndicate profits? A. Yes, I think our actions show that. Q. Now, then, referring to your list, Exhibit 55, of individual participations, you are a participator to the extent of $150,000 in that syndicate Southern Pacific first refunding 4's, and when the syndicate was closed you received as your share of the profits $3,726.56, which is just one-tenth of the amount which the Mutual Life received. Your subscription to the syndicate being one-tenth of the Mutual Life subscription? A. Yes. Q. That was your share of the profits made on the syndicate upon the sales by the syndicate managers including the sale to the Mutual Life Insurance Company? A. Yes. Q. I notice that in the case of the Cuba bonds above men- tioned, your individual share of the profits was $2,422.49 upon a participation in the second syndicate of $50,000, while the profits of the Mutual Life on the $375,000 of bonds which it didn't take were about $6,100. Your participation appears to have been one-seventh of that of the Mutual Life, and your profits are a great deal larger than that ratio. I call your atten- tion to that, so that you can explain it. A. I can. Those are taken from my books and I swear to them. Q. Well, I wondered if there was something else included in that? A. There was nothing else. Q. Now, going on to the next in your list, Exhibit 55, we have 555 Testimony of Frederic Cromwell United States of Mexico 4 per cent.-bonds. Your participation individually was $100,000 and profits $3,001.03. That is the same syndicate that is referred to as No. 37 in the company's list? A. It is. Q. I see in the Company's list three participations in United States of Mexico 4's, an original, a second and an optional the first being $4,500,000, the second $2,500,000 and the third $1,500,000. Is that a transaction similar to the one that has been detailed in the case of the Cuban bonds? A. It is. They have there the volume. Look at the agreement. Q. May I assume that is precisely the same? A. They have got the original agreement. MR. HUGHES : I will offer the papers referred to in evidence. (Letter of October 20th, 1904, marked Exhibit 56.) MR. HUGHES: Also the next letter. (Marked Exhibit 57.) Q. Now on that original syndicate taking of bonds from the United States of Mexico at 89 and accrued interest the Mutual Life participated to the extent of $4,500,000. I find opposite that item under the head of bonds purchased from syndicate in the company's list the following, "four millions at 93"? A. Yes. Q. Were those four millions bought at 93 in the open market? How does it happen that the Mutual Life paid 93 for those? A. I have got the whole transaction here on different dates, the de- scription, as a purchase. Q. Can you answer the last question first and then we will go all over it. SS6 Testimony of Frederic Cromwell MR. BECK: Keep up your voice, Mr. Cromwell. Q. If you will answer the last question, how you came to take them at 93, then I will go over the various steps of the transaction Did you buy them in the public market? A. We undoubtedly bought them from the syndicate. This will detail it in a moment. Q. Let us go back then to the resolution? A. October 22d, 1 904 . The committee authorized the treasurer to take an interest of five million in syndicate of five million dollars of bonds offered by Speyer &.Co. Speyer's bid about 90. That is the first. October 18th. Treasurer reported Speyer & Co. had secured bonds at 89 and interest. The Company has an interest in five millions and Speyer & Co. now propose to organize a second syn- dicate to take an additional five millions at 91 and interest, cost- ing &c. On condition that the Company buy when bonds are ready four millions at 93H less one-half per cent. The Committee authorized treasurer to take interest in syndicate as authorized as above and agree to buy four millions of bonds. Q. Who were present at that meeting? A. That subscription was reduced on account of the Paris offering of half a million dollars. Q. Is this the minute of the meeting of October 18th, 1904? A. Yes. Q. There were present according to this Messrs. Juilliard, Haven and Iselin and vice-president, treasurer and assistant treasurer. Now this condition attached to the offer of an interest in the second syndicate and in the option, to wit, that the Mutual Life should buy when the bonds were ready for issue four millions at 93 y 2 and interest less one-half percent, commission does not appear in this letter addressed to you by Speyer & Co. under date of October 20th. A. No; evidently that was added afterward. Q. Wait a minute. This meeting was on October 18th. 557 Testimony of Frederic Cromwell That was an understanding which didn't take shape in any- formal document? A. Yes, there was a letter undoubtedly. Q. No, there was no letter about it, was there? A. I haven't any doubt there was. Q. About this condition? A. I don't believe we ever agreed to buy three millions of bonds without an agreement. Q. Four millions. A. Four millions of bonds. Q. Have you got the letter? A. There must be a letter. Q. At all events that condition was acceded to ? A. Yes, sir. Q. And you took this syndicate participation under the agree- ment that you would buy four million bonds in the market, that is on the public offering ? A. At 93. Q. And at 93, and you did buy them. A. At 93^ less a half; yes, sir, 93. They were taken, I suppose, from Kuhn, Loeb & Company. Q. Those were bought from Speyer & Company. A. Yes. Q. Not Kuhn, Loeb & Company? A. Speyer & Company. Q. Upon their issue? A. Upon their issue. Q. By taking them at 93 the Mutual Life contributed a por- tion of the profit which was realized by the syndicate managers for distribution among the members of the syndicate? A. Yes, sir. I will say this, that the — it was issued at 93 but a very strong market, and has to-day, as you know. Q. You mean it was a good investment? A. No, I mean others would have bought them. We made it 93 because they were good bonds, and went into it. Q. But in buying them at 93 the Mutual Life furnished a part of the profit which the syndicate managers had for dis- tribution? A. Yes. Q. And the Mutual Life being a participant in the syndicate as shown by these letters, of allotment, got a share of the profit? A. Yes. Q. And according to your list, exhibit 50 for identification 558 Testimony of Frederic Cromwell that share amounted to $136,936.87, which was credited to secure the account? A. Well, yes, that is right; that is right. Q. Now you individually took a participation in that syn- dicate, United States of Mexico 4 per cent, bonds, to the extent of $100,000, and did you buy any of the bonds? A. I did not. Q. Was there any condition attached to your participation that you must buy in the market? A. There was not. Q. Or take any from Speyer & Company? A. There was not. Q. And the distribution of profits on the public offering by Speyer & Company, or as a result of that, you received your share of $3,000.03? A. If it is there. Q. As shown here? A. Yes; undoubtedly; yes, sir. Q. Now we will take the next one. A. The next one on my list? Q. Yes, on your list Exhibit 55 ; Atchison, Topeka & Santa Fe convertible bonds, in which your participation is $50,000, profit $802.50, managers, Kuhn, Loeb & Company. That is the same as No. 43 on the company's list, Exhibit 50 for identification? A. That I think was a purchase syndicate; what is called a purchase syndicate in buying bonds. Q. First, it is that one, No. 43? A. Oh, yes. Q. And the date is January 30th, 1905, and the syndicate managers are J. -P. Morgan & Company. I find under the heading in the company's list — or rather that item — I find this entry in your list "Credit stock account" referring to a profit of $12,037.50. What does that mean? A. Credit stock account. MR. HUGHES: Mr. Timpson will make the explanation if you prefer. MR. TIMPSON: The company at that time had a block of Atchison preferred stock. The profits of that syndicate were 559 Testimony of Frederic Cromwell credited on the books of the company to reduce the cost of that stock on the books. That stock has since been sold. MR. HUGHES: Instead of carrying it to the security account the profits were credited against the preferred stock of the Atchi- son? MR. TIMPSON: Yes sir; that was carrying the security. MR. HUGHES: But in a particular way to reduce the book value of the cost of the preferred stock. MR. TIMPSON: Yes, sir, exactly, sir. Mr. Hughes, the custom of the company, let me say, is to credit in each case where we had securities of that kind — we had no convertible ones so couldn't credit them to the bonds, but cred- ited it to the other Atchison securities. Q. That leads me to ask you whether you got any Atchison, Topeka & Santa Fe bonds? A. Myself? Q. No, the company. A. Did not. Q. The company didn't take any either under the syndicate allotment? A. Did not. Q. And this amount of $12,037.50 was the profit on the gen- eral syndicate operations? A. Yes, sir. Q. You were a member of that syndicate to the extent of $50,000? A. Mine apparently is through Kuhn, Loeb & Co. Q. And the Company went into J. P. Morgan & Co.? A. Yes. Q. But it was the same syndicate? A. The same syndicate. Q. And you didn't take any of the bonds? A. I didn't take any of the bonds. Q. Or put up any money? A. No, because they were all sold. Q. And the company didn't put up any money? A. And the Company didn't put up any money either. 560 Testimony of Frederic Cromwell Q. And you got the $802.50 as your share of the profits. The next item in your list, Exhibit 55, your individual list, is Pennsyl- vania Railroad Shares, participation $100,000, profit $1,564.90 Manager, Speyer & Co. Is that the same as No. 28 on the syndi- cate list of the company? A. The same as No. 28. Q. Under date of May 25th, 1903? A. Yes. Q. The Company's participation, that is, the Mutual Life's participation, appears to have been $4,800,000? A. That is right. Q. The Mutual Life didn't take any of the stock? A. It was all underwritten at a low price; it was all subscribed. Q. It was simply in the position of an underwriter? A. Yes. Q. It didn't buy any upon the market at the public offering? A. No. Q. But it did get a share of the syndicate profits on the opera- tion amounting to $75,115.18? A. And credited to its stock. Q. And that was credited against the price at which the stock was carried on the books? ^MR. TIMPSON: Yes. Mr. Hughes, let me add that the Mutual Life had rights as stockholders to subscribe as. stock- holders. Its rights were sold, and on the list under the transaction of June 22nd, 1903, you will see $178,000 for selling our rights to subscribe to that stock, which we also credited to the stock. Q. Now, in this syndicate operation of the Pennsylvania stock the Mutual Life didn't put up any money, and when it was closed out it got this check for $75,115.18, as profit? A. We would have been very glad to take the stock. It is at 120. Q. Aside from that they didn't have any? A. Nobody got any. As stockholders we subscribed to help the thing along, but we would have been very glad to take the stock at that price. Q. You went into the syndicate for $100,000, but didn't put up any money? A. No. S61 Testimony of Frederic Cromwell Q. And didn't take the stock? A. No; it was all sold. I wanted it. Q. And your profit was A. Yes. Q. And your profit was you got the $1,564.90? A. Yes. Q. The next item is Oregon Short Line fours, refunding pur- chase, in which you individually participated to the extent of $75,000. That is the same as No. 38 on the Company's list under date of October 28th, 1904, isn't it? A. The same thing. Q. The Company, the Mutual Life, participated in that syndi- cate to the extent of a million dollars the managers were Kuhn, Loeb & Co.; the Mutual Life bought at 96 $3,000,000 of those, didn't it? A. It did. Q. Will you please turn to the resolution of the Finance Com- mittee authorizing that purchase of 3,000,000, or approving it, or, of course, of the sub-committee, which, of course, attended to those matters? A. On November 1st, 1904 Q. If you will show me the minutes I will read it. ''Minute of November 1st, 1904. "PRESENT: Messrs. Haven and Iselin, the president, vice- presidents, treasurer and assistant treasurer. The following is the minute relating to the matter in question : "Treasurer reported offer from Kuhn, Loeb & Co. of a partici- pation of one million dollars in the syndicate formed to under- write the purchase at 96 and interest of 40,000,000 Oregon Short Line Railroad Company, refunding 4 per cent. 25 year gold bonds; bonds to be first offered to the holders of the Oregon Short Line four per cent participating bonds at 96 and interest, in exchange for their bonds which the Company has called for payment at 102^ and interest and commission of two percent to be paid for the underwriting. Committee authorized the treasurer to accept the participation as offered. Committee further authorized the 502 Testimony of Frederic Cromwell treasurer to exchange Company's holdings of 2,000,000 Oregon Short Line participating four per cent bonds, receiving 102X and interest for the same for like amount of the new Oregon Short Line 25 year refunding 4 per cent bonds at 96 and interest. Treasurer was further authorized to purchase from Kuhn, Loeb & Co., at not over 97 and interest in additional 1,000,000 par value of the new Oregon Short Line refunding bonds." Q. Was that likewise a condition of your participation in the manner stated, that you should buy a million of those? A. I have no idea at all. Q. No condition at all What is that? A. I have no idea of it. It was not. Q. Are you prepared to say it wasn't? A. Yes, no condition, that is, I will say that every man is fallible but I would remember it if there was, I think. Q. Did you make this exchange of the Company's holding of 2,000,000 Oregon Short Line participating four per cent bonds, receiving 102)4 and interest for the same for two millions of the new Oregon Short Line refunding four per cent bonds at 96 and interest? A. I think we did. Q. You did? A. We did. Q. Now, referring to this statement in your Company's list of the mergers of 3,000,000 Oregon Short Line refunding bonds, does not 3,000,000 include the 2,000,000 that were obtained by exchange? A. Evidently, I should say. Q. And in addition there was the one million purchased; is that accurate? A. No, the one million purchased and two million exchanged made the three million. Q. Yes. And the one million purchased were purchased on the public offering by the syndicate managers? A. Yes. Q. And the purchase contributed to the profit made by the syndicate? A. Yes. S63 Testimony of Frederic Cromwell Q. In which syndicate you had an individual participation"of $75,000. Did you buy any of the bonds? A. I did not. Q. Or put up any money? A. No. Q. And you received as your share of the profitis $1,502.82? A. Yes. Q. The Company, that is the Mutual Life, received as its share of the profits on its million dollars subscription, $20,037.95, tnat is correct? A. You have the figures. Q. And credited to security account? A- Credited to security account. Q. So that it went against the amount that had been paid for those bonds? MR. TIMPSON: To reduce the cost of 3,000,000 of bonds. Q. The next item on the list, Exhibit 55, is Oregon Short Line 4% participating, in which you participated individually to the extent of $50,000. That was the same as No. 24 on the Com- pany's list? A. I think I had some of those bonds myself, but I don't know. Q. Pardon me. Is it the same as No. 24 on the Company's list? A. That is the same as No. 24. Q. The Company's participation was $750,000, the date being July 17th, 1902, and the syndicate managers Kuhn, Loeb & Co.? MR. BECK: Mr. Hughes, that is what you asked about this morning. He now has that agreement. MR. HUGHES: I remember that now. A. Mr. Hughes, this condition in regard to my own subscription and the Com- pany's obtains all the way through. I merely say that you know. Q. What condition? A. This condition that I — except for instance in the Third Avenue Railroad — I didn't buy bonds ; 5£ and interest," and the resolution proceeds to say that the treasurer is authorized to award to the trust companies a like proportion ? A. Yes, sir. Q. In the underwriting syndicate? A. Yes, sir. Q. In pursuance to that authority you allotted to the trust companies 240,000 pounds of these 600,000 pounds interest in the underwriting syndicate? A. Yes. The Mutual Life 360,000 pounds, the Guaranty Trust Company 108,000 pounds, United States Mortgage & Trust Company 108,000 pounds, the Fifth 573 Testimony of Frederic Cromwell Avenue Trust Company 12,000 pounds and the Morristown Trust Company 12,000 pounds. Q. Through this underwriting syndicate the Mutual Life Insurance Company derived profits of $38,453.10? A. Yes, $38,453.10. Q. It didn't put up any money? A. It was credited to security account. Q . It didn't put up any money on the underwriting? A. No. Q. "Were you in that underwriting syndicate? I don't find an item on this list? A. Then I wasn't. My young man at- tends to that. I have got 50, 000 of bonds now that I bought of it, but he has attended to it more than I have. Q. Now, the next syndicate in your individual list is Imperial Japanese second series, which is the same as No. 39 on the Company's list, is it not? A. Yes, ahalf a million pounds. Q. The Company kept all of that series. I mean in that it didn't allot any to the trust companies, did it? A. I have nothing to show it here. It is not set down there, therefore, they did keep it all. Q. Now, having an allotment of 500,000 pounds the Mutual Life bought 2,922,000 at 90.12. 'Will you please turn to the resolution which authorized the purchase? MR. HUGHES: The first minute relating to this transaction is produced and reads as follows: " November 4th, 1904. "Present, Mr. Iselin, the President, Vice-President Granniss, Treasurer and Assistant Treasurer. "Treasurer reported that Kuhn, Loeb & Company had pur- chased and would soon issue in New York 6,000,000 pounds ($30,000,000) Japanese government seven year six per cent. 574 Testimony of Frederic Cromwell bonds, due October 191 1, bonds to be similar to the previous issue and to be secured by a second lien on the customs of Japan; a like amount of the bonds have been purchased by London bankers and will be offered in London. The price will be 8 5 ^2 and interest (exchange at 4.87); a syndicate to be formed which will offer the bonds for sale at 90; Kuhn, Loeb & Company to charge one-half per cent, for firm of syndicate and one half of one per cent, on all sales. "They offer the Company an interest in the syndicate of five hundred thousand pounds. Committee authorized the treasurer to accept the interest offered, and further authorized the treasurer to buy for the Company five hundred thousand pounds of the bonds when issued at the issue price." Then on November 15th, 1904. Present: Messrs. Juilliard, Haven and Iselin, president, vice-presidents, treasurer and assistant treasurer. "Committee approved action of the treasurer in making bid for six hundred thousand pounds Imperial Japanese six per cent, bonds, offered by Kuhn, Loeb & Co., at 88 and interest." Q. So that here the Mutual Life on the public offering at the issue price bought bonds to the amount in dollars of two million nine hundred and twenty-two thousand and thus contributed to the profits divisible among the members of the syndicate? A. Yes, sir. Q. It didn't withdraw any bonds ? A. It didn't withdraw any bonds. Q. And the profits paid to the Mutual Life on its participation in the syndicate of five hundred thousand pounds was $78,- 518.91? A. Yes. Q. And you were individually a participant in the syndicate to the amount of ten thousand pounds? A. Yes. Q. Did you put up any money? A. No. 575 Testimony of*Frederic Cromwell Q. Or withdraw any bonds ? A. No. Q. And you received $1,570.80, as your share of the profits? A. Yes. I drew — no, I didn't draw any of those bonds. Q. The next item on the list is Japanese four and a half per cent, bonds, first series, that is No. 45 on the Company's list, is it not? A. Yes, sir. Q. The Company had a participation of eight hundred thou- sand pounds? A. Right. Q. And the Company bought $3,896,000 first? A. Yes. Q. At 89.90. Will you please turn to the resolution author- izing that purchase? A. March 23d. MR. HUGHES: "Special meeting of March 23d, 1905. Present: Messrs. Haven and Jarvis, vice-presidents and assistant treasurer. The treasurer reported that Kuhn, Loeb & Co. had purchased with London bankers thirty million pounds Imperial Japanese Governmsnt four and a half per cent, five-twent5 r year bonds, secured by the Tobacco Monopoly of Japan, price to be 86 and interest ; London bankers to charge one-half per cent, for buying and one-half per cent, for selling, which will make the syndicate cost 87 London, or a 5.59 basis for a twenty year bond. Bankers propose to make issue at 90, London, or 5.32 basis. Kuhn, Loeb & Co. have reserved for the Mutual Life an interest in this syndicate of a million pounds. Committee authorized the treasurer to accept for the Company an interest of eight hundred thousand pounds in the syndicate." The meeting of March 28th, 1905. Present: "Messrs. Haven, Jarvey, acting president Grannis,- and Vice-President Gillette, and treasurer and assistant treasurer. The treasurer was instructed to subscribe for eight hundred thousand pounds Imperial Japanese Government four and a 576 Testimony of Frederic Cromwell half per cent, sterling bonds at the issue price of 87^ and interest." Q. So there in that case as in the others, the Mutual Life purchased at the issue price on the public offering and thus contributed to the profits which would be available for dis- tribution among the members of the syndicate? A. Yes, sir. Q. You participated individually in that syndicate to the extent of fifteen thousand pounds? A. Yes. Q. Did you put up any money? A. No. Q. Or withdraw any bonds ? A. I drew fifty thousand of some issue. Q. That was the first issue," wasn't it? A. No; in some of these, I don't know which one it wf s. Q. I mean you only bought fifty thousand? A. All told. Q. Bonds all told of Japs? A. Yes, but it was four and a halfs. Q. You didn't withdraw them under the syndicate ? A. No ; I bought them of a banker. Q. And on this last syndicate transaction of four and a half per cent, bonds your individual profits were $1,856.55 and the Company's profits were $100,616.20? A. Yes. Q. The next item is Chicago, Burlington and Quincy purchase. That is No. 16 on the Company's list, is it not? A. No. 16, yes, sir. Q. The Company was a participator to the extent of three million? A. Yes, sir. Q. Will you please point to the resolution authorizing that participation? A. May 1st, 1901, No. 16 "MR. HUGHES: Special meeting of April 26th, 1901. Present- Messrs. Babcock, Juilliard and Haven, and Mr. Baker by in- vitation, the vice-president and treasurer. 577 Testimony of Frederic Cromwell "The treasurer stated that an opportunity would be given the Company to subscribe for itself and its subsidiary associates to the extent of five million dollars in Chicago, Burlington and Quincy underwriting syndicate, it being understood that this five million dollars pertained to a total of seventy-five million dollars, whereas the probability is that the amount will be about fifty million dollars, and the allotment of two-thirds of the said five million dollars above referred to. "Authority was given the treasurer to subscribe on the allot- ments of the subsidiary companies, was referred to Mr. Haven and the treasurer with power and to report at the next meeting their distribution." Next meeting of April 30th, 1901. Present: Mr. Juillard and Haven, vice-president, general man- ager, treasurer and assistant treasurer. "Treasurer reported that pursuant to authority of the com- mittee he had had a meeting with Mr. Haven and allotted the C. B. & Q. underwriting as follows: Mutual Life, $3,000,000 Guaranty Trust Company 500,000 United States Mortgage & Trust Co 500,000 Morton Trust Company 500,000 Fifth Avenue Trust Company 250,000 Morristown Trust Company 150,000 Mutual Trust Company 100,000 ■total $5,000,000." Q. It has already been testified to that the company purchased 6,000,000 of the Northern Pacific-Great Northern collateral trust bonds, which were put upon the market through this C. B. & Q. syndicate. Will you please produce the resolution authorizing that purchase ? A. July 24th, 1901. 578 Testimony of Frederic Cromwell MR. HUGHES: In General Committee, July 24th, 1901. ''In General Committee authority was given treasurer to buy up to 2,000,000 Northern Pacific-Great Northern-C. B. & Q. 4 per cent, bonds ; price to be left to the discretion of the treasurer." Minute of August 7th, 1901. "General committee. Treasurer reported that J. P. Morton & Company had completed the purchase for the company of 2,000,000 Northern Pacific-Great Northern-C. B. & Q. collateral trust 4 per cent, bonds, making the company's holdings 4,000,- 000 at an average cost of 98.61 and interest. Committee author- izes treasurer to buy a million additional bonds at not over 97 flat, equal 96.60 and interest." August 14th, 1901. "General Committee. Treasurer reported that he had pur- chased 113,000 Northern Pacific-Great Northern-C. B. & Q. col- lateral trust 4's at 97 flat. The price is now 97K to $4. Com- mittee authorized the treasurer to buy the balance of a million in his discretion." April 29th, 1902. "In General Committee. The purchase of additional amon is of Chicago, Burlington & Quincy collateral trust 4 per cent. bonds was referred to treasurer with power." June 25th, 1902. "In General Committee. Treasurer was authorized to buy 2,000,000 Northern Pacific-Great Northern-C. B. & Q. 4 per cent, bonds at the market price, about 95 per cent, and interest." Q. Through the participation in the syndicate the company made $74,000? , A. Yes sir. Q. You participated in the purchase syndicate to the extent of $60,000? A. I find it so, yes sir. Q. Did you put up any money? A. I have no recollection. 579 Testimony of Frederic Cromwell Q. Take any bonds? A. No. Q. And you received as profit $1,746.27? A. I don't remem- ber. Q. The next item is Third Avenue Railroad bonds, consoli- dated bonds? A. Those are — well, I bought a 100,000 of those bonds. I Q. Those are numbered seven on your syndicate list, the com- pany's list, are they not? A. No. 7, Q. Syndicate participation of the Mutual Life $750,000, pur- chased by the Mutual Life from the syndicate $1,500,000? A. Right. Q. Taken from the syndicate $675,000, bought from other sources $418,000, total purchase $2,593,000? A. Right. Q. Will you please produce the minute of the sub -committee of the Finance Committee which shows the authority for enter- ing into the syndicpte and the purchase of the bonds? MR. HUGHES: The minute is produced of April nth, 1900, and offered in evidence as follows: "In General Committee. A letter was read from Kuhn, Loeb & Company offering the company an interest of $750,000 in the Third Avenue Railroad Company 4 per cent, consolidated bond syndicate; price of bonds to be 93 ]4. and commissions. The treasurer was authorized to accept the allotment as offered and to make application for $250,000 additional, which would make the company's interest an even $1,000,000." Minute of April 24th, 1900, produced and is as follows: Pres- ent, Babcock, Juillard, Haven, the president, vice-president, general manager, treasurer and second assistant treasurer. Treasurer reported that Mr. Wolff of Kuhn, Loeb & Company had submitted an offering to the company of Third Avenue Rail- road 4 per cent, bonds at i04]and interest. This offer was made 580 Testimony of Frederic Cromwell in advance of the regular issue and Mr. Wolff stated if any bonds were sold at a lower price the company would be put upon the same basis. The treasurer recommended to the committee the purchase of bonds at 104 and interest in view of the fact that Kuhn, Loeb & Company had allotted the company a million in the underwrit- ing syndicate purchase. Purchase authorized." "December 4th, 1900. Present, Messrs. Babcock, Juilliard and Haven, president, general manager, treasurer and second assistant treasurer. "Kuhn, Loeb & Company brought to the attention of the Company the proposed offering of ten millions of Third Avenue Railroad Company first consolidated 4 per cent. 100 year gold bonds and requested that the Company make a purchase of a million dollars at the price of 104 and interest. After discussion the treasurer was authorized to buy not over $500,000 of the bonds at 104 and interest." Q. Now, in this case as in the other cases the Mutual Life Insurance Co. bought on the public offering from the syndicate managers and thus contributed to the profits distributable among the members of the syndicate ? A. Yes. Q. The profits received by the Mutual Life Insurance Co. are in two items, $11,250 and $1,847.06. You participated in that syndicate individually to the extent of $100,000, and you received as profits $1,522.17. Did you put up any money? A. I bought $100,000 bonds. Q. In the market? A. I bought them all — I could not tell you. I think of the managers. Q. Well, did you buy on the public offering? A. I bought them on the public offering. Q. And so you contributed to the funds which were available 58i Testimony of Frederic Cromwell for distribution? A. I did, yes, and I held the bonds, $100,000 for a long time. Q. And your share of the profits I think we have already mentioned. The next item on the list is Imperial Japanese 4>£ per cent, second series? A. That is a series that is now in force. A VOICE: That is not on your list. THE WITNESS, No, that is the series that is now in force. Q. That is not on the Company's list furnished here? A. No; that is since the 30th day of June. Q. That is since the 30th day of June? A. Yes, it is the last. Q. Have you a memorandum of the minutes of the Finance Committee or the sub-committee on that? (Minutes produced.) MR. HUGHES: (Reading). "Special meeting July 5th, 1905. Present, Messrs. Juilliard, Iselin and Jarvey, the president, treasurer and assistant treasurer. The treasurer stated that Kuhn, Loeb & Co. had brought to his attention a proposed new issue of 43^ per cent, bonds of the Japanese government, bonds to be secured by a second lien on the net revenue of the Japanese government tobacco monopoly; loan to be repayable in 1925, optional with the government to redeem after five years on six months' notice. Amount of the loan to be £30,000,000; £10,000,000 to be issued in Germany, a like amount in England and the remaining £10,000,000 in this country. Mr. Schiff stated that he was forming an underwriting syndicate, the cost of the bonds being 87^, London terms S82 Testimony of Frederic Cromwell equalling about 83^ New York Stock Exchange usage. Kuhn Loeb & Co. will charge a commission of 1% per cent, on purchase, and % per cent, on sales of bonds, which are to remain syndi- cated under their management until sold. The Committee in- structed the treasurer to ask for an allotment of $3,000,000 in this syndicate, and furthermore decided not to offer for sale any more of the old issue, of which the treasurer reported as now on hand £420,000 equalling $2,045,400. Mr. Schiff stated that the bonds would be issued shortly , but taking an interest in the under- writing syndicate would not put the Company under any obliga- tion to purchase bonds at the time of issue." Q. The statement in this minute that the bonds are to remain syndicated under their management until sold means, I suppose, that they are not to be withdrawn? A. And it is all in force now. Q. Have any of those bonds been purchased from them on the public offering? A. We purchased some. Q. I mean have any been purchased by the Mutual Life? A. We bought three million and we have one million left of the old ones, that is the plain way of putting it. Q. Those were recently bought? A. Yes. Q. And they were part of the public offering of the syndicate managers? A. They were bought outright from Kuhn, Loeb & Co. at public offering at 90.13. Q. And in that way contributed to what will be available for distribution to the members of the syndicate? A. Yes. Q. You are a participator in that syndicate? A. Yes, sir. Q. To the extent of 15,000 pounds? A. Yes, sir. Q. There has not been any distribution of profits, the sale is still going on? A. I have had nothing, no distribution to the Company, no, there has been none. Q. Now, apart from this syndicate in which your were a par- 583 Testimony of Frederic Cromwell ticipator and the Mutual Life was a participator, the facts F as to which have been fully presented, were you personally interested in any syndicate where the Mutual Life was not a party, 'but where the Mutual Life bought bonds from the synaicate mana- ger? A. Not that I know of. I have been interested in syn- dicates in which the Mutual Life had no interest. Q. But f mean where the Mutual Life, although not a par- ticipator in the syndicate, bought bonds of the syndicate man- agers? A. No, these are the only syndicates in which I had any concurrent ownership with the Mutual Life so far as I know, or concurrent interest. Q. Not. at all to dispute your statement, but calling your attention to a case in which the Mutual Life did not participate in the syndicate at all, but was simply a purchaser from the syndicate managers, I wanted to know in a case of that sort were you interested in the syndicate from which the .bonds were sold? A. Sold to the Mutual Life do you mean? Q. Yes. A. No. Q. This morning we had a number of transactions on joint accounts, in the case of another insurance company where bonds were dealt in on joint accounts, and profits divided between the insurance company and the bankers who offered their facil- ities in the disposition of the bonds. Have you any transactions like that in the Mutual Life? A. Never, and never have had. Q. Have not you had any joint account transactions? A. No joint account transactions. Q. Have you any transactions in which you buy for resale? A. No, we buy for investment. Do you mean buy, for the profit from making a resale? Q. Yes. A. No, we have not. Q. I mean buying them for the purpose of marketing them for a profit and making the profit? A. No. S84 Testimony of Frederic Cromwell Q. Either bonds or stocks? A. No. Q. Have you ever had ? A. No. Bought, you mean, for the sake of the profit with the idea of resale? Q. Yes. A. No, we buy everything for investment. Q. No, but do you buy for investment and then immediately change your mind and sell? A. No. Q. And in such cases do you buy in connection with any banker or banking house, so that the bankers get a part of the profit on the transaction? A. Not in the least, never. We never buy in conjunction with anybody. I state that because I want that to be far reaching. The Mutual Life Co. never buys in conjunction with anybody. Any transaction it has is for itself and by itself. Q. Except as it may buy through a purchasing syndicate in the cases we have noted? A. Of course I have noticed that. Q. But it never buys on joint account with any banker or any house engaged in that business? A. No, sir. Q. Have you any securities which do not appear in your ledger? A. We have two only, and they do not appear in the ledger because they have no appreciable value, and I am very sure they are both brought before the Committee. They are very small. Q. What are they? A. One is a matter of ten or eleven thousand dollars, a possible interest which came from the ab- sorption of the Central Bond & Realty Company by the Lawyers' Title Insurance Co. Q. When was that? A. About six or eight months ago. There was left a possible interest in some mortgages which they could not transfer, and they issued — could not realize on — and I fancy did not consider very good, and they gave us a certificate of contingent interest of between $7,000 and $11,000 which has no face value. Q. How did you carry that? A. We carry it now simply by 585 Testimony of Frederic Cromwell a memorandum of the Committee and their instructions awaiting such payment as may be made in the future. Q. What other asset have you that is not on your books ? A. Another asset is less than $900, in a company which long ago reorganized, many years ago, and which we did not recognize as one in which we had any affiliations when we got it, and can conceive of no value now. I think it is a junior common stock in a traction company and we have kept it — the Committee has notification of it, and we have kept that. Those two are the only items in the whole world which we have any interest in which are not entered on our book. They have no value, there- fore we could not put any value on them. Q. Is that true of former years, have you had such assets heretofore? A. We have not had for twenty -one years, as long as I know it. THE CHAIRMAN: The Committee will take a recess until to-morrow morning at 10.30. All witnesses under subpoena will appear at that hour. 586 ALDERMANIC CHAMBER. CITY HALL, NEW YORK. September 14th, 1905. The Committee met pursuant to adjournment. FREDERIC CROMWELL resumed the stand. MR. HUGHES : I am requested to note a correction upon the record in the statement of the syndicate participation of Mr. Cromwell as follows : By inadvertence the amount of profits de- rived in the Chicago, Burlington & Quincy purchase and the Third Avenue Railroad consolidated bonds were transposed. The correct entry should be : Chicago, Burlington & Quincy participation $60,000, profit $1,522.17. Third Avenue Railroad consolidated bonds participation $100,- 000, profits $1,746.27. In response to the request of the Committee the Mutual Life Insurance Company has produced statements of its bank balances monthly from January, 1900, to December, 1904, inclusive, the statements for 1905 having already been produced. I will have these sheets showing the bank balances marked for identification. Marked Exhibits 58, 59, 60, 61 and 62 for identification. Q. I notice that you maintain with the National Bank of Com- 587 Testimony of Frederic Cromwell merce a balance which, from January 3, 1905, to June 1, 1905, was most of the time $7,000,000 and upwards. A. You have it there. That is correct undoubtedly, Mr. Hughes. Q. Well, in February it rises to $8,546,460.73 and in March it falls to $6,351,739.56. These deposits with the National Bank of Commerce ran through the year 1904 from $8,306,000.06 in January, $10,227,403.70 in May, falling to $7,822,115.92 in June, rising to $8,510,477.29 in July, falling to $6,999,026.93 in September and about $7,000,000 in the remainder of the year 1904. What was the occasion for maintaining such large bal- ances with the National Bank of Commerce? A. The occasions varied with the periods. Let me . I will state here that for a long time it seemed to me that we would be wise in keep- ing from five to six millions in the Bank of Commerce. When it varied to larger figures than that there were two causes, one of two causes generally, one that we have large payments to make and we store in the bank for that purpose, and the other, such as this during the last summer, we were paid 2 per cent, by the Bank of Commerce, when we couldn't loan our money out on call at 2 per cent, in large blocks. We loaned the Bank of Com- merce — never loaned the Bank of Commerce, never loaned any- body, sir, in that way. We had deposits there with the Bank of Commerce at 2 per cent, when I knew they were getting not over i}i for it. They were losing money. But my contention was that they must take the thing as it ran. and take it as our necessities required. Now, to enlarge upon this, the Bank of Commerce is our leading bank. Q. What do you mean by that? A. I mean we have more in- vested there and we keep by far our largest accounts there, and we make our general deposits there, which I will explain to you later, and they collect all our coupons and credit us when the coupons are deposited, so that we get them in as cash as soon as we deposit them. They have more correspondents in the Testimony of Frederic Cromwell way of banks than any othej institution that we are connected with from the East to the West, largely through New England to clear out to California. They are a large bank. Now, we accumulate from the other cause — pardon me — the other cause, we accumulate deposits that is when we anticipate large pay- ments. I have in mind to-day a payment which will have to be made, a large payment on bond and mortgage. But we, as 1 told you, bought $5,000,000 New York Central bonds recently. Those are bonds for the payment of which we anticipate by deposit. We know when large payments on bond and mortgage are com- ing due, frequently to a million or a million and a half of dollars. On my table are put the dates in anticipation of bonds and mort- gages and we prepare for it, and we use that bank as the strong wall against which we put our moneys. Q. But from January 2, 1904, to June 1, 1905, the necessities of your business do not require payments to be made so as to in- terfere with the maintainance of the bank balance with the Bank of Commerce of $6,000,000, and for most of the time a larger amount? A. Well, then I will answer that this is why, that our balances are read to the full Finance Committee each week and had their full consent. Q. Oh, of course, it is not to be supposed this was done on your individual responsibility. A. I mean that the reasons were good and sufficient, but I can't tell you why. Q. You can't tell why ? A. No ; I don't know anything about it. Q. But is wasn't the necessity for making large payments ? A. Yes. I don't think a company of our size should have less bal- ances than we carry. Q. But, if you can for eighteen months maintain a balance which never falls below $6,000,000 and most of the time is above seven millions and rises to eight million dollars, it is manifest that the maintenance of that balance up to $6,000,000 isn't re- S89 Testimony of Frederic Cromwell quired for large payments? A. I think very possibly — I don't know that — that the judgment of the Committee in relation to that matter has varied from one day to another, but it is manifest to me that is why it was kept there as well as the others — bear in mind in all our institutions the other influence, of which I make very small account — we feel that for these large balances we put them in the largest banks and those in which we are interested. We are very large stockholders there. Q. As matter of fact, the large balance was kept with the National Bank of Commerce to enable the National Bank of Commerce to make money ? A. No, that wasn't the fact. Q. Then how could it help you as stockholders? A. It did help us as stockholders, but that isn't why the balances were kept there. The balances are kept there to keep us on large securities. Q. How much money did you get on those moneys that were deposited? A. 2 per cent. Q. Always 2 per cent ? A. Always 2 per cent. I don't think it has varied there. Oftentimes we have exacted 2%, but for a length of time the money market hasn't allowed us to do it. Q. If you will look at this statement you have furnished me you will see that, according to these bank balances, you had from six to eight millions of free money that you didn't require for use in your business, apparently, as they remained undrawn dur- ing the year 1904. Now, was there any possible reason for leav- ing that amount of money with the National Bank of Commerce on 2 per cent interest except that, being large stockholders in the National Bank of Commerce, you thought it a good thing to enable that bank to make money on. your deposits? A. Yes. That was not the reason. I say no, sir. Q. Now, what was the reason? A. Might I answer by ask- ing another question — not to be contentious? I would like to know what our collateral loans were ruling at at that time. Q. Certainly. A. Now, we carried — to show you the large 59° Testimony of Frederic Cromwell amount of surplus cash we have — let me say, Mr. Hughes, you can take the entire year en block, I guess. Q. Here is the list of collateral loans which you have fur- nished, and I find by looking at it — or if you would prefer to state it yourself you may do so — the rate of interest through a large part of the year 1904 was 2 per cent. A. 2 per cent. And when it is 2 per cent it is difficult to loan the money out. Q. And you preferred to keep it at the same rate of interest in the bank which you largely control, and thereby you have a better oversight over the use which is made of the money? A. No, I think one is as good as the other, but we could not loan any more on collateral. All these loans on collateral are made under difficult and heavy restriction. We do not loan on collateral the same as the banks do. And I have known times when two million dollars were paid to us back in one day, on collateral loans, and we could not replace the loans. I will not say that they tally day by day — no man can do that, year by year. Q. No, you are quite right in pointing out, for a long period in 1904, the rate of interest on your collateral loans was not greater than the rate of interest on the amount you had on deposit in the bank. Now, in December, 1904, I find, according to your state- ment, that you had a balance on the 1st of that month with the National Bank of Commerce of $7,621,113.54, and on January 3d, 1905, I find that you had a bank balance with the Bank of Commerce of $7,629,506.46, practically the same amount. By cooking at your statement of collateral loans, I find during that period, you were loaning on collateral at call at three per cent and largely at four per cent. Now, is there any reason why . A. Pardon me, those loans at four per cent were made on the 8th of December, one day, and on the 13th, five days afterwards, they went to three per cent. Q. Is what you have just called my attention to a coincidence, that, during a larger part of the time the loans that you were S9i Testimony of Frederic Cromwell making were at the same rate of interest that you got from the National Bank of Commerce, or is it a matter of fact, when you could make collateral loans at a better rate of interest, and the market rate of interest was higher, did you withdraw from the National Bank of Commerce and put out your money on collat- eral? A. I think I can safely say yes, bearing in mind this one statement which accords with your sentiments, that we were al- ways glad to carry a big balance there. I dispute the statement that we carried big balances for the sake of the profit, and that that influenced us. Nothing influences our balances but the security and convenience of handling our money. I have disputed that we kept it there for the sake of the profits. We did not do that. Every institution we are interested in knows that. We do not keep any money there for their benefit. I cannot by specific dates say much for a year back, but I am giving you the general tenor of our business. Q. I find the balance in the National Bank of Commerce on April ist, 1905, was $7,414,986.18, and on May 1st, 1905, $6,858,- 660.84, and, according to our statement of collateral loans in April, you were loaning large amounts of money, comparatively large amounts at three and one-half per cent interest. A. 1905? Q. That is the way I see it here. (Handing paper). Look at it and make sure. A. In April, 1905, is that it? Q. Yes. Down below there at the bottom of the page and over at the top of the next page. A. Three and one-half per cent from, I should say,- March 31st to April nth, yes, sir. Q. Now, as a matter of fact, during that time when money on call was worth in the market three and one-half per cent, did you draw out your money from the National Bank of Commerce and loan it on collateral or did you, as a matter of fact, maintain practically the same balance with the National Bank of Com- merce at two per cent? A. We evidently did. That is the ques- tion. Now, the question is 592 Testimony of Frederic Cromwell Q. Well, my question was put in such a form that your answer is ambiguous. A. I do not want to seem to fence. Q. You are not at all, but my question was asking which you did. Did you draw it out and get the market rate of interest, or keep it in the bank at two per cent. ? A. We kept it in the bank. Let me add this, if you will allow me, Mr. Hughes. Q. Yes. A. There is nothing I want to do but be cleared. It is not easy — I have tried sometimes, and when I say I have tried I mean my subordinates and I, for two or three days and more, to get money out on call. You must remember that we cannot loan as bankers, because in the first place we do not take industrials, and in the second place we require, and it is our stipulation, that we will take no bonds or stocks which have failed to pay dividends and interest in the last five years, so we discriminate. I have had many loans taken from our company by their saying: "We would like to borrow your money but cannot keep the collateral up to the standard you require." That makes it difficult for us to loan. I will cover it with this general statement. We are glad to keep as big balances as we can at the National Bank of Commerce. We do not do it for the sake of them, but we are glad to do it. I remember telling Mr. Snyder that it looked to me to be practical to keep a balance there up to five millions. Q. When did you tell him that? A. Oh, two years ago. Q. Did you give him an idea how long you would be able to maintain such a balance ? A. No, we had no such stipulation. Q. No, you did not have such a stipulation, but A. My idea was it would be a good idea to keep a balance of five millions. Q. Why did you do that? Of course, you could not foresee the fluctuations of money in the market. A. Of course, every banker knows if there was a violent fluctuation that condition would not maintain. I am only saying this has all been done 593 Testimony of Frederic Cromwell according to a general idea of the requirements of the business. But I want to disclaim the thought that we are induced to keep large balances on account of our large ownership. MR. WEMPLE: Before you leave that question, may I ask whether it appears here as to when that two per cent, is computed, whether on yearly balances, or what? Q. Explain that, Mr. Cromwell. A. Payable every three months. BY MR. WEMPLE: Q. No, but how is it computed, on yearly balances, or monthly, or how? A. On yearly balances. I have here a corroboration of my statement as to the interest except as to two institutions. I might hand you that, Mr. Hughes. That is a corroboration of my statement. There is three per cent, paid by two institutions, which I will explain. BY MR. HUGHES: Q. This is a statement of the interest which is received on the balances in the different banks? A. In the different institutions, yes. Q. Opposite the item, National Bank of Commerce, I find "Securities, Loans on B. & M. account, Collateral Loans." A. That is what we use them for. Q. How do you mean? A. We check when we buy secur- ities. Q. That indicates the purposes for which you use the account? A. That is used for death claims. I knew you would ask me that afterwards, and I had that in mind. 594 Testimony of Frederic Cromwell Q. The mark opposite the name of the bank shows the purpose of the account? A. Yes. Q. And where there is no remark opposite the column it shows it is not an active account? A. No. Q. Where you keep a balance? A. Keep a balance and take out as we see fit, without any obligation to keep it. Q. But as a rule you do not check against it where no remark is made? A. No. You will see two institutions at three per cent, are of a different character. MR. HUGHES : I will offer this statement in evidence. Q. The amount on the left hand side of the page is the rate of interest you receive on the balances? A. Yes. Q. Is that computed on yearly balances with the Morton Trust Company? A. On yearly balances and paid monthly. The paper was admitted in evidence and marked Exhibit No. 63, and read by Mr. Hughes. Q. Your present holdings in the National Bank of Commerce are 36,088 shares. You have furnished me a statement of bank and trust company stock owned by you on June 30, 1905, show- ing the number of shares, date of purchase, dividends, cost price, book value, market value, amount credited to profit and loss from sale of stocks and excess of market value over net cost. A. Yes. MR. HUGHES : I offer that paper in evidence. The paper is admitted in evidence and marked Exhibit No. 64. Q. I notice that in January, 1900, or rather prior to May, 1900, 595 Testimony of Frederic Cromwell you kept no deposit with the National Bank of Commerce? A. Let me see when we had our ownership. 1900, that is true, we had no interest in the bank. Q. Having no interest in the bank, you made no deposits there ? A. No, sir. Q. But at that time your deposits, in January, 1900, for ex- ample, were $13,050,880.48, I mean your total balances were that amount, whereas in January, 1904, they were $22,923,857.34, and in January, 1905, they were $19,042,029.82. As a matter of fact, the amount of money that the Mutual Life keeps on hand in its bank balances is several millions greater than it was on the average several years ago? A. Because the Mutual Life has many millions more than it had a few years ago to invest. Q. Yes, but is it all invested in the ordinary way, to the same extent? A. Yes, I think it is, with assiduity and care. Let me add here, are those all date of January? Because our deposits in January are apt to be larger than on the 31st of December, slightly, because all our December coupons come in and are credited as cash which amount to a million dollars or more. Q. i find it stated in the insurance year book that the rate of interest realized by the Mutual Life upon the mean admitted assets in 1904 was 4.17 per cent.? A. Yes. Q. May I take that as accurate? A. That is it. Q. And according to the table in this year book the Mutual Life is in rank 41 in the rate of interest which it realized upon its assets. Now with regard to the necessity of syndicate opera- tions and the financial A. It is 41st on the list? Q. Yes. Now with regard to the financial operations now in vogue, I would like to have you give us the benefit of your ex- planation why it is, with the large facilities at your hand and with the freedom with which you enter into the syndicate opera- tions that have been disclosed, you are unable to get a larger return upon the assets than is disclosed, or to maintain a better 596 Testimony of Frederic Cromwell rank in relation to other companies than is here stated ? A. What is the rate again? Q. 4.17 per cent. That is taking your mean admitted assets for 1904 at $421,400,016 and your interest and rental receipts at $17,569,794? A. Well now you can readily see that when you ask me this question you are including among the assets not only the securities but other things which are interest paying, there- fore I have not the figures here and do not sit here to answer for all of those. I answer for the treasurer's department and for the securities. Now let me say, although this is in striking elucidation of this question — that possibly many of those — not to impute anything wrong to any of those — many of them invest in securities that we will not invest in. We do not think them safe. We are peculiarly discriminating in this thing. When I tell you, and I am telling this from memory and not from the figures before me, that we have more than $100,000,000 on bond and mortgage, it goes without saying that 4^ per cent, is the full rate for our class of bonds and mortgages. And I would say also that the real estate held by the Mutual Life not only is less than $5,000,000 — I am going out of my own province to say this, and that the uncollected interest during the last six months was less than $15,000. I am stating this from memory, subject to correction — you can see, if you get 4^2 per cent., or from that down to 4 — we have made many large loans down to 4 — you are getting a proper rate of interest for such securities. Now as to the handling of the other securities, take this matter of the trust companies. We have invested in our trust com- panies to-day an amount of $33,000,000 and over which costs us $18,000,000. Then, Mr. Hughes, I say right off we more than make that up by the wisdom with which we have invested and the gain in value, not speaking of profits, but the gain in value in these institutions. In the first place, largely we have made 597 Testimony of Frederic Cromwell $22,000,000 in the question of values in our securities in the last few years, which came to our policyholders. Q. You get that by taking the market value based on quota- tions, which very largely are taken from sales of small lots? A. No, sir, our valuations are taken in this way. They are taken and marked down. I go so far as to say that men who make quotations, that the Financial Chronicle people, for instance, send to us for conservative quotations on securities. We are careful enough for that. We keep a large department working up securities, and anything that happens with the securities in which we are interested, and after those valuations are put on, a special committee is appointed by our trustees before the an- nual meeting to go over these valuations, and I have yet to know a year when that committee has not said that if we erred at all it was in the low value we put upon our securities. There is no advantage in putting them higher. Q. Through your relations to the trust companies are you able to state whether the values that you put upon this stock are corresponding to their actual book values on the books of the trust companies, that is the book value of the stock, or are they higher than such book values? A. They are almost — they are lower than the market values and higher than the book values. Q. They are higher than the book values? A. Yes, there is no question about that. Q. We had an illustration the other day of the extreme diffi- culty which one large insurance company had in disposing of a block of 5,000 shares of a trust company stock. That difficulty is one which is appreciated by any financier in disposing of large blocks of securities, is it not ? A. Yes, sir. Q. And when you get to the point of actual value of the security of a bank, apart from what can be gained by dealing in it in the market, you would have to take the value of its assets, would you 598 Testimony of Frederic Cromwell not? A. The value of its assets, but also the value of what might be called in any institution its good will. Take for instance the Guarantee Trust Company, which has fifty-eight millions on de- posit and its correspondents, its associations, its London connec- tions, and so on, are of great value, more than its book value, taking simply the figures. Q. In that case, for example, you have taken the market value of its stock at 550, which gives you $3,902,689.93 excess of market value over net cost. Do you happen to know what the book value of the stock of the Guarantee Trust Company is on the books of the Guarantee Trust Company? A. No, I do not recall it, but it is not that at all. O. It is not 550? A. No, you could sell the stock of the Guarantee Trust Company, lock stock and barrel at 550, but it is not booked at that. Q. Do you want to say anything further on this subject, be- cause I was going to go back to the rate of interest, apart from this question of assets? A. I was speaking of the profits in per- fectly safe institutions. We took an interest originally of 5,000 shares, $500,000 in the Title Guarantee & Trust Company. That particularly appealed to us because from them we got large accre- tions for our bond and mortgage accounts which was necessary, and we had great confidence in the management. It filled an aching void in the matter of real estate policies and other matters, and was a great success. To show you what we have done with that company, we paid $1,120,000 for what we bought. We re- ceived in dividends when it increased its stock, we received an in- crease in stock and sold it, more than what that stock cost us. It stands on our books to-day — we received $1,230,000 — its actual cost was less than nothing and the stock to-day is selling quickly at 600, and we have half a million at par of it, and it cost us less than nothing, and from the day we went into the Title Guar- antee & Trust Company it has filled a void which was required 599 Testimony of Frederic Cromwell here. It has been a great help in our own bond and mortgage business, so much so that we keep half a million dollars on deposit there at 3 per cent to help them in the furthering of their loans. We use many millions a year in bonds and mortgages that we get from them. It is a very difficult thing to place such sums of money. And we have made $1,230,000 on what cost us $1,120,- 000 and have our stock still. Q. That is by taking this market quotation as the basis of value? A. Now, in that case the Title Guarantee & Trust Com- pany upon quotation is 575. I do not believe I exaggerate any- thing when I say we can sell every dollar of stock we have at over 600. It has sold over 600, and not for anything less. Q. We shall come again to that in a moment, or in an hour, that is merely because I have so many other things to ask. You spoke a moment ago of the good will of the Guarantee Trust Company as justifying a valuation over its book value. Is that good will largely derived from the connection of the Mutual Life Insurance Company with that trust company? A. I don't doubt that the building up of its business was assisted by its asso- ciation, but it has to-day — pardon me for taking the time — so many correspondents and so many channels of business which it could convey to any new company that I presume we have assisted very largely in building that up. O. Is it your idea that the stock of the Guaranty Trust Co. held by you could be marketed at $550, if it was known that the Mutual Life was going to withdraw connection with it and its deposits from it? A. Well, that is a problematical question. I should think so. Q. Very problematical, isn't it? A. Not very; but when you ask any one whether they can sell en block 10,000 shares of stock Q. That is a serious matter. A. Pardon me right here, Mr. Hughes, if you will pardon this digression ; I have digressed too 600 Testimony of Frederic Cromwell much. This matter of ownership of the Mutual Life Insurance Co. in trust companies was not a thing hidden under a bushel. It is put in our reports, it is sent to every one of our policy holders ; they know our exact interests. This matter of association of the parties in interest, our president and our treasurer, in the trust companies, is not a thing that is concealed. You see it in every advertisement. I am on the Finance Committee, president on the Executive Committee, and the president as well. It is no secret. We have these large interests, the policy holders are told of it. We can tell them what we make by it, and we can tell them that the same men who have brought the company to the position it is in now are also at the helm of these trust companies. It is told in all the advertisements. Q. I think that is very well known, Mr. Cromwell. A. We never conceal it. Q. Now, let us go back a moment to the point of departure, and that is as to the rate of interest which you make, leaving out the profits on resales of secuities. I understand that it is, ac- cording to the table that I have shown you, 4.17 per cent., and taking into consideration the profits realized on sales, I under- stand that it is 4.54 per cent. Now, there are a great many companies that are mentioned here who get even better rates than the Mutual Life. I do not want to refer to those with any view of suggesting their business is handled in any better way than that of the Mutual Life, but I want to get at this point, to what extent you are really benefited by maintaining the large deposits that you do in various companies, and by entering into syndicate operations the way you do, and to what extent an adequate return for the employment of your money or an equal return to what you now enjoy could be obtained by other methods. That is the question that we are dealing with, so any allusion I may make to other companies is only for the purpose of eluci- dating that question. For example, I find that on the rate of 601 Testimony of Frederic Cromwell interest alone, according to this table, the Northwestern Mutual has a rate of 4.47 as against the Mutual Life 4.17; I find here the Connecticut General at 4.52, I find the Mutual Benefit 4.57 — I should not have said the Connecticut Mutual, this is the Con- necticut General — I find the Connecticut Mutual at 4.70 and a great number of companies who make more money apparently on the investment, although you may say you make it up very largely by the increase gain on the securities you handle, but I am dealing entirely with this matter of investment and conser- vatism in investment as opposed to taking part in operations in syndicates and flotations of large blocks of securities, etc. Will you explain to me why it is that the Mutual cannot make more money? A. I will. Now, I am very reluctant to speak of other companies. You can understand that. I have the greatest respect for all of these companies. In the first place let me state this fact — make this firm statement — that if the Mutual Life Insurance Company can make, as you say 4.41 the Committee and the Mutual Life Insurance Company are well satisfied. Q. 4.17? A. The policy holders are well satisfied; 4.17. Q. 4.17? A. 4.17; that is before adding the sales; it was 4.50, I think. Q. With the profits and sales? A. With the sales. Our actuary, were he sitting here, would tell you that the highest rate of interest required on our policies is 3% per cent. With us the main point is safety. We have to-day a list of $248,000,000 of personal securities and not a bond in default, or a stock not paying- its interest, except, as I say, the Mutual Alliance, which, as I say, is a new trust company. I don't want to refer again to Mr. Tappen, but these securities now — the Northwestern Mutual, I suppose they would get higher rates on their mortgages in the locality of Milwaukee and Ohio than we can here. We can loan money at 5 per cent., but not safely. I think you know 602 Testimony of Frederic Cromwell the conditions of our bond and mortgage showing, that safety is our first point. When I tell you that out of $248,000,000 there isn't a thing in default, to say more, or a thing that gives me anxiety, you can see this is a thing that needs great care. Now, as to these other companies, they may carry as assets things that we wouldn't carry as assets. You will find we use a great dis- crimination. I think you will find nothing in our assets we don't believe in. MR. BECK: Mr. Hughes, you would have no objection to asking the witness whether the Northwestern Mutual charges 6 per cent, on loans ? THE WITNESS : I don't like to say anything about other companies. They charge 6 per cent, on loans. Q. And what do you charge? A. Five. Q. So there is a large difference in the rate of income from that cause? A. Yes. Q. Why don't you charge your policyholders 6 per cent. ? A. That you would have to ask the committee that passed that reso- lution. I wasn't even a member of the committee that passed it. They decided that five was fair. MR. BECK: Mr. Hughes, to clear up the matter to which you were just referring, might I also suggest a question to the witness, if the Mutual Life Insurance Company had not gone into these trust companies, and also if they had not gone into these syndicates whether the average rate of interest of 4.17 would have been greater or less. I think that is the way of testing whether the rate has increased or decreased by the fact as to which you are investigating. 603 Testimony of Frederic Cromwell MR. HUGHES: I don't know as that could be more than Mr. Cromwell's conjecture. We might, of course, with due respect for everything Mr. Cromwell tells us, say it would be his opinion, but I would ask what that would be. THE WITNESS : I think that was all covered by the little address you were kind enough to let me deliver yesterday. If we buy securities on the ground floor, of course we will get a better rate of interest than if we buy them on the second or third stories up. That covers that fully. Q. Looking at the list of securities now owned by the Mutual Life Insurance Company I find a large number which are headed "United States Mortgage & Trust Company, E, F, G, H, I, J, K, L, M and N," apparently different series of bonds of the United States Mortgage & Trust Company. The Mutual Life In- surance Company has six millions or upwards invested in those bonds, has it not? A. You have the statement there. Q. What ? A. Just as it is there. Q. Well, it is a very large amount in these different series. Do you happen to know what these bonds are secured by? A. I think — I will tell exactly as far as I know, but I think Mr. Timpson, who is one of the directors — trustees, can give you more accurate information. But let me say their bonds are issued against first mortgages. Q. I see. A. Not to be obtained here in New York. With first mortgages under a safe margin and under certain restric- tions the mortgages deposited with the trustee, and with safe securities. They have redeemed a million or two of them. Q. In other words the United States Mortgage & Trust Com- pany loans its money on mortgages and those mortgages are put up as collateral for debentures or bonds, and those bonds are to a large extent taken by the Mutual Life Insurance Com- pany, quite apart from the deposits which you make with the 604 Testimony of Frederic Cromwell United States Mortgage & Trust Company. Now, what rate of interest do you get on the bonds that you take from the United States Mortgage & Trust Company? A. 4 per cent. Q. 4 per cent.? A. 4 per cent. Q. What rate of interest does the United States Mortgage & Trust Company get on the mortgages which secure those bonds ? A. They . I will get you to defer those questions to Mr. Timpson because I . Q. Well, subject to correction. A. They are in the business to make a half per cent, I think, I don't think they make more. Q. Isn't it well understood that the United States Mortgage & Trust Company gets the benefit of a half per cent in the interest on those mortgages by making the loans? A. Yes. Q. And then issues the bonds against the mortgages which you take and invest in them at 4 per cent. In that way you lose a half per cent.? A. Yes. Q. For the benefit of the Trust Company? A. No, sir. Q. Part of which you get back through your ownership of stock in the trust company? A. Yes. Now ask me the reason. Q. I would be very glad to have you state the reason. A. The reason is this : In connection — it was to increase our bond and mortgage investments. It is part and parcel of all that I have been saying; the difficulty of investing our money. Now, these bonds and mortgages we can't invest in, that is, we don't wish to. They are out of town. Q. Why not do it directly, then? A. They are out of town — hecause we haven't the machinery. Q. You have a well equipped bond and mortgage department. A. Not for that. That is a different department. Except in ■certain cases, where we loan thirty or forty per cent, on one "building — that is very seldom — we don't loan out of town. Q. You could get those as easily directly as you could indi- Tectly? A. You could not, no. If you went down to the United 605 Testimony of Frederic Cromwell States Mortgage & Trust Company you would find that requires an office of itself, examiners of its own. They have direct associations with people from Dan to Bathsheba, don't you know, to loan on the local bonds — on the local improvements of the place. We don't go there, we can't do that. Q. What supervision have you over the security on which you loaned in effect, by taking the bonds of the United States Mort- gage & Trust Company? A. We have them carefully inspected. They are put in — they have no — they are deposited with the trustee — the trustee allows no retirement of a bond without the substitution of one of equal value, and he requires examination and the certificate of the examiner as to that, and every pre- caution is taken in that. The details of that, as I say, I couldn't give you fully, but they are fully examined. I would like you also to ask Mr. Timpson when he comes for a statement of the arrears that have been in that department for a number of years, how that has come out. O. Well, I am interested just now in seeing what steps you take to make sure that the United States Mortgage & Trust Com- pany has got good mortgages for the debentures which you pur- chase. MR. BECK : Mr. Hughes, that is rather a legal question. Will you allow me to suggest as a possible question that the United States Mortgage & Trust Co., which issues these debentures, like- wise gives its personal guarantee that they will be paid. MR. HUGHES: We are quite well aware of that, back of which is the Mutual Life itself to the extent of one-half. MR. BECK : To the extent of its ownership. MR. HUGHES : I am not asking now, if you will pardon me, a legal question. I am asking for the actual machinery adopted 606 Testimony of Frederic Cromwell by the Mutual Life to make sure that there is good security up against the debentures that it takes from the United States Mortgage & Trust Company, with this object, that I will plainly state, to bring out what supervision you exercise to protect your- self as -to the debentures which would not be sufficient for you in case you should make the loan direct? A. The supervision is that we have upon their committee representative men of our Finance Committee who watch that. Mr. Charles R. Henderson and the president and others of the Committee, and we always have — I always have Mr. James Timpson sitting on the top of it. He knows. That is why you should call him. He has been over that. 7«;-;p Q. Your security is Mr. Timpson? A. Well, my personal security is that he won't let anything go past him, if you want to know. Q. I see. So that really Mr. Timpson is supposed to look over these loans of the United States Mortgage & Trust Company and be sure that they are good loans, adequately securing the deben- tures ? A. And the others on the board. Mr. Henderson is on that committee. I don't doubt that. Q. You do go over that ? A. Oh, yes. To what extent I can't tell you. Q. If you do all that, why couldn't you make the loan direct and save the interest? A. Because we could not loan at Seattle and Tacoma and Atlanta, Georgia, without complex machinery which we don't propose — we don't do the banking" business and don't do the mortgage business. Our home office is right here. I don't want to criticise these other companies, but we don't loan on such scattered real estate securities as they do. Q. Well, you say you don't but really you do, because you loan on the debentures secured by those. Now, the only point I want to get at is why don't you save the interest as long as you are doing the thing by making the loans directly instead of having 607 Testimony of James N. Jarvie them go through the United States Mortgage & Trust Co. ? A. I don't believe we would save very much if we undertook the machinery, I think, and we have too much to do without it. Q. Now, that is very important, that you wouldn't save very much. Have you made any calculation to assure yourself of that? A. No, sir. Q. Do you know what a half per cent amounts to in the amount you invested last year in the United States Mortgage & Trust Co. debentures ? A. No. I am not going beyond . Q. I would like to have you prepare a statement and see whether there is anything in the suggestion that perhaps the rate of interest is to some extent affected by the large balances which you keep in banks, and by the amounts which you allow your sub- sidiary companies to make, if you can make such a statement. A. Pardon me, I did not catch that. Q. I say, we would like to know whether the rate of interest which the Mutual Life gets upon its investments is in any way affected by the transactions which it has with its subsidiary com- panies, allowing them to make money, or by the balances which it maintains with the banks and the trust companies. In other words, whatever light you can throw upon that subject. Now, some of the members of the Finance Committee are here, and if you will get down for a moment, I will call them. A. Now, let me add one thing, Mr. Hughes. It has been the fixed policy with us not to loan on out of town real estate except in exceptional cases — the company itself. Q. I would appreciate that statement much more, Mr. Crom- well, if the fact wasn't that through a company you own those loans are actually made. A. Well, they provide the machinery. JAMES N. JARVIE, called as a witness and being duly sworn, testified as follows: 608 Testimony of James N. Jarvie BY MR. HUGHES : Q. Mr. Jarvie, you are a resident of this State? A. I am a resident of Montclair, New Jersey. Q. Oh, yes. And you are a trustee of the Mutual Life Insur- ance Company of New York ? A. I am, sir. Q. And on its Finance Committee? A. I am, sir. Q. How long have you been in that position ? A. I have been a trustee in the company for about eight years, I think. The records will show that; I am not positive. Q. And how long have you been in the Finance Committee? A. Something over two years. Q. Have you held any other office in the company? A. I be- lieve I am in the Insurance Committee. Q. Are you a director in any other financial institutions ? A. I am. Q. In what? A. The Central Trust Company, Bank of America, Bank of Commerce, Guarantee Trust Company and the Mutual Alliance Trust Company, Morton Trust Company, and it may be of two or three others. Those are the ones that I recall. Q. Are you a director in the Morristown Trust Company ? A. I am not. Q. Are you connected with the United States Mortgage & Trust Company? A. I am not. Q. We had yesterday a list presented by your company of cer- tain syndicate operations in which it has been engaged during the last five years. I believe you, as a member of the Finance Committee, have acted upon the propriety of those operations, and it is needless to say that you approve of them. Will you kindly state to the Committee why you regard it as necessary and proper for the Mutual Life Insurance Company to participate in syndicates ? A. In the first place, it is profitable, and in the second place I don't think they could acquire large lots of secur- 609 Testimony of James N. Jarvte ities without they were interested in the syndicates. I mean to say at the lowest market prices. Q. Do you go into some syndicates and refuse to go into others? A. That is usually done by the sub-committee, and I am not on the sub-committee generally. Q. You are not a member of the sub-committee? A. No, sir. Occasionally I sit in that committee, when some member is ab- sent ; but I am not a member of the committee. Q. As a matter of fact, you as a member of the General Com- mittee, do nothing more than pass upon what has been done by the sub-committee? A. Generally. Q. Very rarely are the matters at first brought before the General Committee? A. Rarely. Q. Have you yourself participated in syndicates? A. Not personally. Q. At no time? A. At no time. Q. Either in the last year or two or in prior years? A. No, sir. Now, I would like to make this statement; I am a member of the firm of Arbuckle Brothers, that are investors of money, and for a number of years past we have been a participant in the different syndicates. Q. That is your firm has? A. That is my firm has. Q. Your candor, it is needless for me to say, does you great credit, Mr. Jarvie. I should not probably have thought of ask- ing you about your firm operations. Has the firm of Arbuckle Brothers taken part in any of the syndicates, in which the Mutual Life has participated? A. I presume they have. But I beg your pardon, but I don't think Arbuckle Brothers are here to be questioned. That is a private firm and they have no interest with the Mutual Life in any way, shape or manner in any syndi- cate the Mutual Life has ever been in. Q. What is that? A. I say they have had no interest with the Mutual Life in any syndicate the Mutual Life has been in. 610 Testimony of James N. Jarvie Whatever syndicates we have been in we have done independently of the Mutual Life Insurance Company, and long before I was in the Mutual Life Insurance Company we did that business. Q. Do I understand that Arbuckle Brothers have been in syn- dicates where the Mutual Life has also been in the syndicates? A. I dare say they have. Q. And you are a member of Arbuckle Brothers? A. Yes, sir. Q. And have taken your share of the profits which Arbuckle Brothers derived from said syndicate's participations ? A. I have taken a share of all the profits that I am entitled to. Q. Undoubtedly, including that that I have just stated? A. Yes. Q. So that while I have no desire to go into the affairs of Arbuckle Brothers, you will understand that as you take part of the profits of Arbuckle Brothers, the question as to the profits, your profits, in connection with such participation, is a pertinent inquiry? A. Well, I would like to say this, I presume you want to ask me the question whether we have been influenced by whether the Mutual Life Insurance Company has gone into these transactions ? Q. I would be glad to have you state fully as to that. A. We have not. Q. You have not? A. In no way. Q. You regard your judgment on these matters entirely sep- arate and apart from any action you have taken as an officer or director of the Mutual Life Insurance Company ? A. I do. Q. Well, that statement has been made. I am very glad to have it appear upon the record. It is, however, desirable that we ascer- tain just what the extent of this practice is. Now, with regard to the syndicates that the Mutual Life has been a party to, we find among them the Cuba Bond Syndicate. Was your firm in that? A. No, sir. 6n Testimony of James N. Jarvie Q. And the Pennsylvania Railroad three and a half convertible syndicate, was your firm in that? A. Yes, sir. Q. To what extent? A. Am I obliged to answer that ques- tion, Mr. Chairman? THE CHAIRMAN : Oh, yes. A. The firm of Arbuckle Brothers, then, is here under inves- tigation. I have made the statement that as far as the Mutual Life Insurance Company is concerned that that had no influence in our going into the different syndicates, as we have done it long before I became a member of the Mutual Life Insurance Company, that is all. Q. You have made that very clear, Mr. Jarvie, but still the actual participation of members of the Board of Directors of insurance companies in the profits which to some extent are the result of the investments by the insurance companies in securities!, is a pertinent matter in this inquiry, and it is my duty, althougn it is just as disagreeable for me to ask the question as it is for you to answer them — to press the inquiry. A. All right, sir. We were in to the extent of $200,000. Q. What was the profit of Arbuckle Brothers in that? Or I don't suppose your profit was segregated from theirs? A. No; I don't know what the profit was. Q. Was your firm in the Southern Pacific first refunding four per cent, bonds? A. It was not. Q. United States of Mexico? A. It was not. Q. Atchison, Topeka & Santa Fe convertible bonds? A. It was not. Q. Pennsylvania Railroad shares? A. It was not. Q. In Oregon Short Line fours? A. No, sir. Q. In Oregon Short Line refunding ? A. No. Q. In Imperial Japanese? A. Yes. 612 Testimony of James N. Jarvie Q. In which series, first series? A. The two series of four and a half per cent bonds. Q. To what extent in each? A. Fifteen thousand pounds in the — twenty thousand pounds in the first, and I believe fifteen thousand pounds in the second. Q. In Atchison, Topeka & Santa Fe? A. No, sir. Q. In Chicago, Burlington & Quincy? A. No, sir. Q. In Third Avenue Railroad? A. No, sir — I don't know whether they were in the Third Avenue Railroad or not. Q. In Missouri Pacific fours? A. No, sir. Q. In Pennsylvania Rolling Steel? A. No, sir. Q. In Norfolk & Western? A. No, sir. Q. I have mentioned a number. I don't care to go further in particularization. Is there any other that you recall within the last three years, say ? A. There are no others that I recall. Q. Has your firm been in any syndicate participation where the Mutual Life Insurance Company, although it is not a par- ticipator in the syndicate, has purchased securities from the syndicate managers? A. No, sir — oh, yes, we bought some Japanese bonds. Q. Well, you mean your firm bought them? A. The firm bought the Japanese bonds. Q. That wasn't quite what I was asking, because there the Mutual Life was in the syndicate. I am speaking now of the cases where the Mutual Life Insurance Company was not in the syndicate but purchasers in the market, but your firm was in the syndicate getting a share of the profits, contributed to by that purchase, whether there was any such case as that? A. No, sir. MR. HUGHES: That is all, Mr. Jarvie. Pardon me a little, and let me ask you one more question. 013 Testimony of James N. Jarvie Q. Comment has been made upon the fact that some of the Directors of the Mutual Life Insurance Company are not citi- zens of the State of New York, there being a requirement in the Charter of that company that the Directors shall be citizens. Is it a fact that you have regarded the provision of Section 37 of the Insurance Law, that a greater number than the majority of the directors of a specially chartered corporation shall not be required to be residents of the State, as a sufficient answer to that objection? A. I never have considered it. MR. HUGHES: I suppose that is the fact? MR. BECK: I don't know. MR. HUGHES : I bring it out because a good deal has been said about that, and I think we should have the fact, as it ap- pears of record that several of the trustees are not citizens of the State — as well as the law. MR. BECK: I will ascertain and let you know. MR. HUGHES: Will you speak to Mr. McKeen about it? I will read upon the record, if you will pardon me, the fol- lowing provision of Section 37 of the Insurance Law, referring to domestic corporations heretofore incorporated or existing under the provisions of a general or special law of the State, as follows : "A greater number than the majority of the directors of any such specially chartered corporation shall not be required to be 614 Testimony of James N.J ar vie' resident of this State, notwithstanding the provision of any special law." MR. BECK : Now, Mr. Hughes, before you leave Mr. Jarvie, I want to suggest just one question that I think will bear upon this question of the participation of the trustees in various syn- dicates. May I ask it directly? MR. HUGHES : Yes, sir. BY MR. BECK: Q. Mr. Jarvis, if by reason of your connection with the Mutual Life Insurance Company you were not at liberty to invest your private funds or the private funds of the members of your firm as you pleased, would you remain a trustee of the Mutual Life Insurance Company? A. I would not. Q. Do you think the Mutual Life Insurance Company could have a Board of Trustees composed of men of experience and affairs, if their liberty to invest their private means as they pleased was impaired or withheld? A. I do not think they could have. MR. HUGHES: Please resume the stand, Mr. Jarvie. BY MR. HUGHES: Q. Mr. Jarvie, do I understand that you consider it proper for you or your firm to make money out of the purchases by the Mutual Life Insurance Company of bonds? A. We never have made money out of them. Q. You do make money out of it, when the Mutual Life Insurance Company buys bonds from syndicate managers, and 6i5 Testimony of Charles R. Henderson you have a profit in the syndicate? A. As a participant in that syndicate we do make money, yes. Q. You do? A. Yes. I think I have answered that question in this way. I told you that when Arbuckle Brothers went into a syndicate or participated in a syndicate that the Mutual Life going in had no influence on their judgment. Q. That isn't the question I am asking you. Counsel for your company has raised a question as to the terms upon which you would be willing to remain a trustee and of the possibility of getting men to act as trustees of your company under certain conditions. Now, I want to know whether the fact is that your being a trustee of the Mutual Life is upon the condition that you can make money out of the purchase by the Mutual Life of securities? A. No. MR. BECK: Such was not my question. MR. HUGHES : I know it wasn't, but it is mine. MR. BECK : All right. MR. HUGHES : That is all, Mr. Jarvie. CHARLES R. HENDERSON, called as a witness and being duly sworn, testified as follows: DIRECT EXAMINATION BY MR. HUGHES : Q. Mr. Henderson, you reside in the City of New York? A. Yes, sir. Q. And what is your occupation ? A. Banker. Q. In what firm ? A. Henderson & Company. Q. And who is the company? A. It is comprised of myself, Norman Henderson and L. Hatsfeldt. Q. For how long have you been a trustee of the Mutual Life 616 Testimony of Charles R. Henderson Insurance Company ? A. I think about eighteen years, if I recall it. Q. And you have been for many years on the Finance Commit- tee? A. Yes. Q. Are you on the Finance Committee simply, or on the sub- committee as well as on the Finance Committee? A. I am on the Finance Committee, and once in a while in the absence of a member of the sub-committee I am invited to meet with them. Q. For the most part, however, in your discharge of duty as a member of the Finance Committee, you have been called upon merely to approve what has already been done by the sub- committee ? A. Well I— yes, sir, but I think if I didn't approve of their action I would certainly say so. Q. Undoubtedly. In other words, you don't disclaim respon- sibility for what has been done ? A. Not in the least. Q. Now, a good deal has been said by the prior witnesses as to the syndicate participations of the Mutual Life Insurance Company. It occurs to me to ask you this question, why is it impossible for the Mutual Life Insurance Company, when there is a large flotation of securities, by a railroad company, we will say. that is anxious to borrow money upon its bonds, which are perfectly good, for an investment, for the Mutual Life Insurance Company to take that directly from the Railway Company? A. Well, if the railroad company would come to the Mutual Life Insurance Company it would be very glad to. do it, to deal with them, but, as a rule, the issue is so large that it is very important to the railroad company that it should go to a banker, who can distribute that around to the different investors, and thereby assure the issue of the loan, or the sale of the bonds. Q. Then I understand, if a railroad company desires to issue a large amount of bonds, it is practically compelled to deal with the banking houses ? A. For their own interests, I think is is, yes. 617 Testimony of Charles R. Henderson Q. It couldn't safely undertake with a large notation to handle it directly with investors? A. I think not; no. Q. Being compelled to deal with a banking house the banking house wants to control the entire issue? A. Yes, sir. Q. It is not satisfactory to the banking, house to have the Mutual Life Insurance Company take an investment directly in the bonds of the railroad company, but the banking house wants the Mutual Life Insurance Company to participate in the syndi- cate that is formed for floating the bonds ? A. Well, the banking house would a great deal rather have a railroad come to them, naturally. Q. Naturally, and when the banking house takes the matter up it wants to control the entire flotation? A. It wants to con- trol the entire flotation. Q. And if it has any influence with the insurance company it wants to have the insurance company in the syndicate and not acting independently? A. That would be the way it would be generally worked, I should think. Q. So that, even when the Mutual Life, the largest stockholder of the Pennsylvania, desired to invest in some of the bonds of the Pennsylvania, more convertibles, it practically had to do it through a banking house, did it not? A. I should think so. Q. At all events, it didn't take the bonds that it was entitled to take as a stockholder, directly ? A. It would have taken them if it could have gotten them, certainly. Q. Well, it could have gotten them under its option, its right as a stockholder ? A. If they thought it a desirable investment they would have ; they may not have thought it a desirable investment at that time to buy. Q. It did think them good enough to buy four millions? A. I don't know what transaction you refer to. Q. And then sold three millions and kept a million, perhaps not desiring to hold them, but feeling it to its interest as a stock- 618 'Testimony of Charles R. Henderson holder to do it. The point is this, why is it that the Mutual Life Insurance Company cannot take, in such a case as that, bonds directly from the railroad company ? Is it because it would prejudice the relations of the Mutual Life Insurance Company and banking interests? A. No, I should say not, sir. Q. Well, what better reasons? A. Well, I am not prepared to answer. We sit there as a committee and propositions are made to us, and at the time we think they may be good, or we may not think it advisable to go into it, and we act upon our judgment at that time, using our best judgment, as it comes up. Q. I was not accurate in what I said a moment ago when I said that the Mutual Life Insurance Company resold Pennsyl- vania bonds. As a matter of fact, my attention is called to the fact that they still hold four millions. So that they were willing to take four millions, but they took them through the syndicate. Isn't the real fact that you recognize the desire of the bankers to control the issue and the importance to the railroad company that the entire issue should be floated, and so you go in through the bankers into the syndicate rather than take directly ? A. Well, what reasons prompted us to do it at that time I am not able to say, because we, as these matters come up, deal with them with the best judgment we have. Conditions may change after- wards and we may conclude to do something else. Q. Is my statement not in accord with your idea of the fact? A. I don't know ; I don't quite grasp it. Q. Do you yourself participate in syndicates? A. No, sir. Q. Or your firm? A. Yes, sir. Q. Was your firm in the Republic of Cuba syndicate ? A. No, sir. Q. Either of them? A. No, sir. Q. Nor in the Pennsylvania Railroad 3V 2 convertible bond syndicate? A. I am not sure. Being a banking house we are invited by the various bankers that get up these syndicates from 619 Testimony of Charles R. Henderson time to time to enter the syndicate, and when we can do so, or when in our judgment is a good investment, we do so. Q. Do you ever refuse? A. We do. Q. Frequently? A. I can't say; from time to time. Q. When you are invited to take a participation in a syndi- cate isn't it generally understood that you are expected to do so? A. You are expected to use your own judgment about it. If you don't care to go in you don't go in. Q. Was your firm in the Southern Pacific first refunding 4 per cent, bonds? A. I don't think so. Q. In the United States of Mexico ? A. No, sir. Q. In the 4 per cent, bonds? A. No, sir. Q. And the Atchison, Topeka & Santa Fe convertible bonds syndicate? A. I don't think so. Q. In the Pennsylvania Railroad shares? A. I think we were there to a small extent. Q. To what extent? A. To a small extent. I forget what it was. It was a good many years ago. Q. 1903? A. Yes. Q. You don't recall the extent? A. No. It is possible we were in it. I don't know. Q. Oregon Short Line 4's ? A. I think not. Q. Oregon Short Line refunding purchase? A. No, sir. Q Imperial Japanese 6 per cent, bonds? A. Yes, sir. Q. In the first series? A. I know we were in the second series. Q. The 4V2 per cents.? A. Because we subscribed for bonds for some of our customers at the same time. Q. Were you in the second series of 6's ? A. I think we were. Q. And in the 4V3S as well? A. I think we were not in the 6's, but in the second series of 4 1 /2.' s - I think that was it. I don't recall the matter. 620 Testimony of Charles R. Henderson Q. In the Atchison, Xopeka & Santa Fe 4 per cents. ? A. No, sir. Q. East Oklahoma purchase or Chicago, Burlington & Quincy purchase? A. Not that I remember. Q. The Third Avenue Railroad consolidated bonds? A. No, sir. Q. In the Pennsylvania Steel rolling stock? A. No, sir. Q. New York Central & Hudson River? A. No, sir. Q. Pittsburg, Cincinnati, Chicago & St. Louis 4's.? A. No, sir. Q. To save time you might look at that list which has been furnished us of the Mutual Life Insurance Company's participation and tell me in just which of those your firm was interested, or you yourself, if they refresh your recollections? A. I should have to look it over, sir. I should have to go over my own ac- count. Q. Mr. Cromwell has furnished a list, and if you would be good enough to furnish a list of your participations, or your firm's participations in syndicates in which the Mutual Life was interested I would like it. A. The matter isn't emphasized on my mind, because the question whether the Mutual Life was in- terested or the question whether the Mutual Life was inter- ested or not didn't occur to me at all. Q. Didn't occur to you at all? A. Didn't occur to me at all. and my natural interests as a banker, looking after the interests of my clients, and being on the books of these companies, they would notify me that I was allotted so much, and if I saw fit to take it I would take it, and if not, I should not. Q. And you would desire to state on the record that it in no way ever influenced your judgment as a director of the Mutual Life? A. Absolutely no. Q. The two things were not at all in your mind? A. Absolu- tely not. 621 Testimony of George F. Baker Q. Of course, you understand the matter comes up now by rea- son of the matters under discussion and the practice in that re- gard must be inquired into? A. Certainly. Q. The inquiry is broad enough to cover cases where the Mutual Life Insurance Company bought bonds from syndicate managers, although the Mutual Life itself may not have been in the syndicate, and if you would be good enough to furnish a statement which would cover cases of your participation and the participation of the firm, I shall not detain you further at the present. A. Thank you, sir. GEORGE F. BAKER, being duly sworn, as a witness, tes- tified as follows: BY MR. HUGHES: Q. Mr. Baker, you reside in the City of New York? A. Yes, sir. Q. You are president of the First National Bank? A. Yes, sir. Q. You are a trustee of the Mutual Life Insurance Company? A. Yes, sir. Q. And have been for many years? A. Yes, sir. Q. You are a member of its Finance Committee? A. Yes, sir. Q. Are you a member of the sub-committee of the Finance Committee? A. No, sir. Q. As a rule your action as a member of the Finance Com- mittee has been approving what has been done by the sub-com- mittee? A. Yes, sir. Q. The Mutual Life Insurance Company carries a large bank balance? A. Except loans on bonds and mortgages, I think. They generally come before us. 622 Testimony of George F. Baker Q. Loans on bonds and mortgages? A. Yes. Q. Before the general committee ? A. Yes, sir. Q. But investments' on securities come before the sub-com- mittee? A. Yes, sir. Q. You never originally act on those, do you, from time to time? A. Practically never. Q. But you scrutinize them when they come in and are re- ported to the full committee? A. Yes, sir. Q. Are you a director in any of the institutions that are affili- ated with the Mutual Life Insurance Company? A. Yes, sir. Q. The Guarantee Trust Company? A. Yes, sir. Q. The United States Mortgage & Trust Company? A. No, sir. Q. The Morristown Trust Company? A. No, sir. Q. The Morton Trust Company ? A. The Morton Trust Com- pany? Q. Yes. A. Yes, sir. Q. The National Bank of Commerce? A. Yes, sir. Q. The Mutual Life Insurance Company maintains a consider- able balance with the First National Bank, I believe? A. Yes, sir. Q. On which it receives 2 per cent, interest? A. Yes, sir. Q. And that balance seems to run in the neighborhood of a million dollars or a little over a million dollars, as I look through these sheets hastily — is that about right? A. Yes, sir. It is the death claims money. When money is, I believe, appropriated for the payment of the death claim it is deposited in the bank. Q. Is that an active account? A. Yes, sir. Q. But still the balance of about a million dollars is main- tained? A. Yes, sir, that balance is considerably made up from floating checks. They send to a person who — the heirs, a check and sometimes it don't get around to the banks for quite a while and we get the benefit of it. 623 Testimony of George F. Baker Q. I see. Is the account of a different character from that kept in the bank by the New York Life Insurance Company, of which mention was made the other day, on which they get a special rate of interest? A. Oh, entirely. Q. Oh, entirely different. In the other case there is an un- drawn balance, mot fluctuating, I suppose ? A. Well, it fluctuates, but not in a business way like that. Q. But this you understand is an active account? A. Ab- solutely. Q. Does that mean that the balance might be one day down to $200,000 and the next day up to a million and a half, and so on ? A. I think not, because, as I said, I understand it is merely given out for checks that they pay out for deceased claims. When they pass the claims and the money on them and mail the checks for them they deposit the money in the First National Bank, and send the checks to the parties to whom they belong. Sometimes these balances in the bank are much larger than they show on the books of the insurance company. I think I state that cor- rectly. Q. Now, Mr. Baker, we all appreciate your position in the community and the value of your opinion on such matters as these, and we would be very glad to hear what you have to say as to the advisability of an insurance company going into syndi- cate operations. A. Well, it generally enables the insurance company to get bonds at a cheaper price than it otherwise could. Q. That would be the only justification? A. I think that is the only thing that occurs to my mind now. Q. Is it necessary for an insurance company with the funds at its command to such an extent as the Mutual Life Insurance Company, to take bonds through syndicates? Couldn't it get them directly at ground-floor prices? A. I don't believe they could, sir. Q. Suppose it were known that the Mutual Life and the 624 Testimony of George F. Baker Equitable Life and the New York Life would take bonds di- rectly from the railroad companies that wanted to borrow money, don't you suppose they could get as advantageous a price as they could through any banking house? A. If it was a small issue I think they could, but the recent issues you were speaking of, the Pennsylvania three hundred million loan, those three com- panies wouldn't want to take so large a block as the bankers could take. Q. And of course if the bankers undertook the flotation they would want to control the entire issue? A. Yes, sir. Q. And it would be to the interest of the railroad company to make an arrangement satisfactory to the bankers? A. They always seem to think so. Q. The effect would be that the bankers would get the control of the issue, and then to get in the insurance companies would have to deal with the bankers? A. Practically. Q. That is about the way it usually is, isn't it? A. Yes, sir. And the bankers generally let the insurance companies in on what might be called the hard-pan basis. Q. They let them in if there is an original syndicate and after- ward a purchasing syndicate, on the original syndicate basis? A. That is a thing governed by the banks. Q. The bankers consider it will help the flotation if institu- tions having a reputation for conservatism would help the thing by taking a large block? A. I don't think they would let them in it if they didn't. Q. In other words, it is an aid to the flotation to have a sub- scription from an insurance company, isn't it? A. Yes, sir. Q. It is a large help in the dealings between the bankers and the other investors, it helps them on the public offerings? A. Yes, sir. Q. And then when they are put on the public offerings and 625 Testimony of George F. Baker the insurance companies buy at the issue price, that is a great help to the market, isn't it. A. Yes, sir. Q. Naturally? A. Yes, sir. Q. Now the question has been mooted of late, although it apparently a little while back didn't receive any attention, as to the participations of those who deal with the mutual life insur- ance companies and refunds of other companies in syndicate operations that sell for their own benefit. You have heard practically the questions that I have put to the other gentlemen upon the stand. Have you been a participator yourself in syn- dicates? A. Yes, sir. Q. In syndicates in which the Mutual Life was also a partici- pator? A. Yes, sir. Q. Did that in any way affect your judgment on any matter coming before you as a trustee of the Mutual Life? A. Well, that came to me entirely through my business with the First National Bank, and never had any connection, either directly or indirectly, in any way, shape or manner with the Mutual Life. Q. I see. You as an officer of the First National Bank were in a position to know of the syndicates and to get opportuni- ties in syndicates? A. Yes, sir. Q. And the relation of the Mutual Life Insurance Company to the matter didn't enter into your thought at all? A. Not to the slightest degree. Q. At the same time the fact remained that you and the Mutual Life Insurance Company were participators in several syndicates together? A. I presume that is the fact. Q. Mr. Cromwell has given a list of his participations which form a convenient basis for the questions which I must ask you. While that is being found I will proceed. Were you a participator in the Republic of Cuba first syndi- cate? A. I think not, but if you want to ask a number of 626 Testimony of Frederic Cromwell those questions I would be very glad if you would let me fur- nish the information, as it isn't in my mind clearly. Q. I would be very glad to have you. A. And it would be more accurate. Q. I should be very glad to have you. A. And it would be glad to have you furnish a statement of the syndicate partici- pations, and make it broad enough to cover not only the syn- dicates in which the Mutual Life Insurance Company was a participator, but also the syndicates in which the Mutual Life Insurance Company, although not a participator, bought bonds from the syndicate managers and thus contributed to the profits which were divided among the syndicates. A. For how long a period back do you want that? Q. For the last five years. The matters of the United States Mortgage & Trust Company have come particularly before you for your consideration? A. No, sir. Q. You don't know anything about those? A. No, sir. Q. You don't know anything about the nature of the securi- ties which lie back of the debentures ? A. No, sir. MR. HUGHES : That is all for the present. FREDERIC CROMWELL resumes. THE WITNESS: You were asking me, Mr. Hughes, I heard you asking them, and I think you did me, whether it was necessary to buy bonds of these syndicates or whether we could not buy them from the railroad company. I think it is wise for me to say this — perhaps it is saying too much — that a few years ago I was convinced that we could buy of the railroad company. We had a peculiar relationship with some of them and were large stockholders, but I found it impossible. I might as well mention one instance. I went to my personal friend, Mr. Stuy- 627 Testimony of Frederic Cromwell vesant Fish. We had at fhat time four of their directors on our board. I said to Mr. Fish, "See here, this thing cannot go along any further, it is time for us to buy our bonds of you directly " Q. You are talking now of the Illinois Central? A. Yes, the Illinois Central, and he said he could not afford to sell the Mutual Life bonds, and I could see the justice of his remarks when he explained it, that it was a necessity for his railroad to do their business through banks en block, it could not afford to take them to single buyers, and he must keep up his associations with the bank. Q. So the railroads must keep in with the banks in order to float their bonds? A. They have to, yes, sir. Q. And the insurance companies must keep in with the banks in order to get the investments they want at low prices ? A. Yes. Q. So the banks control the situation? There is no question about it. I went once to the St. Paul Railroad and remon- strated very much because they had made an issue and did not let me know first, and I got a reply which was not at all satis- factory. You can understand their reasons. I can, at any rate. And I say that to defend my statement that we had to buy through the syndicate. Q. What do you think their reason is? A. To keep a mar- ket for the bonds. An attempt was made two or three years ago by the Pennsylvania Railroad to make a large flotation through its stockholders, and there never was, for its size, such a lamentable failure, and they went around with their hats in their hands to Kuhn, Loeb & Company and Speyer & Company and they put the enterprise through. Q. Do you think they would be so successful in carrying these enterprises through if they did not have the assistance of the insurance companies? A. Yes, sir. Q. How could they? A. They sell more bonds in Europe in 628 Testimony of Frederic Cromwell a week than we buy in a month. This is a very big world, if you will pardon me for saying so, and if the Insurance com- panies undertook to control the situation they could not do it. You have to meet the situation as it is. You cannot do that. You have to fall in and get as good securities at as favorable a rate as you can. Q. If I gather the import of your remarks, it is despite the great volume of your assets and the immense business of the large insurance companies, when it comes to investing your money you have really got the poorer end of the negotiations? A. No, we have to take our proper and proportionate value in the transaction. You must remember, as Mr. Baker says, when it comes to an investment — take this very Cuba issue of $35,- 000,000, and this Pennsylvania issue and so on — we must be participants, only to a moderate degree. I do not know how much we had in this system, but we can only invest to a limited amount. We cannot exaggerate our importance, we are only worth so much to these people. Q. Relatively, you occupy the poorer position in the negotia- tions. They can get along without you and you cannot get along without them? A. They can get along without us, if we were not wise enough to get in on the ground floor, certainly. Q. To get in on the ground floor you have to stand in pretty well with them, don't you? A. No, standing in — here is a question of the sale of the Pennsylvania convertible bonds. We paid at par for the bonds and get 1% per cent., the syndi- cate does. You know we get them at g8y 2 . It is a question of volition if we go in, and we finally go in for the sake of getting a gilt edge security at a low rate. You cannot blame the bank- ers, of course. In this world all are doing the best they can for themselves. I am but in the hands of the potter, but the Finance Committee controls this thing, and they do the best they can in 629 Testimony of Frederic Cromwell the getting of them. I did not mean to interrupt you, Mr. Hughes. Q. It is all right. It has been a very profitable digression. A. But I wanted to let you know I tried with the Railroad com- panies, and could not do it. Q. I notice in the list of the syndicates furnished by your com- pany another instance in which a syndicate interest of the Mu- tual Life was transferred to subsidiary companies. I refer to No. 42, the Missouri Pacific Fours. According to your list you had a participation of a million dollars, and you transferred the entire participation, and gave the Guaranty Trust Company $500,000, to the United States Mortgage & Trust Company $500,000, upon which each made a profit of $8,538.57. Can you explain why you did that? A. You have the figures a little wrong. It was $500,000 and we gave them each $250,000. MR. BECK : It is an error in your copy. Q. I see. You had better have a correct copy supplied, so that I may substitute it for this. MR. BECK: If there are any minor inaccuracies in it it can be corrected. MR. HUGHES : Of course. You had better have it corrected for the sake of the record. THE WITNESS: I can tell you precisely, I remember it perfectly Q. That was a case where half of the participation of the Mutual Life was divided between the Guaranty Trust Com- 630 Testimony of Frederic Cromwell pany and the United States Mortgage & Trust Company? A. Where all was divided. Q. What? A. We divided it all. Q. You did not keep any? A. We did not keep any. Q. Then this is right, don't have counsel correct it. MR. BECK: Our allotment was $500,000. THE WITNESS : The original amount was only $500,000. Q. Then the mistake was simply in the amount of the original allotment? A. That is it. Q. It should be five hundred thousand instead of a million? A. And $250,000 to each of the trust companies. Q. Then of that $500,000 you transferred one-half to each of the trust companies, is that it? A. That subscription of five hundred thousand was offered to us — I mean to the committee. And we have no interest in Missouri Pacific, had none finan- cially, I speak of, of course, and the committee did not think it judicious and did not wish to subscribe to the syndicate. I will tell you frankly what we did — I mean I did for them — we said to the bankers if they would give the amount to the two trust companies they would be glad to have them. We did not wish it, but we thought the trust companies could sell the securi- ties again, and would be glad to have them. Q. Will you produce the resolution of the sub-committee of the Finance Committee relating to that transaction, please? A. Let me finish by saying that the bankers said no, we are not giving any of these subscriptions to the trust companies, but if you will sign it, we will make our delivery and receipts and give them to the trust companies, if you will subscribe for the trust companies we will deliver them. Q. Did they assign any reason why they would give the Mu- 631 Testimony of Frederic Cromwell tual Life the participation and would not give it to the trust companies? A. That I do not know. Q. A syndicate agreement must be in terms an under- writing and an assumption of responsibility, but in practice a syndicate participation is quite frequently regarded as a favor, that is, a favor to the one who participates ? A. Yes. Q. It is a chance for him to make money with very little opportunity for loss? A. Oh, that depends entirely upon the circumstances. I have known of many syndicates where it is a chance to lose a great deal of money. That is a matter, of course, which varies with the undertaking. Q. They are not always profitable? A. No. Q. But in this particular case why were the bankers willing to give the allotment to the insurance company and not to the trust company? A. I cannot say. They offered it to the insur- ance company. We had no interest in the Missouri Pacific, and concluded not to have any. (The minutes are produced.) MR. HUGHES : The minutes of December 9, 1904, arc pro- duced. "Present: Mesers. Juilliard, Haven and Iselin, the pres- ident, Vice-President Gillette, general manager, treasurer and assistant treasurer. Kuhn, Loeb & Company advised that they had purchased at 90 and the interest from the Missouri Pacific Railroad 25,000,000 4 per cent. 40 year gold bonds secured by an equal amount of the capital stock of the St. Louis, Iron Mountain & Southern Railroad. They proposed to offer the bonds at public sale at about 95 and interest, principally abroad, and offer the company an interest in the purchase of $500,000 at 91 and interest. The Committee authorized the treasurer to accept the interest offered and further authorized the allot- 632 Testimony of Frederic Cromwell ment of the interest $250,000 to the Guaranty Trust Company and $250,000 to the United States Mortgage & Trust Company." Q. That looked like a "sure thing" syndicate, didn't it? A. I have known things guaranteed to be sold at a profit that have not been done. Q. I know, but that was anticipated to be a profitable thing? A. Yes. Q. Kuhn, Loeb & Company proposed to offer them abroad largely at 95 ? A. Well, that looks like a good thing. Q. And you did not have to buy any? A. No. Q. You were going to have a chance then to take a share in the profits resulting from the public sale at 95, your subscription being on a basis of 91. A. Yes, sir. Q. Now, why did you turn that chance of profit right over to the Guaranty Trust Company and the United States Mortgage and Trust Company? A. I would rather you would not press that question. Q. It seems to me a pertinent one. A. It may be a pertinent one for you — well, I will tell you frankly, we had never bought any of that range of securities, and concluded not to purchase. Q. You were not going to buy any, were you? A. We had never taken any interest in the Missouri Pacific system of that kind, and we were not in a position to try and get a profit out of anything when we never did invest in it. We did not wish to. Q. In other words, if you had taken a profit out of that offer of a syndicate participation it would have put you under some moral obligation? A. We felt that it would, it would associate us with that security. Q. What moral obligation would it put you under? A. Well, we did not propose to make anything out of a security of a road in which we never invested. I presume any high-toned man would feel the same thing. But the trust companies were in 633 Testimony of Frederic Cromwell the business of buying and selling lots of things which we do not. Q. It would be a matter of honor, if you were taking a mat- ter of profit through such a flotation, you should have an inter- est in the enterprise? A. Yes. Q. And as long as the Mutual Life Insurance Company did not see fit to take an interest in the Missouri Pacific and other allied enterprises, you did not think it was a square thing to take a profit on the syndicate operation ? A. That is it exactly. Q. Except, of course, as the profit was taken through your interest in the trust companies? A. Yes. Q. And did the trust companies have an interest in the Mis- souri Pacific? A. I don't know. I doubt it. I don't know whether they did or not. The trust companies frequently take things we will not. I have - people frequently coming in and wanting me to take things, and I say we do not take them, but the trust companies may take them. Q. What line do you draw with regard to a syndicate between the trust company, and the insurance company, where would the syndicate be a good thing for the United States Mortgage & Trust Company, of which you own half the stock, and not for the Mutual Life ? A. It is never good for the Mutual Life unless it is a syndicate in a company in which we are interested, and what is good for the Trust Company, they must judge for themselves. They have their own officers. I am not running them. Q. You are not, undoubtedly, but your officers are. A. Trust companies buy securities and sell, and they go into a good many things which the Mutual Life would not allow to be read aloud to them. If a trust company or institution of that kind confined themselves to securities like the Mutual Life, they would make very little money, they would have very Kttle market. We only deal in certain classes of securities, and we never go into a 634 Testimony of Frederic Cromwell syndicate or anything of an industrial character. We never go into one which does not pretend to bring out of it a security in which we could invest. Q. But of course we recur to the fact that you are really in the venture by reason of your ownership of so large an amount of stock in the trust company. A. We are in the trust com- panies and banks, large stockholders. Q. Then it is not because of the safety of the investment that you prefer the trust company should handle it? A. Oh, entirely. A trust company may go into many things we would not, but on account of the divergent character of its investment, it may require safety and profit as they evidently have in all of them, where we as an investment company would not be permitted, and it would not be safe to invest. We do not follow the markets. Q. Then the trust company takes many risks that your Com- pany would not take? A. Oh, entirely. Q. Much more speculative? A. I would not say much more speculative. Q. Well, much greater risk? A. Yes. Q. Why do you think it profitable for the insurance company to invest so heavily in the stock of trust companies engaged in such business? A. As I said, we had very large balances of money — and I am speaking for many years back — and we were keeping large balances in banks and trust companies in which we had no interest, which were increasing largely in value, and we decided it was wise to take large interests in those institutions and to keep our money where we had such an interest. I have made a perfectly open statement, and shown exactly where we had it. Q. So in this case of the Missouri Pacific, you decided to forego a practically certain profit for yourselves and let the trust com- panies have it all? A. Yes, sir. 635 Testimony of Frederic Cromwell Q. Have you ever done that in any other case? A. I don't know of any. Q. Do you ever transfer securities from the Mutual Life to any of the trust companies in which you are interested? A. No. Q. Do you ever loan money to any of the trust companies in which you are interested to enable them to carry securities? A. Never. Q. Or to make investments? A. Never. Q. Do you loan money to the Morristown Trust Company? A. Never. Q. The bank balance sheets which you have furnished us show bank balances with the Morristown Trust Company in 1900 of $200,000 through the year. The same thing in 1901. Now, in 1902, in the month of January the deposit is doubled and then in the succeeding months of the year is maintained at the old level of $200,000. Why was that doubled in January, 1902? A. I don't know. I was trying to find out, but that is three years ago, and I really cannot tell. Q. Then in January, 1903, the deposit is raised from $200,000 to $300,000 and it falls back in January to $200,000, at which it is maintained until May, and then in May it is raised to $300,- 000, at which sum it is continued to November. Can you explain that? A. I don't remember. I could not explain it. Q. And through 1904, indeed from December, 1903, it runs $250,000? A. I cannot explain it. I cannot remember. Q. Would you have any minutes of the Finance Committee upon that? A. No, every Q. Who has charge in the Mutual Life Insurance Co. of the regulation of the amount of money which is left on deposit with various companies? A. I have more charge than any other, but I think more closely connected with it is Mr. Timpsort, but it is all under me. 636 Testimony of Frederic Cromwell Q. Well, if the Morristown Trust Company should want more money would they apply to you or to Mr. McCurdy? A. They would be apt — I think they would be apt to apply to me, and they might go to Mr. McCurdy, but Mr. McCurdy would influence it, it goes without saying. Q. Would a committee act upon it ? A. Let me say that every account which is open, is passed upon by the committee, but the increase or lessening of an account, of course the president has a predominating influence, but they are left to me ordinarily, with my assistants. Q. Has any action been taken by the Committee with reference to the maintenance with the Guaranty Trust Company of a straight permanent deposit of $1,500,000? A. All these bal- ances, Mr. Hughes, are read to the Finance Committee and pre- sented to them every week. Q. Is there any action taken with regard to the amount of the balances? A. No, sir, but they have to sign on the end of a sheet every week, a paper approving the balances. One of the member signs at the end of every week, an approval of the balances. Q. For example I find in 1903, beginning with May 1st, the balance is $1,500,000 with the Guaranty Trust Co. and it con- tinued at that figure until the 1st of September, when it is in- creased to $2,500,000 at which it is continued for a couple of months and then rising to $2,600,000 and falling to $2,100,000, and in January, 1904, increases to $3,350,000? A. And then it goes down. Q. And then it goes down and in March, 1904, is $2,500,000 and then in April to $1,000,000 and then in May it rises to $2,000,000 and in June to $1,500,000 and then for three months it is continued at $2,000,000 and from that time to the end of the year it is $1,500,000 at which it also continues for the first *37 Testimony of Frederic Cromwell three months of 1905. Now, were those additions and sub- tractions from that balance by order of any committee ? A. It is understood that I have authority over that. Now, I will tell you why I suppose — I will revert to my testimony the other day. I don't doubt that that deposit was increased by one million dollars because something had arisen in the Guaranty Trust Company where we conceived it wise for them to go into an undertaking which required more money than they could comfortably use, and we said we will put another million in. Q. That is exactly what I want to get at. Where would we be able to get at what such an undertaking was? A. I don't know how you can. Q. Would there be any minute of it? A. No, I regulate that. The other day when I testified in regard to a loan that we put in a million of dollars, when I went back to the office my young men were quite convinced I was wrong, and I said, "I know it." I can remember the time. But I went down to the books but could not find the record of it. Q. You do not change the deposits of the Guarantee Trust Company by adding a million dollars so that they can enter it to some undertaking that they have not quite sufficient money on hand to take care of without consultation with others, do you? A. Oh, yes. Q. On your own responsibility? A. On my own raising the amount ; I have charge of the deposits in the bank. That is a necessity. I could not get the Committee to change deposits. First, I will say this Q. When you contemplate increasing an average bank balance a million dollars, and keeping a million dollars with the trust company for three or four months, don't you bring that to the attention of the Committee? A. Every week it comes before the Committee and the deposits are disclosed and are approved. If they state I have too much money in any one bank of course 638 Testimony of Frederic Cromwell 1 would be instructed to draw it down, every time, but we could not conduct the business unless some one had charge of that. Q. Undoubtedly. A. Now, with regard to doing it for a spe- cific business, for illustration, at times there may be an exchange movement, by which the Guarantee Company could advantage- ously use a million or half a million more, we have the money to do it with. That is one of the things we consider our great ad- vantage, that we have the money if necessary to supply the sin- ews of war. It is absolutely safe, absolutely. It is our own. Q. It is in use for the trust companies? A. Yes, but we con- sider it absolutely safe. You can see that we overlook every- thing in the trust companies. Q. You mean you look over everything? A. Yes, I mean of that kind — what is that you say? Yes, yes, look over — well, that is a transposition, that describes it of course, and if I put in a million I know where it is going, that is what I mean. A. Yes, we could find out, I suppose what uses they made, but I say, with regard to one which I mentioned the other day, I could not find any trace of it down there. It was a matter of three years ago and they had changed presidents. Q. For example, I would like to know why at the end of De- cember, 1903, the balance was raised with the Guarantee Trust Company from two millions one. hundred thousand dollars to $3.35°. 00 ° A. I will explain it to you, undoubtedly, I will look it up. Q. And kept there for a couple of months. A. I will look it up. Q. The Committee would like to know what sort of a transac- tion would require that in order to have the dealings with the insurance company and the trust company fully explained. A. I will look into that. Q. Now with regard to the Title Guarantee & Trust Company, you are a holder A. Of 5,000 shares. 639 Testimony of Frederic Cromwell Q. Of 5,000 shares of the Title Guarantee & Trust Company, which cost the Mutual Life $1,120,975.91, and you maintain a permanent deposit with the Title Guarantee & Trust Company of $500,000, don't you? A. Yes. Q. That has been maintained for some years? A. That is under an agreement understood by the Committee, that we keep ordinarily half a million dollars there at 3 per cent. That is, it is understood that in the furthering of their business, they help us out so in our loans on bonds and mortgage, we felt that it was practicable and feasible to do it. Q. Are you a stockholder in that company? A. I am not. Q. Now you speak of helping you out with the bonds and mortgages. Does the Mutual Life charge borrowers on bonds and mortgages for the searching of the titles? A. No, except the expenses. Q. Who does that for you? A. We have a law department. Q. Do you have the Title Guarantee & Trust Company under any retainer? A. No, sir. Q. In what way are you benefited in your mortgage depart- ment by your relation to the Title Guarantee & Trust Company? A. That is a perfect illustration, there could not be a better one, of the law of combination. I for one and probably others did feel that we with our great departments and with a matter of fifty millions loaned out on bond and mortgage, that we could not only hold our own but they would have hard work to get ahead. The truth is, Mr. Hughes, that they command business, and we do not, and we cannot get the application. Q. That is the title company commands the business ? A. Yes You had better ask the very competent comptroller, Mr. Richards, about this. He knows all about it. But we cannot get the busi- ness except through these title companies. We get some, but you will find our applications come from them in such large propor- tions they were taking our own business away, and it was a long 640 Testimony of Frederic Cromwell time before we consented to any alliance with them. We kept aloof until finally we had to yield to the inevitable. Q. What was the total capital stock of the Title Guarantee & Trust Company ? A.I don't know ; I should think it was $3 ,000,- 000. They have increased it once or twice. Q. Does the Mutual Life take assignments of mortgages from the Title Guarantee & Trust Company? A. I think we do. I would rather you would ask Mr. Richards. Q. You are not familiar? A. No ; it is a department by itself. Q. Keeping in mind now simply the financial end of it, what are the financial relations between the Mutual Life and the Title Guarantee & Trust Company apart from the deposits which are maintained by the former with the latter and apart from the former's interest as a stockholder in the latter — what financial transactions have you between you? A. We have not only this business but of course we have members of our committee on their executive committee, Mr. Juilliard for one. We have $500,000 on deposit and we have an agreement which the title company can exhibit by which we will take four million dollars' worth of mortgages from them with their guarantee of eight millions, you know, and subject to our rejection and substitution — yoil must read the agreement — until finally we cull out those we are willing to take, but we allow them to keep in passing as high as four million dollars, paying us 4^ per cent, on the money from them, we can select our mortgages, each one being guar- anteed by them. That is the tenor of it. I would rather you yould not put it down, because you can have the papers. Q. Is the paper here? MR. BECK: No, I don't think it is. Q. Who is familiar with it? A. Mr. Richards is familiar with 641 Testimony of Frederic Cromwell that- entire department, and I hesitated to go as far as I did. These are the only two matters in which we have any relation. Q. Then we will take that up with Mr. Richards. It is recalled to me that I have not asked you for the letters that you referred to on your examination a few days ago with reference to the Bank of California. Have you produced those letters? A. I have them here. (Letters produced.) THE WITNESS: Now, one of the influences that induced us to go into the Bank of California is that we have had not only a considerable investment in a building, which is a profitable one in San Francisco, but we have all over the Pacific Coast a large clientele, and it seemed proper we should have a banking interest there and an associate with our branch bank. Q. What interest have you in a building in San Francisco? A. Well, we own a building. That will come under our office buildings. An office building, Mr. Hughes. That is the first letter which came to the vice-president. That is the extract (producing paper). Q. You produce an extract from a letter of Mr. William Bab- cock to Robert Granniss, under date of February 2nd, 1905. That is the full extract relating to this matter? A. Yes. * MR. HUGHES: I offer that in evidence. (The paper was admitted in evidence and marked Exhibit No. 65-) Q. Mr. William Babcock the writer is the trustee you referred to of your Company ? A. Yes. Q. And Mr. Robert Granniss is your vice-president ? A. Yes. 642 Testimony of Frederic Cromwell I can get the original letter from Mr. Gianniss, but that is on my files. Exhibit No. 65 read by Mr. Hughes. THE WITNESS: (producing paper). This shows my later correspondence, I think. MR. HUGHES: i offer that letter in evidence. The letter was admitted in evidence and marked Exhibit No. 66, and read by Mr. Hughes. Q. Is there anything subsequent ? A. No, excepting the action of the Committee in relation to it. Q. I will just ask one question before we suspend THE CHAIRMAN: We will suspend at this point. The Members of this Committee will step in the room to the left for consultation. Adjourned to 2. 15 P. M. 6 00 °. A - That is the same thing. Q. No, it is a different item, but part of the $100,000 to which you refer? A. Yes, it entered into the $100,000 counter entry there. 697 Testimony of Edmund D. Randolph Q. The two debits, March 19th, A. Hamilton, check, by order of President, $55,000, and ditto, $45,000, and then on March 30th, on the credit side of the account, from Hamilton, check to H. O. Annex, President's order, I take it P. T. Order means president's order? A. Yes. Q. $100,000? A. Yes. Q. Now, March 19th was a check for $55,000 and another check for $45,000 given to Mr. Hamilton? A. Yes. Q. Did you sign those checks? A. That I have no knowledge of really. A great many of us sign checks. Q. Do you know what they were for? A. I do not. Q. What is the H. O. Annex Account? A. The Home Office has a building in the rear which is called the Home Office annex. Our force has been growing so in the main office that they are encroaching very rapidly on very valuable renting space, and the president thought it would be more economical to add to our Home Office in the rear and transfer part of our working force there, and then our better space for the higher rentals that we can get on Broadway. Q. That is the purpose of the annex? A. Yes, sir. Q. But what is the purpose of the annex account? A: We have an account on our books, as we have for every piece of real estate. 0. Is that account here ? A. No. Q. Will you have it sent for as soon as possible, the account showing the Home Office Annex account, to which these checks of Hamilton were transferred? A. That will be the general ledger, I suppose. Q. What had the counsel of your company to do with the Annex account, and why should he get $100,000 to be transferred to that account? A. Well, it was not intended that our office should, excepting that in the same office that is down there there 698 Testimony of Edmund D. Randolph is the Real Estate Department, and those entries were evidently intended for the Real Estate Department. I have absolutely no knowledge, Mr. Hughes. Q. Is Judge Hamilton in your Real Estate Department? A. No, sir, he is not. Q. Where is he? A. His offices are at 346 Broadway. Q. Yes, in your Law Department? A. Yes. Q. Was there any action taken by the Finance Committee on the payment of this $100,000 to Judge Hamilton? A. None whatever. Q. Did you ascertain what the payment was made for? A. I did not. Q. Does anybody know besides the president, so far as you know? A. It was paid on the president's order absolutely and I take that to be an executive prerogative. Q. Are checks of $100,000 paid on the president's order with- out any explanation to the Finance Committee or treasurer? A. They would be. Q. Does that frequently happen? A. I don't think it has been frequent, no ; on the contrary ; but it is not unusual by any means. The money is paid out and subsequently . Q. Do you know why the checks for $100,000 to A. Hamil- ton were first charged to the Hanover Bank office account? A. I know of no reason whatever. There was no purpose in doing it. Q. Was it because the proceeds of assets not on your books were used for the purpose of that payment ? A. No, not at all. Q. But the charges on this account are charges against the proceeds of such assets? A. It was rectified a day or two after- ward and carried to another account. Q. Eleven days afterward? A. I merely know what appears on the accounts and Mr. White has gone to produce the general ledger which will show what course it took afterward. 699 Testimony of Edmund D. Randolph Q. Personally you do not know? A. Personally I do not know. Q. You had no responsibility yourself in regard to the matter? A. Absolutely no. It was not connected with securities or any- thing which came within the cognizance of my department. Q. And you know no more about it than anyone would know by looking at this entry in the books? A. Nothing more abso- lutely. Q. I find on March 19, 1904, another entry of United Collieries charged to this account $45,923.72. A. That is the case that I have already testified to, that when we used the United States Collieries out of the account by reason of their being determined to be industrials and shipped them abroad for sale, in doing that we wrote off 20 per cent, of their value and charged it to profit and loss, which was supposed to be an ample provision against any fluctuation in price between them and the sale. Q. The same case as in the United States Steel bonds? A. The same way exactly. Q. It was the way of getting into the books the loss on a non- ledger or unclaimed asset? A. That is it. Q. I see the next item under date of March 22, 1904, J. N; Golding, checks, account R.E.^I suppose that means real estate? A. Real estate. Q. (Continuing) $13,000, and March 24th, ditto, $5,000 and under date of March 30th on the other side of the account Gold- ing's checks to H. O. annex account, real estate, $18,000. Were those moneys, aggregating $18,000, paid to Mr. Golding? A. They were. That is another case of cross entries that really did not belong in that account. I don't know how they got there. Q. They were first put in that account and taken out? A. Yes, starred out. Q. Do you know what the payments were for? A. In that case ? 700 Testimony of Edmund D. Randolph Q. Yes. A. In that case I know absolutely. Q. Did you make the payments? A. Whether I signed the checks or not I cannot say, but I had perfect cognizance of this • case. That was a case that the finance committee dealt with. It was buying different pieces of property for the purpose of ex- tending our home office annex. O. What' were the payments for? A. He made the contracts in his name and was called upon to make a deposit on the con- tracts and he turned all the contracts over to us and we gave him the checks. In some cases he was not called upon to make deposits, but this he was and we gave him the money to make the purchase naturally, and the home office annex, of course, was the account to which the}' should have been charged in the first instance. That is palpably an error. Q. The next item in the account is December 30th. There is no detail given but it says by Ord. Pt. — that means by order of the president? A. By order of the president. Q. (Continuing) $48,702.50. What was that? A. That was a check given by order of the president. Q. To whom? A. The president is the only one who knows about that. I don't know who it went to. Q. You have no information about it ? A. I have no informa- tion whatever. That is the reason the entry is blank, there was no detail there because we knew of none to supply. 0. Was it always blank. A. Absolutely. Q. Look at that (handing book). A. No — no, no, I know what you mean. Hold it up to the light, you will see there is nothing there. You will see it is on the next line above. I give you my word of honor there was never anything there, absolutely none. Q. You yourself have no knowledge about it at all ? A. None. Q. You had no responsibility in regard to it? A. None. Q. You don't know anybody except President McCall who can 701 Testimony of Edmund D. Randolph tell what that $48,000 was paid for? A. The president is the only one and he will be very happy to tell you, I know. • Q. It appears charged here against the proceeds of non-ledger assets ? A. Well, you see the whole account really resolves itself into profit and loss. Q. I know, but before we strike a balance . A. Oh, until you strike a balance it stands as an entry Q. It stands as a payment out of the proceeds of non-ledger assets? A. Yes. Q. And then a balance is struck after all these details have been given on the credit side of the proceeds of the non-ledger assets? A. Showing, as I remember, $220,000 to the good. Q. (Continuing.) On which these charges have ben made, and a balance is struck of $220,011.56? A. Yes. Q. The last item credited before striking that balance is profits, $44,121.25? A. There should be a detail which is on this leaf here Q. What is that profit on? A. Mr. Kingsley, there is a com- plete list of the profits which was folded in this book when it came from the office. It should be here. Well, there is a pencil explanation here. Dividends and interest from pages 207 and 208. There was a detailed list put in there for your informa- tion, and it has got lost in the shuffle somewhere, but here they are. Various coupons and dividends which had accrued to this account during the process of selling them and which are en- tered here in detail in pages 207 and 208, and were picked out, I suppose these are the marks, and put in an accompanying ac- count which I will give you later. I wish it had been left in here. I meant to give it to you. Q. They are profits on what? A. Profits from non-ledger assets. It is wholly composed of dividend and interest collected from non-ledger assets. Q. The profits from non-ledger assets apart from the proceeds •702 Testimony of Edmund D. Randolph of the sale? A. Yes, they are dividends and interest which had gone into the other accounts of dividends and interest. Q. That balance on December 31, 1904, is then transferred to profit and loss, and there are two balancing entries at the end of the year and the account starts de novo apparently with an item to the credit under date of August 1, 1905, for $7,500 to the First National" Bank of New York. What is that? A. I think the closing entry is carrying $220,000 to the good of profit and loss. Q. Well, there are two balancing entries here? A. Yes, the one is bringing down the profit and loss and the other is carrving it up to the general ledger in the books of the main office, showing the course where everything from the home office went. Q. The net result was that in 1904 in this transaction you car- ried $220,01 1.26 to the profit and loss account of the Home Office ? A. Yes. Q. Then the account starts de novo, those two items balancing each other, and on the debit side I find an entry August 1st, First National Bank of New York, $75,000, what is that? A. That I have already testified to, the sale of the New Orleans Railyway Company interests that were bought by our company from the Security & Trust Company and were subsequently sold at a loss by reason of the company going into a receiver's hands and reorganization. And the agreement, as I explained at the time, was when we sold them in the first instance, that there was to be a division of the profits finally resulting in the pro- portions of four-fifths and one-fifth, and if you will see in con- nection with the entry here of $150,000 of the New Orleans Railways, which while it does not state was the further and additional profit which we derived from that sale by that agree- ment, we paid five per cent, of that profit to the First National Bank. I will say thev were exceedingly nice about it, and would 703 Testimony of Edmund D. Randolph have been 'quite as willing to do it for nothing, but a contract is a contract, and we paid it. Q. Can you explain why it was that the matter of the Gold- ing checks which were transferred to the Home Office Annex account, or of those payments was before the Finance Committee and the payments of $100,000 to Mr. Hamilton was not? A. The Finance Committee was cognizant of the purpose of buying this additional property, and they were advised whenever the pur- chases were made and were consulted as to Value. Two of our directors are property holders in that neighborhood, Mr. Claflin and Mr. Langdon, who is very near, in Worth Street, right con- tiguous to this, and they were consulted at every stage of the purchases. Q. They were consulted then, with regard to the transactions having reference to the Home Office Annex? A. Mr. Golding's office is right next door there, and he sent in there and we gave him the check. Ordinarily a check of that nature might go either to the uptown or downtown office. Q. Can you explain why the checks for $100,000 were not brought to the attention of the Finance Committee? A. They were checks given simply upon the order of the president. The president's order had nothing to do with those checks to Gold- ing. O. No, f do not find that those checks were by order of the president. A. No. The other is entirely different. The others were paid by the president's order, for a check of that kind was regarded. Q. Will you send, please, for' the check book which shows the check of December 30th, given by order of the president for $48,702.50? A. Yes. Q. Unless you have it here. A. I have not got it here. 0. If you will have that book sent down, please, I want the 704 Testimony of Edmund D. Randolph particulars of that transaction. A. I said, Mr. Hughes, that the president would be very happy to give the particulars. Q. Oh, undoubtedly ; I do not dispute that ; but as long as you don't know personally about it we will send for the checks. Now, this book that you have produced here apart from the Hanover Bank office account, contains generally the transactions that took place in the Hanover Bank office? A. Yes. Q. That is in what you call the Treasury Department? A. Yes. Q. Is there an account here with W. F. Fanshawe ? A. I don't know that there is. Would not you rather have the bookkeeper who keeps the account? Q. Who keeps it? A. Mr. Matteson keeps it. I do not want to appear not to know, but I really never had anything to do with keeping the books. Q. I see. Are you able to give me any information in regard to these joint acounts, further than this profit which has been made which appears upon this sheet? A. The data that were all prepared for that purpose I left with Mr. Perkins, because he thought he would rather do that. If I had the data I could give you some of them, but that is his particular province, and he can tell you very much more satisfactorily and more fully. I could give you the figures, but he could give you the whole story from its inception to the end. It is no desire of mine at all not to do so, I assure you, but . Q. Well, I think we had better have him come down then. A. I think I have brought everything now that you asked for. Q. There was a statement made by Mr. Claflin as to the amounts that have been made by remaining out of the market, making holding agreements to keep securities and special prices that had been made for your company in consideration of agree- ments to hold securities. Have you made that up ? A. Yes, that enters into this data that will be given to you. 7°S Testimony of Edmund D. Randolph Q. Well, there is no separate statement? A. No, I can have one collated separately if you wish. Q. What I want to get at is, how many such agreements you have made and in how many cases you have got a better price by holding the securities? A. Yes. Q. And what you have subsequently gained by having the market maintained through the holding. A. And you would like to have that entirely separate and apart from anything else ? Q. Yes, so that it can be put upon the record in illustration of Mr. Claflin's statement. A. I will have it prepared in detail. Q. Now, we would like to have Mr. Perkins come down if you will send for him. In the meantime have you got the books that we have called for ? While we are waiting for those I would like to have you remain here, Mr. Randolph. A. Yes, I am here — I have the First National Bank account that you asked for, and the division. Q. Have you a statement showing the balance maintained with the First National Bank under the agreement you testified to ? A. I have. In that list that I handed in the first instance they failed to separate the accounts. I have the list separated for the entire period that they existed. Q. If you will withdraw for the moment, and if you will re- main? A. Oh, certainly. MR. HUGHES : I offer this statement of account with the First National Bank in evidence. (Marked Exhibit 74.) MR. HUGHES: Mr. Randolph, will you resume the stand? Q. In this exhibit the special account is the one on which the special rate of interest was allowed? A. Yes. 706 Testimony of Edmund D. Randolph Q. That was opened in 1903? A. The list states the date. Q. With $3,000,000? A. Yes. Q. And the balance runs in June — apparently it is all with- drawn. Whenever there was no — nothing in the rates of money to afford any better rate of interest than 2 per cent, it was need- less bookkeeping to keep two accounts, or if we had occasion to use the money we would withdraw it. It is stated there, the changes have been made by withdrawals, which means checked out of the accounts, the detailed statement. Q. Whenever there is no statement of withdrawals and no statement of special account, it means that there has been no such account during that period? A. When there is no sum of money opposite the name special account it means that the money has been withdrawn for that period. Q. Now, has the home office annex account been produced, the ledger- containing it ? Will you bring it forward, please? (Pro- duced.) A. I can't testify to that. Q. You don't know anything about it? A. No. Q. Let me bring that out, as you have referred to it. A ledger is produced marked "Assets and liabilities, Ledger M-r, New York Life Insurance Company," and an account headed "Real Estate" is referred to. Now I desire to have the item which em- braces the two checks to Mr. Golding, which were originally charged to the Hanover Bank office account and then transferred to the home office annex account, identified. Is it this item under March, as follows: To Hanover Bank office $18,000? A. I will have to refer you to Mr. White, who made the entries. Q. You have no knowledge of that? A. I have no knowledge of that. It is undoubtedly the same one, but as a matter of knowledge, I have never seen the account. MR. HUGHES: Will you withdraw? Mr. White, will you take the stand ? 707 Testimony of Cornelius D. White CORNELIUS D. WHITE, recalled, testified as follows: BY MR. HUGHES : Q. You keep this account? A. No, I don't keep it. Q. But you audit it? A. I audit it, yes. Q. So you are familiar with the items that go into it as they appear on the books? A. Yes. Q. Now, I call your attention to the item in the ledger No. 3, treasury department, 278, Hanover Bank office account debits to J. N. Golding of two checks, $18,000, and a credit Golding checks to H. O. annex account real estate, $18,000. Will you point that item out in the real estate account in the ledger? A. That is the item. Q. Hanover Bank office, $18,000? A. Yes. • Cj. I call your attention to two items in the Hanover Bank of- fice account to A. Hamilton check by order of president, $55,000 and $45,000, aggregating $100,000, and an entry in the credit side of the same account with dittoes under checks to H. O. annex, president's order. Can you point out that entry? A. In- cluded in that one. Q. That is, it is included in the entry in the real estate account of March to sundries J. 394 $235,000. Is that right? A. Yes. Q. What is the item Sundries ? A. It means various accounts. That is the way the bookkeeper instead of specifying the various accounts, he just gives the one word "Sundries." O. Then the $100,000 is part of the $235,000, isn't it? A. Yes. Q. And the explanation must be looked for in the book in which this is posted? A. In the journal to see what other ac- counts are affected. Q. That is J-394. Will you produce the journal. A. The journal is up in the office. 708 Testimony of Cornelius D. White Q. Have it sent down. I want all the entries in your books affecting that $100,000. If the journal does not explain it and there -is any entry in the check book that does, I want to have the check book. In other words, I want to know what that $100,- 000 was for. Before you leave, do you know what it was for? A. It was on account of the purchase of the property. Q. On account of the purchase of the property? A. Yes. Q. What property? A. The purchase of property on Worth Street in the rear of the New York Life building, the rear of the printing house building. Q. Were all the payments made to Mr. Hamilton? A. I can't say about that. I believe they were. Q. They appear in these sundry items? A. Yes, sir. What do you mean? All the payments for the purchase of the prop- erty? Q. Yes. A. No ; I don't know as to that. I thought you were inquiring about these particular items. Q. I was inquiring as to this and I want to know whether all the payments for the property were made through Judge Hamil- ton? A. Well, I can't say that, I don't know. Q. How do you know it was for the purchase price of the property? A. It has been charged to the — it has been charged to the account of the cost of the property. Q. Is that the only reason you know it? A. Yes. Q. You know it as a bookkeeper from the fact it has been charged to that account? A. Yes. Q. You don't know it as a fact in any other way ? A. No. Q. Have you any separate account or any statement in this Real Estate account as to the purchase price of the property and the amount paid for it? A. Of that Home Office Annex prop- erty? Q. Yes. A. Yes, I have it on separate card system. 709 Testimony of Cornelius D. White Q. Will you let me look at it, please? A. Yes, sir. (Cards produced.) Q. This is a card that you have headed "Home Office Annex," and this shows the cost — well, what does it show? A. It shows the cost of the property on Leonard and Worth and Elm and Center Streets, all the block in the rear of the main office build- ing. Q. It starts under date of July i, 1899, with an item of $600,- 000. What was that for? A. That was the amount that was transferred at that time from a ledger account kept in a book when this card system was adopted. The cost of the original printing house building. Q. Then the Home Office Annex was charged with the cost of the original printing house building? A. Well, it is a part of the same property ; we group the whole plot. Q. And what are these other items ? A. Those other items are payments on account of the same, for March, 1899, that was for some improvement to the building; some permanent improve- ment to the building probably. Q. Just tell me about the building, was it a building erected or bought? A. The original building? Q. Yes. A. It was erected by the company. Q. And what was exactly the occasion for the expense that the company went to in regard to this Home Office annex, en- larging it? A. Well, we — I can't answer that question. The printing office is in the original building and they have been considerably crowded in the main office building, that is, they have encroached on valuable space, but whether that has — for the office purposes, I mean. Q. When was this Home Office annex acquired ? A. In Center Street and in Worth — the Worth Street property was acquired in 1900 — early in 1904. 710 Testimony of Cornelius D. White Q. And that is what you referred to a moment ago ? A. No ; I was talking about the whole property. Q. Just go on. A. Just what the immediate occasion for ac- quiring that property is, of course, I don't know. Q. There was a Home Office annex then, prior to that time, and adjacent property was acquired? A. Yes. Q. The original properties were acquired back in — oh, some years ago? A. Yes. O. And the case as it stood on your books was transferred to this Home Office Annex Account on January i, 1899, at $600,- 000? A. Yes. Q. Charged to that account? A. Yes. Q. Then, in later years, there were some improvements made upon that property? A. Yes. Q. And these payments relate to those improvements or re- pairs? A. Yes. I suppose that is what those charges, those small charges, refer to. Q. Now, we come down to 1904, to March 28th, $235,000. Is that whole sum for the purchase price of the property in Center and Worth Streets? A. Yes, represents amounts that had been paid for that purchase. Q. The whole of it A. Yes. Q. So those whole items, sundries here, in the real estate ac- count relates to the purchase price of that property? A. Yes, sir. Q. How much property was bought there? A. Well, they bought — there were several buildings on Worth Street, some on Center, some on Leonard. Q. What is this item opposite that? A. That shows — it cor- responds — it is meant to correspond with the — it says suspense, sundries, etc. It means that amount was made up of items that were transferred from various accounts, one of which was sus- pense and Hanover Bank office account. Q. How could there be a transfer from suspense account of 711 Testimony of Cornelius D. White the moneys paid as the purchase price of the property ? A. Why, when the money was paid originally it was charged to suspense instead of being charged to the property, with the idea of being transferred later on. Q. Where is that entry? Is it in this book, that suspense entry? A. No. Q. What is your suspense account? A. It is an account in which items are put which they can't designate definitely the accounts for at the time the entry is made, pending adjustment they are put in suspense. Q. Why should you make a charge of an item which is ex- pended for the purchase price of a property in suspense account? A. Well, that item may have been in connection with the purchase, may have been a deposit on account of the purchase, or something of that sort. Q. This is the whole amount, isn't it, this $235,000? A. The whole amount of the purchase money? Q. Yes, practically? A. Let me see the card, please. Q. There are about $28,000 additional on the card, but that seems to be the big item. A. There are other items on that — why, no, that isn't the whole purchase price. Q. Now will you state, please, just what the whole amount is that is charged to the Home Office annex as the purchase price of the property? A. Let me have that other card, please, that is a part of it. $1,325,000. Q. Does that include the erection, of course, of the building which you have? A. Yes, sir. Q. And when was that erected, last year? A. No, several years ago. Q. As Mr. John C. McCall explained, you haven't erected any building ? A. The original property was charged to that account in 1899, 712 Testimony of Cornelius D. White Q. That is $600,000? A. Yes, but not of the newly acquired property. Q. Now, how much of this $1,325,000 is for the newly ac- quired property apart from what you had years ago and upon which you haven't erected any building, as Mr. McCall informs me, but which you simply bought, retaining the old building, getting a return on the investment? A. $725,000, or about that. I simply deduct that $600,000 from the other. Q. The original cost from the other, about $725,000? A. About $725,000, I should say. Q. $725,000. These payments appear to have been made at dif- ferent times through the year 1904. The initial payment was the $100,000, is that right? A. I believe so, yes, sir. Q. That was paid through the law department? A. Yes. Q. On the signing of the contracts or something of that sort? A. I can't say about that. Q. You don't know anything about that? A. I don't know just what it was for. Q. Of course the contracts for the purchase of these different properties are where? A. In the real estate department. Q. Who would have those? A. The superintendent of the real estate department. Q. These other payments went right into the real estate account with the exception of the $235,000 originally entered on suspense and $18,000 on Hanover Bank office? A. Yes, sir. Q. Then do I understand that this $100,000 payment to Mr. Hamilton went into a suspense account before it went to the real estate account ? A. Well, this shows that there was another entry that had been charged in the suspense account which was taken in connection with these items in the Hanover Bank office account. It says suspense, etc. That takes up the Hanover Bank office account $100,000 and whatever other accounts were affected. 7i3 Testimony of Augustus D. Juilliard MR. HUGHES : I offer these cards in evidence. (Marked Exhibits 75 and 76.) Q. Does Judge Hamilton reside in New York? A. I don't know where he resides, sir. MR. HUGHES: Will you withdraw a minute, Mr. White? Mr. Randolph, just a moment. You needn't come forward, I just want to ask you a question, whether Judge Hamilton resides in New York ? A. I think he does now. I think he has a house in Albany and a house in New York also. I haven't the pleasure of know Q. He was formerly a resident of Albany? A. Formerly a resident of Albany. Q. Until how recently? A. I couldn't answer definitely. Q. How long has he been connected with your law depart- ment? A. He has Deen connected with our law department for a number of years, but more intimately since Judge McCall went upon the bench. Q. Oh, yes, I see, in a way Judge McCall's successor ? A. Yes, absolutely so. Q. Is is name Andrew Hamilton? AUGUSTUS D. JUILLIARD, called as a witness, being duly sworn, testified as follows: BY MR. HUGHES: Q. Mr. Juilliard, you reside in the City of New York? A. I do. 714 Testimony of Augustus D. Juilliard Q. You are a trustee of the Mutual Life Insurance Company ? A. I am. Q. You have been such for how many years? A. Well, a number of years ; I believe since 1888. Q. How long have you been on the Finance Committee of the Mutual Life? A. Several years. I couldn't tell you just the date that I went on it. Q. You are connected with other companies? A. I am. Q. Are you a stockholder in the Guarantee Trust Company? A. I am. Q. To what extent? A. About 200 shares, I believe. Q. You are a stockholder in the United States Mortgage & Trust Company? A. I am. Q. To what extent? A. 100 shares. Q. You are also a stockholder in the Hamilton Trust Com- pany? A. I am. Q. To what extent? A. One hundred shares, I believe. Q. Are you also a stockholder in the National Bank of Com- merce? A. I am. Q. To what extent ? A. One thousand seven hundred and fifty shares. Q. Are you a stockholder in the Fifth Avenue Trust Com- pany? A. I am. Q. To what extent? A. Two hundred shares. Q. Are you also a stockholder in the Morton Trust Company ? A. I am. Q. To what extent? A. Two hundred shares. Q. Are you a stockholder in the Title Guarantee & Trust Company? A. I am. Q. To what extent? A. I couldn't tell you that; my holding is small in that ; I have forgotten really the number. Q. Are you a stockholder in the Bank of California? A. I am not. 715 Testimony of Augustus D. Juilliard Q. From time to time you have been called upon as a member of the Finance Committee to pass upon the purchase of securities by the Mutual Life Insurance Company? A. I have. Q. You are a member of the sub-committee that deals with those transactions in the first instance? A. I am. Q. I presume that your individual interests have never in any way been allowed to affect your action as an official? A. None whatever. O. And you have regarded yourself as free to deal with your private fortune and with your investments without reference to your action as an officer of the company ? A. Absolutely so. Q. Understanding that, however, the fact that the participa- tions of officers of the insurance companies in financial transac- tions in which the companies are interested has become a matter of inquiry. In the case of purchases by the Mutual Life and syndicate managers of bonds have you ever been a member of the syndicate represented by such managers? A. I have often had interests in syndicates, that the Mutual Life were interested in, but I have always had my interest through bankers. Q. I don't quite understand what you mean when you say "•through bankers"? A. I have taken my interest directly from the bankers. Q. Well, you mean you haven't taken as a subsidiary interest in the Mutual Life participation? A. I don't understand. Q. You haven't taken a part of the Mutual Life allotment? A. Not at all. Q. Never ? A. Nothing to do with the Mutual Life whatever. Q. You have taken an independent participation? A. Abso- lutely independent from the Mutual Life. Q. In other words, cases have arisen where the Mutual Life has become a party to a syndicate and you have also been a party to that syndicate? A. Yes. Q. Then when bonds are offered by the syndicate managers, 7l6 Testimony of Augustus D. Juilliard for sale, the Mutual Life has bought part of the bonds, or they may have done so ? A. They may have done so, I presume. Q. In that case, by its purchase in excess of its participations in the syndicate as well as the profits distributable among the members? A. If I bought bonds from the syndicate the same rule would apply — from the bankers, the same rule would apply exactly. Q. I don't quite catch that. A. If I take an interest in a syn- dicate and afterward bought bonds from the bankers at the syn- dicate price when they were offered to the public, every member of the syndicate benefited by the sale of bonds. Q. Undoubtedly, and so the Mutual Life would benefit in case you bought bonds from the syndicate managers at the issue price, and, on the other hand, you would benefit if you partici- pated in the syndicate if the Mutual Life bought bonds from the syndicate managers? A. Certainly. Q. But the fact that such benefit might accrue was not at all a factor at any time? A. None whatever. Q. In influencing your judgment as to whether or not bonds should be purchased by the Mutual Life ? A. None whatever. Q. Now, the Mutual Life has purchased considerable amounts of Japanese first four and a half. You are familiar with them? A. I am. Q. And those have been purchased by the Mutual Life from the syndicate managers? A. They have. Q. Were you yourself a participator in the syndicate? A. I was. Q. To what extent? A. There were a number of syndicates. I couldn't tell you which one you refer to. Q. Well, there were several syndicates relating, you mean, to Japanese bonds? A. Yes. Q. There was a first syndicate in 6's, the first series, then there 717 Testimony of Augustus D. Juilliard was a second series of 6's and there was a series of 4^'s — were there any others? A. Two series of 4/4's. Q. Two series of 4>4's. Now, in which of those were you, if I may ask? A. I think I took an interest in all of them. Q. In all? Did you withdraw bonds when you took your in- terest? A. I did not. Q. Did you put up any money? A. I did not. Q. Did you derive a profit from the syndicate operations? A. I did. Q. Are you able to state now the amount of the profit? A. I am not. O. That there was a syndicate for the Pennsylvania T^fe's ? A. Yes. 0. In which the participation of the Mutual Life was $1,200,- 000 and the bonds purchased by the Mutual Life from the syndi- cate aggregated $4,250,000, you recall that? A. I do. Q. As a recent transaction? A. You mean the Pennsylvania Q. Yes. There the Mutual Life bought very largely in excess of this syndicate allotment? A. Yes. Q. And bought at the price at which the bonds were put upon the market by the syndicate managers? A. Yes. Q. And bought from the syndicate managers? A. Yes. Q. And in that way contributed, as did every other purchaser in the market, to the profits divisible among the members of the syndicate? A. Yes. Q. Were you a member of the syndicate? A. I was. Q. To what extent? A. It was either $50,000 or $100,000; 1 couldn't tell you now ; one of those. O. Did you withdraw any bonds? A. I paid the full amount of the bonds into the bankers for the reason that the bonds were not taken up at that time by the public. Q. Did you remain a member of the syndicate for the purpose 718 Testimony of Augustus D. Juilliard of receiving your profit from the operations? A. Received profits as far as the bonds have been sold. Q. The matter is still going on ? A. It is still in existence. Q. You withdrew your bonds, or took your bonds from the bankers and put up the money to pay for them ? A. I paid for the bonds and left them with the bankers. Q. And left them with the bankers for disposition? A. Left them with the bankers for disposition. Q. You refer to the syndicate managers now ? A. The bankers that I bought them from. Yes, probably. Q. They were those who were managing the syndicate? A. Managing the syndicate. Q. Kuhn, Loeb & Company? A. Kuhn, Loeb & Company. Q. And then later the public flotation went on, the public took the bonds ? A. It is going on now. Q. And your bonds were disposed of? A. I have not been advised. Q. You don't know? A. A portion of them may have been. Q. There is a syndicate here of February 3d of this year, in which the Mutual Life participated, to wit — the Southern Pacific refunding 4's, the participation is stated in the company's lists as a million five hundred thousand dollars, and the company purchased three million from the syndicate? A. I have no in- terest in that. Q. You have no interest in that? A. No, sir, none whatever. Q. There is also a syndicate in the company's list of January 30th last of Atchison, Topeka & Santa Fe convertibles. $750,000 was the company's participation. Do you . A. I had no in- terest in that. Q. December 9, 1904, Missouri Pacific 4's, did }ou have an interest in that ? A. No interest in that whatever. Q. Oregon Short Line refunding 4's? A. I couldn't state whether I had an interest in that or not. 719 Testimony of Augustus D. Juilliard Q. United States of Mexico 4's? A. I had an interest in that. Q. There there was an original syndicate to take the bonds from the United States of Mexico and the subsequent purchasing syndicate, you will recall, to take a certain amount of the bonds • with an option to such purchasing syndicate to take in proportion to their subscriptions within a time stated the residue of the bonds in whole or part? A. Yes. Q. Which syndicate were you in — were you in the original syndicate? A. I believe I was in both. Q. Both the original and the purchasing syndicate? A. The purchasing syndicate. Q. We have already had the details of that, so I won't trouble you to go over them further than to ask you whether you were called upon to put up any money in that syndicate? A. My re- collection is that we did not put up any money at all ; I am not sure of that, however. Q. And you simply got your profit? A. Yes. Q. Didn't take any of the bonds? A. No. Q. But the Mutual Life did take four millions of the bonds? A. They did. Q. And of course by that purchase from the syndicate man- agers contributed to the profits divisible among the members of the syndicate? A. Exactly. Q. Were all the members of the sub-committee of the Mutual Life in these syndicates? A. The members act individually. Q. I understand that. A. And I couldn't say whether they were all in or not. It depends a good deal on the money perhaps they have on hand at the time. Q. Naturally, yes. Were you also in the Republic of Cuba syndicate? A. I was. 0. There there was an original syndicate and a purchasing syndicate with an option? A. Yes. 720 Testimony of Augustus D. Juilliard Q. Which has been fully detailed in Mr. Cromwell's testimony. To what extent did you participate in that syndicate? A. $100,000 is my recollection. Q. And did you take any of the bonds ? A. I didn't take any at the time, but bought some subsequently on the market. Q. The Mutual Life took four millions of those? A. Yes. Q. On the market? A. Yes. Q. From the syndicate managers? A. Yes. Q. And you took yourself some on the market? A. Yes. Q. And what you took and the Mutual Life took and what others took on the public offerings, of coursej provided the funds for distribution as profits among the members of the syndicate? A. What I bought I bought right on the market, independent of the syndicate. Q. Oh, you didn't buy from the syndicate managers? A. No, I bought right on the market. Q. But the Mutual Life did ? A. They did. Q: So their purchase contributed in the way I have stated? A. Yes. O. And the profits were divided and you got your share? A. Yes. Q. Do you remember how much it was? A. I do not. Q. The Mutual Life, of course, got its share, which has already been put in evidence, a very large amount? A. It is all a matter of record. Q. Were you in the syndicate of Pittsburg, Cincinnati, Chicago and St. Louis 4's? A. I was not. Q. Nor in Norfolk & Western Divisional 45s? A. No. Q. Or in Union Pacific Railroad Notes' ? A. I was not. Q. In Louisville and Nashville 5-20 bonds? A. No. , Q. Or in Louisville and Nashville Southern Monon? A. No. Q. Were you in the Navigation Syndicate? A I was. 721 Testimony of Augustus D. ] miliar d O. To what extent? A. One hundred thousand dollars. Q. That is still in force? A. That is still in force. Q. You have, I suppose, like the others, paid your call? A. Paid the full amqunt. 0. And are awaiting the results of the flotation? A. Yes. Q. Were you in the Chicago, Rock Island and Pacific? A. I was not. Q. In the Pennsylvania 3 1 /2's of 1901 ? A. I do not recollect. Q. I should be glad to have you furnish, as Mr. Cromwell has done, and the others have promised, who are on your committee, a statement, to avoid going through all these syndicates in detail, of the syndicates in which you have participated, showing the extent of your participation, and the amount of profit covering both the syndicates in which you and the Mutual Life participated and also cases where the Mutual Life purchased bonds from the syndicate managers, although it may not have been a member of the syndicate. A. I don't believe, Mr. Hughes, that I could give you that for the reason that I never kept the syndicates that the Mutual Life were in any different from any other syndicates where I took participation. I simply kept a memorandum of the different syndicates that I was in from the bankers, and when that syndicate was closed that ended the whole record that I kept. I never kept any other record except that. Q. We have here a statement of the purchases of bonds by the Mutual Life? A. Yes. Q. And of the syndicate participations of the Mutual Life? A. Yes. Q. I can furnish you a list of the syndicates as to which I wish to have information. A. I think I have answered all those that I was interested in. » Q. You think you have given them all? A. I think so. O. Well, we haven't the exact details as to a number of them, Testimony of Augustus D. Juilliard but this, of course, you can supply on looking at your testimony. I might if you would prefer me to, go through these now and ask you further with regard to New York Central & Hudson River 30-year debentures? A. I had no interest in that. Q. Or Long Island Railroad? A. None whatever. Q. Or Baltimore & Ohio ? A. No. Q. Now, for example, to get at the matter more closely, the question whether the Mutual Life should buy Mexico bonds would come up before the sub-committee for discussion ? A. Yes. Q. Did the fact that the purchase by the Mutual Life of four millions of those bonds receive any attention in your discussion, that is, the fact that purchase would contribute to the profits divisible among the members of the syndicate receive any dis- cussion? A. No. Q. Was it a matter of comment? A. No. Q. Was it in your mind at all? A. They were simply bought because they were considered good investments. That is the only consideration we have there on securities we buy, whether they are an absolutely good investment in our judgment. O. I suppose that from time to time you would be offered these allotments or participations by syndicate managers? A. The usual course — they are offered by bankers, or syndicate -mana- gers, if you may call them so, to the Mutual Life. The officers of the Mutual Life will investigate them and bring up before the sub-committee all the details and all the information they have received on that security. Then from that and on our own judgment we vote as to the amount that we are willing to parti- cipate in. Sometimes we can get a great deal more than we take, other times we can't get as much as we want, we are cut down from the allotment. Q. When do you get your individual allotments, before or after that takes place? A. Invariably after. Q. Always after? A. Always after. 723 Testimony of Augustus D. Juilliard Q. After you have decided on the Mutual Life taking an allot- ment? A. Yes. Q. How do you get that, by request or offer? A. By apply- ing to the bankers. Q. You apply to the bankers? A. We apply to the bankers directly. Sometimes they give it to us, sometimes they cut us down, and sometimes they refuse us altogether. Q. Do I understand you ask for it or they offer it? A. We ask for it usually ; sometimes they offer it ; sometimes we ask for it. Q. When do you ask for it? A. As soon as we have proper information, so that we believe that the investment or undertaking would be a good one. Q. As soon as you come to the conclusion that it would be a good thing for the Mutual Life to enter into a syndicate opera- tion and you reflect that it would also be a good thing for your- self, then you ask the syndicate managers for a participation ? A. Yes. Q. That is the way it works? A. But I want to explain here that there are many syndicates, or many syndicates offered to the Mutual Life which are rejected by the Mutual Life for the reason that they are not the class of securities that we deal in, that individual members of that committee would go into the syndi- cate on their personal account. Q. In other words, you wouldn't have the Mutual Life invest in a security that you wouldn't risk your own money in ? A. No, but I would risk my own money in a security where I wouldn't risk the money of the Mutual Life. Q. In many cases where you have been a participator in syn- dicates have you put up money. A. A good many times. Q. Well, does that run through those we have referred to this morning? You have mentioned, I think, too, where you bought bonds on the market? A. Yes. 724 Testimony of Augustus D. Juilliard Q. Well, the Navigation syndicate was one where money was called for that perhaps you didn't anticipate the money to be called for on the start? A. You must expect the money to be called for. O. Oh, yes, you must be ready for it. That is your obligation. A. The money market may determine that. Q. Did you put up any money on the Japanese 4's ? A. No. O. Or Japanese 6's ? A. No ; none on the Japanese syndicates. Q. That was clear profit? A. Clear profit. Q. You simply got a participation and got your profit? A. Yes. Q. But in all those cases did the Mutual Life buy bonds ? A. I think they did. Q. Can you mention any other of the syndicates that I have named here in which you put up any money other than those you have already mentioned? A. I don't recollect now, but I have put up money on syndicates a great many times. I don't remember this specially. Q. Well, isn't the ordinary syndicate operation this, that the syndicates agree to be responsible for a certain amount indicated by their subscriptions, they will take the securities called for at the price stated in the syndicate agreement, but is the desire of the syndicate managers that the securities shall not be withdrawn if they can be sold, and that the syndicate members shall take the profits which may result from a sale by the syndicate managers? A. That is generally the agreement. Q. So that if you are a member of the syndicate, if it is a suc- cessful transaction, you don't put up any money unless you go in and buy bonds on the market ? A. None whatever. Q. And if it was a successful transaction you get your profits without putting up any money? A. Yes. Q. Now, it is pretty well understood, isn't it, that when the 725 Testimony of Augustus D. Juilliard Mutual Life goes into a syndicate it will be a purchaser of bonds? A. Not always. O. Well, pretty generally? A. As a rule, but sometimes it is obligatory, sometimes it is not. Q. We have had some of those cases on the record, where it has been made an expressed condition. A. Yes. Q. But when it is not made an express condition it is generally an accepted thing? A. Yes, as a rule. Q. And where it is a purchaser it buys at the price fixed by the syndicate managers as a part of the public? A. Yes. Q. Without reference to the amount of its particular participa- tion in the syndicate? A. If they didn't do that they probably wouldn't allot them any interest in the syndicate. Q. That is it. In other words, the members of the syndicate, at least the insurance companies, are rather expected when the bonds are put upon the market to stand back of them to some extent? A. Yes. Q. And therefore you investigate very carefully not only with reference to the possible loss on the syndicate underwriting, but also as to whether it would be advisable as an investment for the Mutual Life to take the bonds to some extent on the public offering? A. We never go into a syndicate where we would not be willing to take the bonds absolutely as a purchase and as an. investment for the company. Q. Yes. Now, the individual participators who are officers of your company don't, as a rule, buy in that security, do they? A. I can't answer for them. O. It isn't expected or made a condition for their participation that they must help support the market or buy any quantity of- bonds ? A. It has been at times. Q. But that is rare, isn't it? A. Yes; I think so. Q. For example, you have mentioned two cases in all the 726 Testimony of Augustus D. Juilliard syndicates where you have done that ? As a rule you don't do it ? A. Not as a rule. Q. The market is maintained and supported by the company, but not by the officers who happen as individuals to be in the sub- scription? A. The company supports it, just to the extent they have subscribed, but nothing more. Q. Well, a great deal more than they have subscribed. For example, in the Pennsylvania 3V2' S ! the company's participation was $1,300,000 and they went in the market for $4,250,000? A. The participation was all that they would let them have in the syndicate. Q. But the purchase was far in excess of that? A. Yes, but they tried for more in that syndicate, but they wouldn't allow them more than $1,300,000. Q. Whatever the reason, the Mutual Life does buy largely in excess of their allotments? A. They have to, to invest their money. O. Mr. Juilliard, your relations to the trust companies in which you are a stockholder and in which the Mutual Life In- surance Company is also a stockholder has been a profitable one, has it not? A. It has in most — in nearly every case. Q. Will you tell me who are the directors of the Morristown Trust Company ? A. I could not give you the list ; I am not a director in it. Q. Can you give me no information on the subject? A. I know several of the directors, but I could not tell you all of them. Q. How many are there on the board? A. I could not tell you that. O. Isn't it a fact that the company is controlled by gentle- men who are connected with the Mutual Life Insurance Com- pany? A. I believe, that a majority of the directors there are not connected with the Mutual Life, but a number of the Mutual Life people are directors in that company. 727 Testimony of Augustus D. Juilliard Q. Well, my question was whether the company was controlled by gentlemen who are connected with the Mutual Life Insurance Company? A. The Morristown Trust Company? Q. Yes. A. Not any more so than any other company that they are interested in. Q. Well, you mean they control all companies they are inter- ested in? A. They do not control them at all. They have an interest in them. Q. Well, do they control the Morristown Trust Company? A. Not to my knowledge. Q. Do you know how much stock Mr. R. A. McCurdy holds in the Morristown Trust Company? A. I don't know. I know I have ioo shares and I don't know another stockholder or how many shares they hold or anything about it. Q. Does that same statement apply to the Guaranty Trust Company and the United States Mortgage & Trust Company? A. It does. I have no means of knowing what other indi- viduals have except by examining the records, and that I never have. Q. Are any loans made by the Mutual Life Insurance Com- pany to the Morristown Trust Company? A. I never knew of the Mutual Life Insurance Company making a loan to any trust company. They deposit money in trust companies, but never loan it. Q. That is the only way in which they deal with them? A. That is the only way. Q. I see that the Mutual Life holds a large amount of the securities of the New York Dock Company. Will you state how they acquired them? A. I could not tell you just how those were acquired. Sometimes . Q. Is the New York Dock Company the successor to the Brooklyn Wharf & Warehouse Company? A. The Brooklyn Wharf & Warehouse Company, and I believe we had a great 728 Testimony of George Walbridge Perkins many mortgages on the land over there, dock property, and in the consolidation we took some of the bonds. Q. Do you mean on the reorganization? A. Both, I think. We took the bonds when . Q. On the original organization of the Brooklyn Wharf & Warehouse Company ? A. Yes, in lieu of mortgages that we had on the property. That is my recollection. I do not give that as positive. Then after the failure we held those bonds and took them in the reorganization. Q. Who had charge of that matter particularly for your com- pany? A. Mr. Cromwell and Mr. Iselin and Mr. Timpson, I believe, our directors. Mr. Cromwell and Mr. Iselin are directors in the company. Q. Did you have personal dealings in that matter? A. I had some interest in it, but a very small one. MR. HUGHES : Does the Committee desire to ask Mr. Juil- liard any questions? THE CHAIRMAN: No. MR. HUGHES: That is all for the present, Mr. Juilliard. Mr. Perkins, will you take the stand? GEORGE WALBRIDGE PERKINS, called as a witness, being duly sworn, testified as follows : BY MR. HUGHES : Q. You reside in the city of New York? A. I do, sir. Q. What is your office with the New York Life Insurance Company? A. Mr. Hughes and Mr. Chairman, if it may please you, I would like to introduce in evidence my original contract of engagement with the New York Life Insurance Company. 729 Testimony of George Walbridge Perkins Q. We would be very glad to have it. A. This is the original. It is rather precious to me, and I will leave you a copy. Q. This is the very start A. This is the beginning of my connection with the Company. MR. HUGHES : I will offer this in evidence and read it upon record. I will not even have it marked as an exhibit. THE WITNESS : Please do not touch it. MR. HUGHES: (Reading) "Pittsburg, March 27/79. Dear George : I have obtained a situation for you with the New York Life to act for the present as my clerk at a salary of $25 per month commencing April 1, 1879. Its continuance will depend upon your improvement in spelling and writing which will need to be very rapid. Also upon your care to attend to everything given you to do promptly without making any blunders or mis- takes and if in every respect you are honest, truthful and faith- ful in your duties it will lead eventually to some better position. Mr. Beers hopes that you will prove to be the coming man for the company. I will instruct you about your duties in detail when I reach Chicago. "Trusting that you will succeed in filling the place in a manner that will enable me to always make a favorable report in refer- ence to your work, believe me ever, "Your afft. Father, "George W. Perkins." MR. HUGHES : This is a most interesting document. THE WITNESS : There is a copy, if you would like to have it. 730 Testimony of George Walbridge Perkins MR. HUGHES : Yes, we will have that marked. The copy was admitted in evidence and marked Exhibit 7J. THE WITNESS : Now, Mr. Hughes, will you allow me to say in connection with this letter that it is the by-law of my administration of the affairs of the New York Life Insurance Company so far as I have been engaged in them. That letter was written when I was between fifteen and sixteen years of age, and it was the result of a long discussion between myself and my parents as to whether I should continue to go to school or go into business. I believed that the great business world was the best school for the young boy or young man, and I wanted to leave school and go to work, and so this letter when received made a deep impression on my mind, and I have tried to faith- fully live up, and' believe I have, to every injunction in it save the handwriting. I will have to plead failure on the question of handwriting. Now, I want to put that in this way, because I have been, as most everybody knows, an exceedingly active factor in the New York Life for a number of years, and I have administered my office, whether office boy or vice-president, with- out much regard to what my office was, but with a very keen ap- preciation of my responsibility. I have used my best judgment every time. I have made mistakes, but I believe if you will give me ample time in this investigation now, and on other days, there will be no question but what the record will show I have not made very many mistakes. I realize that having gone through every branch of the company's business from office boy to vice-president, step by step, and having entirely reorganized the company's agency department, which I did through Mr. McCall, and reorganized the Financial Department, that I undertook pretty big contracts, but they were based along lines of experience as I had read that experience from the 73 1 Testimony of George Walbridge Perkins ■lives of older men who had preceded me, and I believe that we have a company that is absolutely the equal at least of any other organization from the standpoint of gathering life in- surance, and any other financial institution from the standpoint of solidity and care in the handling of the trust funds that are so enormous as they are in our keeping. We are deeply interested in this investigation because, as every one knows, we are by far the largest trust fund of this kind. The New York Life to-day has $400,000,000, and if we did not write another application, if we never insured another life, if the New York Life stopped to- night, and never insured anybody else, before its assets began to go down they would amount up to the sum of $600,000,000, be- cause of the large business done in recent years by people who have practically engaged to go on and pay twenty premiums. Now, I want to say, and I want this on the record, I believe I have been the most influential one .factor in the New York Life in bringing the hundreds of thousands of people into the company who are now there, and I have felt that my responsibility was very great, to look after their interests, after they got in. And it is different from a savings bank. When a man goes into a savings bank he can quickly get out, but when an officer of a life insurance company brings a man in to insure him, he should do everything to safeguard the great future which may run fifteen or twenty years. I want to get that on the record, to show my motives, and I am done. Q. And now we will go on step by step in the development of your relations to the company? A. Thank you very much. Q. We start at this interesting period to which you have re- ferred, 1879. J ust g° on > if you will, and state what different positions you have held with the company. A. You will realize you have called me on very short notice, but I have it in my papers and Q. That is all right 732 Testimony of George Walbridge Perkins THE WITNESS : Is there a boy here from my office with a, paper? I have it all down. I telephoned for it. I hope not to keep you waiting when yon examine me any more than I can help, but I do not pretend that I will have everything you want when you ask for it. I am ready. May I ask for the question again ? Q. Yes. (Question repeated). A. From 1879 to 1893 I was office boy, assistant bookkeeper and bookkeeper. In 1883, in the Fall of the year, I was appointed cashier of the company's office at Cleveland, Ohio. In 1886 I left that position and went into the field as an agent. In 1888, having spent the two years travelling through the extreme western part of this country, I was appointed agency director in charge of the company's agency developments then going on at Denver, Colorado. In 1889, late in that year, I was appointed inspector of agencies for the Rocky Mountain district, including six or eight states there. In 1892 the office of third vice president was created by the Company and I wat elected to it and placed in charge of the company's agencies throughout the world. I took that office with the distinct under- standing that I was to be allowed very broad latitude in putting new agency plans and methods into effect, with a view to chang- ing the agency system from the plan then existing, by which middlemen secured the business, and turned it over to the com- pany, to a system by which the company did its business direct with the people. In 1893 I was elected a member of the Board of Trustees. In 1898, on the death of the then second vice-president, I was elected to that office, and a few weeks later was elected a member of the Finance Committee. On December 27th, 1900, after the death of the .then chairman of the Finance Committee, I was elected chairman of that committee. In 1903 — did I say December 27th, 1900? In May of 1903, on the death of the then 733 Testimony of George Walbridge Perkins vice-president of the company, I was elected to that office. Would you like the salaries that go with these positions? O. Yes, if you do not mind. A. The salaries that went with these positions were respectively as follows : $300 a year as an office boy, $1,200 a year as a clerk, $1,500 a year as a cashier, in 1886 ; $3,600 a year as a solicitor and special agency representative in 1887, $15,000 a year as agency director and inspector in 1888. And I would like to pause there to say that at that time, so far as I know and I have ever heard, that was the largest salary ever paid up to that time to any agency manager and I was not quite 30 years old. In 1883, when I was elected third vice-president, my salary was fixed at $20,000. In 1886 it was increased to $25,000. In 1899, when I became second vice- president, it was raised to $30,000. In 1901, when the question of ray going into Mr. Morgan's firm came up, it was increased to $75,000. In the next year, after I had entered that firm, it was reduced to $25,000 and is still $25,000. O. Probably you would like to state what arrangement was made, Mr. Perkins, at the time you entered the firm of J. P. Morgan & Company with regard to the relation of that firm to the New York Life Insurance Company and your participation in any profits that might be made by J. P. Morgan & Company out of such relations ? A. Yes, sir, I should be very glad indeed, and I thank you for the question. We had been — the New York Life had been — excuse me if I use the word we, because in the company we speak of it that way 0. Yes, that is quite natural. A. We had been very success- ful in developing our agency work along the line of the new plan I spoke of as having introduced. In fact, our success was greater than we had hoped. Our business was increasing by leaps and bounds, and the organization had been pretty well completed. We had made, perhaps, a year before any thought of ever being in 734 Testimony of George Walbridge Perkins any banking connection came up — we had made an estimate one day as to the. company's assets, and what they might amount to in ten years, if we simply went on doing our normal business, and we found that they would probably reach the enormous sum of a million dollars in ten or twelve -years. That was a very startling responsibility to face, and we began to wonder how we could properly develop a financial organization that would take care of the responsibilities that our agency organization was incurring. Mr. Gibbs, the then chairman of the Finance Committee, became ill and gradually failed in health. I had been on the Finance Committee for a year and had been giving a good deal of study to those questions. The question arose as to who should be his successor, what kind of a man we should select for such a position. We were hampered by the fact that we could not pay salaries that represented the annual profits of a banker or a man of affairs. We wanted a man, too, we thought, that was more or less conversant with life insurance. After a good deal of discussion that I had better undertake the work, and so I was elected chairman. I found that it was difficult to be very closely in touch with financial affairs, where our home office is situated away uptown, and I had to spend a good deal of time downtown, and we went on working out the problem of how, having solved the problem of agency working direct with the people, we could effect an organization which would enable those people to deal direct with the purchaser of the secur- ities. We wanted, with the least expense and in the most direct manner possible, to* connect the man who insured away off in some part of the world with the original issue pcice of the security we were going to put his money into, and we were working this problem out, when Mr. Morgan approached me with the very flattering compliment of entering his firm. MR. ROGERS : Pardon me. About when was this ? 735 Testimony of George IValbridge Perkins THE WITNESS: This was in 1901, I think, along in the summer sometime — in the summer I should say of 1901. I real- ized that the offer, from many points of view, was a very flatter- ing one ; certainly it was from the pecuniary point of view, to me personally. But after weighing it over for two or three weeks, I could not see my way clear to leave the New York Life, where I had been given such a free hand and had been allowed to do so much and where I had been instrumental in bringing such a large body of people into the company. Certainly I did not feel I could leave it until I could go on with plans that had been entrusted to me and develop them further. So I declined the offer. The Finance Committee and president and all, of course, were deeply interested in it, and as the result of that declination, my salary was increased to $75,000, which, however, on its face, was a large increase, but did not represent what the other offer had meant to me as declined. The matter went on for several months and that continued. I continued to study it over very deeply. I realized the tremendous educational op- portunities offered me in such a banking connection. I realized the New York Life had in some form or other to come in touch with the international banking affairs, as we were doing business all over the world and handling all sorts of securities. When the offer first came to me, Mr. Morgan made it for my whole time. I finally went back to him and said, Now this perhaps could be considered — after he had sent for me several times, I came back at him with the idea that this might be considered from the stand- point of my remaining in the employ of the New York Life and entering his firm. He declined that absolutely and said it was impossible and could not be done, that a dual position of that sort was not a tenable one and could not be carried out, and so the negotiations broke off again, and we again had it back and forth until finally one day Mr. Morgan said, "Well, if you will not come and leave the New York Life and you believe you can 736 Testimony of George Walbridge Perkins carry out this dual position, which I do not believe you can, I am willing to try it temporarily." We made the arrangement, and it has gone along from day to day from that time until now. Is there anything else on that point you wish ? Q. What I particularly asked you about was this, as to whether you profited through your relations with J. P. Morgan & Com- pany in transactions between that firm and the New York Life? A. I see. I brought you up to that point, I believe. Q. Yes. A. That was a matter I realized I would undoubt- edly be very closely criticized about, but I relied in facing that, that the New York Life would publish all its securities and I would make very public my connection that I was both in the New York Life and the Morgan Banking firm. LThe arrange- ment that I made with the company was that my salary was to be reduced and I was to work for the New York Life Insurance Company in all matters pertaining to it, and not for the firm of J. P. Morgan & Company, which I believe my record will ulti- mately show .7 The question of whether I should have a salary from the New York Life came up and was debated, and it was de- cided by all of us that I ought to work for it, and ought to be compensated for it, and there ought not to. be any question as to which side of every question I was working on. When I went into the Morgan firm, for instance, we had a bank account there. After I had been in the firm a few months it occurred to me that was not a proper ' relation, and so I think in the Spring of 1902 or thereabouts, I said to the Finance Committee that I thought the question of a bank account with J. P. Morgan & Company ought to be discontinued ; and I was asked if I thought the firm was weaker because I had gone into it, and I said that was not the point. I believed the arrangement ought not to continue, and so the account was closed, and never has been opened in any shape or form since. Then, someone brought to my attention about that time, or to 737 Testimony of George Walbridge Perkins someone's else attention, and it was brought to me, the fact that there was a statute which prevented any officer or trustee, of a life insurance company — I don't recollect just how it is worked — from in anyway receiving a commission on sales that he brought to the company. I brought that to the attention of counsel and asked about it, and they said they did not consider it pertained to such an arrangement as mine, but I thought differently, and made up an account at that time of any possible advantage which might have inured to me on the transactions up to that time and paid that money to the New York Life by my check and since then — and immediately took steps to be careful to keep that matter in mind, and any profits that could, or might, have accrued in that way I have paid to the company. What other point do you wish? Q. What I want to get at particularly is this. J. P. Morgan & Company sell securities to the New York Life? A. They have, yes, sir. Q. Do you share in the profits of that transaction ? A. No, sir. Q. Do you cover over the profits to the New York Life, or re- linquish your share in the firm of Morgan & Company? A. I cover them over to the New York Life direct. Q. And you keep an account of that, or there is an account kept? A. I keep an account myself of it, because I would be naturally the only one who would know what it was. It has not amounted to hardly anything anyway ; it has been a very small item. Q. Do you mean relatively few transactions? A. Relatively few transactions and a very small margin of profit. Later, if you will allow me, I should like to bring a statement of just what that was. Q. Of course. A. Will someone take a memorandum for me of what I am to bring? 738 Testimony of George Walbridgc Perkins Q. The point is that, whenever J. P. Morgan & Company make a profit through the transactions with the New York Life, you keep a memorandum of that profit and turn back to the New York Life whatever share you have in it? A. Yes. Q. Does that apply to transactions between the New York Life and W. S. Fanshaw ? A. I don't think I gather the point of that inquiry. Q. Suppose the New York Life enters into transactions with W. S. Fanshaw and W. S. Fanshaw makes a profit, does Fan- shaw in those matters deal with J. P. Morgan & Company? A. He has nothing whatever to do with J. P. Morgan & Company. It is an entirely different firm. Q. Does he get securities from J. P. Morgan & Company. A. He does. Q. Doesn't he generally? A. Not at all. He buys securities from everyone in the street. Would you be good enough to just give me the points, I don't just follow what he has to do with it. Q. The point is this. I see in the statement of purchases and sales of the New York Life very many transactions with W. S. Fanshaw? A. Yes, sir, a great many. Q. And also a great many transactions on joint account with W. S. Fanshaw? A. Yes. Q. I wanted to know just what were W. S. Fanshaw's rela- tions to J. P. Morgan & Company? A. Simply that of every other house in the street, a general bond dealer. Q. Does J. P. Morgan & Company make a profit from its rela- tions with W. S. Fanshaw? A. Sometimes it does and some- times not. May I ask, if what you are trying to get at there is any indirect underground manner by which things go from Fan- shaw to Morgan & Company and the New York Life? No. Q. That does not characterize it . A. I thought that might be what you are trying to get at. Absolutely no. 739 Testimony of George Walbridge Perkins Q. But let us take the questions and answer so that we may get the facts. A. All right. Q. Does J. P. Morgan & Company make a profit through its relations with W. S. Fanshaw? A. I have answered that, I believe. Sometimes they do and sometimes they do not. Q. Does the firm make profits on the transactions with Fan- shaw when Fanshaw resells the securities to the New York Life ? A. Depending — that is Mr. Fanshaw O. You don't know? A. I might personally know about it, yes, but I don't see what that has got to do with us. Q. If J. P. Morgan & Company sells to W. S. Fanshaw and W. S. Fanshaw sells to the New York Life, . A. Yes. Q. (continuing). I want to know whether, if a profit is made through the transaction of selling by Morgan & Company to Fanshaw, you participate in that profit ? A. I do not. Never any more than bonds that we sell to Kuhn, Loeb & Company, and they might sell, or Harvey Fisk & Company, or Farson Leach. May I ask why you ask about Fanshaw, what is the point? Q. Because I see his name so frequently in these papers. A. And because he is the largest of the dealers downtown. Q. That is a good statement to make, and that is what I want to get at. A. Yes, sir. Q Fanshaw deals with the New York Life largely on joint account, as I understand? A. Yes. May I explain that joint account ? Q. I was just going to ask you to explain what that joint account is. A. Well, that was a plan that I may say THE CHAIRMAN: If you can reach a convenient point we will take a recess. MR. HUGHES : I suppose we might as well adjourn now. (At this point a recess wars taken until 2.15 P. M.) 74o AFTER RECESS. 2.15 P. M. GEORGE W. PERKINS resumed the stand. BY MR. HUGHES: Q. I find in this book, Ledger No. 3, Treasury Department,, an account headed temporary loans. What are embraced in that account? A. Well, I am not familiar with the technical book- keeping, Mr. Hughes. Q. Wouldn't you rather sit down? A. No, if you don't mind. I sometimes can sit down and sometimes remain standing, accord- ing as I feel. Ordinarily, temporary loans are demand loans or loans made payable very promptly or at a very short time, very short notice. Q. They are distinct from the collateral loans that appear in the main books at the head office? A. I can't testify as to that. I am not sure that they would be, but yet that might be. Q. Take this entry under January 5, 1905, W. S. Fan- shaw, $937,500. What was that transaction? A. I don't know what that transaction was from the book, but I think you will find, if you ask for information on it, that it was in connec- tion with some joint account, or loaned possibly to Fanshaw & Company on bonds. May I ask permission to look that up and bring you the exact data on it ? Q. Yes. I find under date of January 18, 1905, under the heading of temporary loans, a loan to E. H. Harriman of $500,- 000. What was that? A. Undoubtedly a loan on bonds, a regu- 74i Testimony of George Walbridge Perkins lar collateral call loan. Would you like the information about that, Mr. Hughes? Q. Yes. A. Will you kindly let my secretary have the date and the amount? Q. He can take it as I give it. I find another loan on June 14th of $500,000 and a payment of $500,000 on the same date which would indicate that that was a renewal of the same tem- porary loan, would it not? A. That may have been. Q. I find there was a payment on January 18th by E .H. Har- riman of $500,000 the same date on which the loans appeared, which would indicate that that was the renewal of a prior loan? A. Undoubtedly that is so. If you would like the details we would be very glad to send them up. Q. Was that $500,000 which apparently from this account was on loan to Mr. Harriman a part of the $550,000 which appears in the report of December 30, 1904, of your company as the amount then outstanding on collateral loans? A. Offhand I should say that was so. We would be glad to furnish you that information. Those would naturally be loans secured by bonds as collateral, as we cannot make any other kind of loans. Q. I see. Is this heading then "Temporary Loans" the ac- count of the collateral loans of the company? A. I should say from what I have seen there that it is, Mr. Hughes, but I am not the bookkeeper, or I don't attend to the details of the transactions. I execute the policy, but I don't keep the books. Q. I find here in January, 1902, a loan to John R. Hegeman of $50,000. Was that a collateral loan. A. Undoubtedly. Q. All these may be taken to be collateral loans ? A. I should say so, sir. Q. Why do they appear in the book kept at the treasury depart- ment? Is that the place where collateral loans are handled? A. The treasurer is custodian of all the company's securities. 742 Testimony of George Walbridge Perkins Q. Well, that is true, but this is the book of the Financial Office? A. Yes, sir. Q. And are your collateral loans handled through this book? A. Well, I presume they are. As I said, I don't keep the books, but from looking at it I should say that is what they are. Q. Apparently you have very few of these temporary loan transactions ? A. Very few. You know we can't loan on stocks ; we can only loan on bonds. Q. Yes. A. And we have been unable to get very many loans on bonds and have used other methods to earn interest on our money temporarily. Q. Take, for example, on November 23, 1903, a loan of a mill- ion dollars to the New York Security & Trust Company. Can you tell the occasion for making such a loan to that company? A. No, sir, but it was undoubtedly a loan on collateral, that is, bonds. Q. Well, why should the New York Security & Trust Com- pany have occasion to borrow from you that amount of money? A. Well, it may have been some temporary transaction they wanted to make. That is a detail I don't know. Q. In what particular joint account transaction, if you can state, was the loan to Mr. Fanshaw on January last? A. I have said that I would be Very pleased to get that information, Mr. Hughes. Q. You don't have it at the moment ? A. Not offhand ; no, sir. Q. When we were closing the morning session . A. What I might say on that I think might bear on this, Mr. Hughes, on the question of joint accounts. I think that is where we left off. Q. That is just where I am going to- resume. When we were closing the morning session we were speaking of joint account transactions. Will you explain, please, what a joint account transaction is as it appears on your books? A. I have believed myself, as I have stated this morning, that we ought to come as 743 Testimony of George Walbridge Perkins nearly as we can to buying securities first hand. I think the larger these companies get the more nearly they ought to come to that principle. Now, we have been moving along certain lines to try and get there, and this joint account arrangement that we have introduced into our plan has been one of those methods, and if you please I would like to illustrate it by cases. For instance Q. If you will pardon me, I think we will bring out all the facts through interrogatories, and if there is anything that isn't brought out I will be very glad to have you supplement it. Q. Now, isn't it a fact that when purchases are made upon joint account they are made for the joint benefit of the New York Life Insurance Company and some other party ? A. As a principle that is true, but it has many variations, according to circumstance. Q. Yes. A. The idea being on our part that we want to get a certain security as cheaply as we can. Q. I find, for example, in the list of purchases and sales which you have furnished under date of November 14, 1904, the fol- lowing entry, November 14, 1904, Erie convertible 4's, joint account, $1,000,000 at 94 cost $940,000, W. S. Fanshawe. Now that means, does it, that you bought $1,000,000 in par value of Erie convertible 4's ? A. I presume that is so. Q. And who who was the other party with you in joint ac- count? A. Probably Mr. Fanshawe. Now I want to give you the information, but you know I can't remember all the actual facts, but as far as the principle goes I will carry it with you. Q. Now, from whom did W. S. Fanshawe get the Erie con- vertibles? A. I don't know, sir. Q. Didn't he get them from J. P. Morgan & Company? A. He may have bought from J. P. Morgan & Company or the syndi- cate that was formed at that time, or bought them in the market. If you wish I will get that for you. Do you want that, sir? 744 Testimony of George Walbridge Perkins Q. Yes. A. May I carry that particular transaction as it is in my mind through a little bit. Q. I am going to carry it through, carry it right along. Now, having bought a million Erie convertible 4's for a million dol- lars, your company, that is the New York Life Insurance Com- pany . A. I beg your pardon, did I understand you we paid a million dollars for them? Q. No, you paid $940,000 for them, but they were a million in par value? A. Yes, sir. O. Having bought those the New York Life paid for them? A. I couldn't testify to that. Does that show? Q. Well, that appears from your list of purchases, and it says cost $940,000. A. Then that is correct. That is the state- ment. Q. Now, on January 27, 1905, under the heading of sales, I find Erie Railroad convertible joint account 50,000 at 101.07, re- alized $5,537.50, which means that there was a sale of part of those for joint account. I find under the heading "To whom sold," Stock Exchange. What does that mean? A. We sold them through brokers direct to the market on the Stock Ex- change. Q. They were sold through Mr. Fanshawe, weren't they A. That I couldn't say. I will find that out for you. Q. — if there was a joint account between them? A. That I can't say, but I will be glad to find that out. Q. Now, under date of January 30th I find several transactions in Erie convertibles, joint account, 50 at 101.05, 50 at 101.3, 105 at 101.55, 3° at 101.80, 100 at 102.5, and on January 31st 5,000 at 101.80, and then on February 1st 10,000 at 102.4, February 3d, 30,000 at 102.01, February 3, 5,000 at 102.26, February 6th 20,000 at 102.23, February 6th 25,000 at 102.48, February 6th 5,000 at 102.48, February 7th 5,000 at 102.73, February 7th 5,000 at 10.2,72, February 9th 14,000 at 102.70, February 10th 25,000 745 Testimony of George Walbridge Perkins at 102.94, February 10th 1,000 at 102.68 and February 14 8,000 at 103.14, and a number of others following along in rapid suc- cession. Now all those were sales for joint account? A. Un- doubtedly. Q In each case I find opposite the entry of sale the words "Stock Exchange." Now, that means that they were disposed of on the board? A. Yes. Q. But they were disposed of for joint account? A. Yes, sir. Q. Now, after a number of these transactions, which I suppose were released from the joint account for sale in small lots, as they could be marketed . A. To the best advantage. Q. Yes. A. We had seemed to do pretty well with that par- ticular account. Q. (Continuing). We find that later on, on August 11, 1905, $330,000 are taken at general account. That means that . A. May I look at that? Q. Yes. A. This is all the same year? Q. Yes. August nth last. Here you are, the balance left, $330,000 transferred to general account. What is the meaning of the transfer to General Account? A. Well, I should say — mind you, I have not the books — I should say that we withdrew our bonds from the joint account and closed it and took our bonds and put them in our bond account. Q. That is, you took $330,000 for yourselves ? A. Yes, sir. Q. The New York Life Insurance Company? A. Exactly. Q. And made proper entries in both sides of the account show- ing that they had been sold to the general account to which they were transferred, and that they had been bought from the joint account? A. Not sold to the general account, withdrawn from the joint account. That might be misunderstood, that we took them at 102. If we withdrew them we withdrew them at the general price of the joint account, which would be 94. I do not want to give an impression that, when we have joint accounts, 746 Testimony of George Walbridge Perkins and we withdraw them for ourselves, our partners make any money. Q. I see. What was the price at which they were withdrawn? A. I cannot recollect. Q. I find, under this item of sales, $246,785.4.3, which would be less than 80. There is evidently a mistake in that. A. I don't believe there is a mistake, but I will get you the facts. 0. You could not very well have withdrawn those at that time at 80. It must be $346,000 instead of $246,000. A. Those are the printed schedules. I think when Mr. Randolph filed those he said all errors and omissions excepted. Q. Of course. A. May I look them up for you? Q. Yes. If it was $346,000 instead of $246,000, we ought to know it, but I do not want to conduct any further inquiry about it now. A. May my secretary have it? Q. It is an entry of sale or transfer to general account under date of August nth, 1905, Erie Convertible joint account, $330,- 000, and it says here "Realized $246,785.43, to whom sold, general account," and there is an entry on the other side to take it out of the joint account, Erie Convertible $330,000, "$246,785.43 pur- chased from joint accounts," to make the proper bookkeeping? A. Yes. By the way, we have sold all those bonds at from 106 to 109. Q. What I want to get at is this, you originally took a million dollars of those bonds and you withdrew for yourselves from the joint account $330,000? A. So it would appear. Q. And the residue were sold for joint account? A. Yes. Q. The profits upon the resale of the differencee, $670,000 of those bonds were divided between the New York Life Insurance Company and Mr. Fanshawe? A. Probably that is so. Of course, I have not the figures. Q. The New York Life Insurance Company put up the money. Mr. Fanshaw did not put up any money? A. He may 747 Testimony of George Walbridge Perkins have on that transaction. He very often did and sometimes did not. Q. There is nothing in this account to indicate that he did. On the other hand, it appears that you paid $940,000 to start with for the million dollars? A. I should rather look that up than testify from the lack of technical knowledge. Q. Yes, but so far as your personal information goes, you do not know of any money put up by Mr. Fanshaw in that trans- action? A. No, but it is just as likely that he did as that he did not. May I explain that in these joint accounts we made them in different ways. If in our judgment we would like to buy a certain security, we very often say to some particular house, "If you will go and buy a given security at about a given price, we will join you in the purchase," our idea being that we will withdraw our half at that price, or according to the market as it may develop, we may sell a quarter of our half or half of it, and mark down the bonds that we withdraw to a lower price. Now, it has occurred that these houses like Fanshaw & Harvey, Fisk & Company, and Farson, Leach & Company have said at the moment it is not convenient, we would like to do the business, but where can we get the money? It has furnished us an excellent channel to make loans by saying that we will take the bonds if you will be responsible for your half, we will furnish the money to carry it for the rate of interest that the bonds give us, which gives us a better rate of interest than we get on the street for call money, which is 2 or 3 per cent. The last transaction we had of that kind was a transaction two or three years ago, and it illus- trates almost perfectly one of those transactions, where I came • lowntown and found that Kuhn, Loeb & Company had taken f|iiite a block of bonds of the Central Pacific for money to pay for flic government. They were excellent bonds, and as soon as I got downtown I called up Kuhn, Loeb & Company and said have you sold all those bonds ? They said no. I says "What will you 748 Testimony of George Walbridge Perkins sell us a million for?" They said, "At par and a half, less a half," which meant we would get the bonds at par and interest. After I found that out I said, "How many have you left?" They said they had $2,558,000 or two and one half millions in round num- bers. I said what will you sell the entire lot for? And after dickering back and forth they finally gave me an option for a couple of hours on the entire lot at 99V2 or 99%) I think it was, and then I went to the finance committee and I said this is an excellent bond. Of course, we want to get them as cheap as we can. We have some of these bonds. And we debated whether we wanted two and a half millions more and we decided we did not, but would like about a million more. So I sent for Harvey, Fisk & Company, and said now I believe this is a good bond, I believe I can buy them so cheap that you can make a commis- sion. We do not want them all, but if you let me buy them at this price, 99J4 or 99%, whichever it was, and give you a third and you get somebody else to take a third, we will withdraw our- selves at the original price, and you can make a profit on this. So we made the purchase and they had their two-thirds at 99% and we took our y 3 at 99%, and we withdrew ours at 99%. By that way of doing it we got our ap- proximately $1,000,000 of bonds at a saving of a consid- erable percentage from what we could have got them if we had gone'and bought the bonds at par and interest. Now to show you how a thing like that works out, these people, Kuhn, Loeb & Company, might have asked us more. All those bonds are now selling in the market at more than Kuhn, Loeb & Company were asking at the time we made that transaction. We might have loaned — but we did not in that case — we might have loaned, and if they had asked us we probably would have, if Fanshawe had said, "Yes, I will do this, but I have not the money," we would have said undoubtedly, "If the Finance Committee will, we will 7t9 Testimony of George Walbridge Perkins furnish the money and carry it at the bond interest." That is an illustration. Q. Let us take the transaction, not so much as to the profit that you make as to the nature of the transaction itself. In the first place, in this Erie convertible matter, you put up $940,000 for a million dollars of bonds. You do that with the idea of having the greater part of them resold? A. I beg your pardon, not always, Mr. Hughes. I am talking of Erie convertibles. A. Not in that case, no, sir. Q. You marketed them as soon as you could? A. No, sir, I beg pardon. We marketed them because we were very much gratified at such a handsome profit on those bonds, and we take it as our duty to regard the time of selling a thing as important as the time of buying. Q. Exactly, you want to sell them to advantage? A. Yes. Q. And close the joint account as quickly as possible? A. We might have kept those bonds for twenty years. Q. Of course, but you were keeping them all the time for joint account? A. No, until our judgment was formed as to whether we wanted to sell them or withdraw them. Q. But you took them on joint account and until you sold them they were kept for joint account and when you sold them they were sold for joint account? A. We reserve the right to with- draw them. Q. But it is the fact that you buy them for joint account and hold them for joint account and sell them for joint account. A. And we withdraw what we want. Q. Of course, you did not withdraw what you did not want to ? A. No. I mean we commanded the situation. No one else did. Q. Nobody disputes that. A. Well — (laughing). Q. When you in this way expect to make a profit on sales for joint account, that is a profit which you are willing to divide 75° Testimony of George Walbridge Perkins with somebody else? A. Usually, as the case may be, each one is different. Q. So long as you keep the securities on joint account and be- fore you withdraw, they are kept for sale with an option to you to withdraw when you wish to do so? A. That is about it, yes, sir. Q. And when the sale is made the profits upon the sale for joint account are shared equally between the New York Life Insurance Company and the other party to the joint account? A. Not necessarily. Q. Were they in the case of the Erie convertibles? A. I pre- sume they were. But sometimes it is a half and sometimes one- third and sometimes two-thirds, depending upon how good a trade we can make. Q. Now, I want to diverge from that and close a subject I had opened this morning, and that was the nature of this payment which was made, which was charged to the Hanover Bank Office account under December 30, 1904, by the order of the president for $48,702.50. Is that check here? A. I can tell you all about it. Q. Please produce the check. (Paper produced.) MR. HUGHES: The check is produced and offered in evi- dence. The paper was admitted in evidence, marked Exhibit No. 78, and read by Mr. Hughes. Q. I think it is Shipman, assistant treasurer ; E. R. Randolph, treasurer. (Handing paper.) A. I don't know the check. Q. What was that payment for ? A. That was money paid to Mr. Cornelius N. Bliss on account of the Republican National Committee Campaign account of last year. We had agreed to 75* Testimony of George Walbridge Perkins pay him $50,000, as much as that Mr. McCall had, if he wished it, and that was all he finally called for, and it was paid in that way as cash to him. I would like to state in that connection that the New York Life did the same thing in 1902 and 1906. We did it in the first McKinley campaign and in the second McKinley campaign and in the last one. Q. In 1896, you mean? A. Yes. Q. In 1902 to what account was the payment carried? A. I am sure I don't know. That was before my day, but I know we did it. Q. Have you the account here ? A. No, but I presume we can find where it was charged. I am very glad you brought that out, because I think that is a matter of very far-reaching importance and should be brought out. Q. Yes, I intended it should be brought out. (Laughter.) A. Well . Q. You mean 1896, don't you? A. I mean the first McKinley campaign and the second McKinley campaign, and the Roose- velt and Fairbanks campaign. I want to say that these payments were made after a great deal of deliberation and not made, as one would say that political funds are made, but made in the first instance in the McKinley campaign because we believed the in- tegrity of our assets was being assailed. We belie ved it was an absolutely legitimate thing for us to do to protect the securities of these hundreds and thousands of people everywhere, and in the second campaign we thought the same. And when we saw that "St Louk platform down there we believed it more than ever. We thought it was ou duty to protect that situation, and wemade it as wejwouJd_any_ijthejL expense. Q. And you charged it in this Hanover Bank Office Account by order of the president, without any mention of what it was for? A. I don't know, lots of items are probably entered that way, because there is a memorandum about them. 7S2 Testimony of George Walbridge Perkins Q. It was paid for out of the proceeds of these non-ledger se- curities? A. It was paid for out of cash. Q. And charged against the proceeds of non-ledger securities (handing books) ? A. It was charged to the Hanover Office Account. Q. Hanover Bank Office Account ? A. Well, it is the Hanover Office Account. The word Bank ought not to be there. .It is only one out of a thousand accounts ; I don't think it makes any difference which account. O. You spoke of a payment in 1902 ? A. I don't know whether it was 1902, it was the first McKinley campaign. Q. That was in 1896. A. very good. In 1892, Mr. McCall was president of the company and he was a Democrat, and it was a Democratic situation, and we saw nothing in the situation which menaced our policyholders from that point of view, and no con- tribution was made. Q. You spoke of another contribution besides 1896, what was that ? A. I said we made contributions in the first and second McKinley campaigns. Q 1900? A. I do not say the date, you can put the dates in. Q. What account was that carried in ? A. I really don't know, but we would be very glad to give that if you like. Q. Have you the account here that was carried prior to the Hanover Bank Office Account, which covered the disposition of the proceeds of non-ledger assets? A. I beg your pardon? Q. This Hanover Bank Account contains profits realized from the sale of non-ledger assets. I understand that prior to the opening of the Hanover Bank Office there was another account which I asked for this morning which included similar credits? A. I really don't know how that is, but we can get that, of course. Q. I think you have the book here. 753 Testimony of George Walbridge Perkins A VOICE : I think it is here. THE WITNESS : I would like to make one statement. This check having been drawn to J. P. Morgan & Co., it having been drawn to them has no significance whatever. The money was ordered paid by the president, and I paid it and a check was drawn that way undoubtedly; this is the first time I have seen it in that form — because it was the most convenient form to pay the money to me, or a convenient way to pay it to me. There was no special reason. Q. Now, while we are on that, I would like to have you state what other contributions have been made to any political party or campaign fund or for political purposes? A. None to my knowledge. Q. Now, I understand that in this book prior to the opening of this account known as the Hanover Bank office account there was an account headed "Commissions earned by purchasers of securities." That covered whatever commissions were made on old securities, whether ledger or non-ledger assets, as I under- stand? A. I don't understand that we have ever purchased any of our so-called unlisted, or as you put it, non-ledger assets or unclaimed assets. You call them non-ledger assets. Q. You mean that they would not be included in that account? A. Yes, sir. A VOICE : Unclaimed assets we do not buy. THE WITNESS : That is what I said. Q. They would not appear in that account. Those profits ap- pear in the account headed "Profits on Securities" bought pre- 7S4 Testimony of George Walbridge Perkins vious to and sold during a certain year as I understand? A. As I understand, that would be it, yes, sir. Q. The profits being entered on the credit side of the account and the losses being entered on the debit side of the account? Were there ever any losses in that account? A. Oh, yes, a lot of them, sir. Q. Oh, securities bought prior to and sold during — I under- stand. Now, the heading of Commissions and Profits earned by syndicate participation include whatever profits were received from which the data have been taken which appear in the sheets which have been furnished? A. I suppose so. The bookkeeper is more competent to testify to that than I am. Q. And any losses appear on the other side of the account? Now, I find in the account headed Commissions and Profits earned by syndicate participation in 1904, on folio 69 of this ledger 3, a credit on December 31, 1904, Navigation syndicate $80,000 and a debit under the same date of $160,000. Can you explain that? A. When was this? Q. December 31st last. A. I am glad you brought that up, be- cause of the question which came up the other day about our sale of $800,000 of our Navigation syndicate participation. We originally asked for $5,000,000 in that syndicate and were allotted $4,000,000 and during the first year of the syndicate paid, for $3,200,000 of them and scheduled that in our assets as $3,200,000. Then in the next year a call was made for the remainder or in full in that syndicate, which called upon us for $800,000. We made up our minds we would sell that $800,000, having started the item at $3,200,000, but we were unable to get more than 75 or 80 for it, and I was unwilling to sell it at that price, so when it came to the end of the year, in place of taking a loss of $160,000 or $175,000, on that, I arranged to sell it to J. P. Morgan & Co. from whom we had secured it at the price for which we had paid for it, and at the price for which we were 7SS Testimony of George Walbridge Perkins carrying the $3,200,000 in our statement. Then I bought that back after the first of the year for exactly the same figure at which we had sold it and entered it in our assets again as a fur- ther purchase, and went on trying to sell it again. I finally sold it at 90. The market for it then was about 80 or 85, but I sold it for 90, and in place of making the loss that we would have made of $160,000 or $175,000, if I had not taken that method, we only made a loss of $80,000, and I believe that is only a tem- porary loss. Q. Well, why did you enter a credit of $80,000 and a debit of $160,000? A. Because, as I recollect that, and I do recollect that, we started to sell it at 80, and I was finally successful in sell- ing it at 90. Our first idea was to sell it at 80, and we started to sell it at 80, and then we received another 10 per cent in cash, and that was entered at cash, making it net us 90. That closes that transaction. Q. You had spoken of the sale on December 31st, 1903, the year before I have spoken of on your books of 800,000 at par, and of the repurchase on January 2nd, 1904. Was that trans- action brought before the Finance Committee? -A. The question of selling the 800,000 had been discussed, and we decided to sell it. I can't testify whether that particular — at that particular moment that was before the Finance Committee? It has been a running question through the year. Q. To whom did you sell that? A. J. S. Morgan & Company. Q. J. P. Morgan & Company? A. J. S. Morgan & Company. Oh, I beg your pardon ? The first sale ? O. Of December 31st, 1903? A. Yes, sir. O. To J. P. Morgan & Company? A. Yes, sir. Q. Was that paid in cash ? A. That was paid in cash. Q. By check? A. By check. Q. And deposited to the credit of your company? A. Yes. Q. On December 3st, 1903? A. I presume that was the date. Testimony of George Walbridge Perkins Q. You conducted that transaction yourself? A. I did. Q. With yourself? A. No, sir Q. With whom ? A. J. P. Morgan & Company. Q. And on January 2nd, 1904, you bought the 800,000 back? A. I did. Q. Did you consider it then a good investment at par? A. I did, as we were situated in the syndicate. Q. What do you mean by that, as you were situated in the syndicate? A. I mean we had an interest of $3,200,000 in the syndicate which we had paid for at par. and valued at par and carried at par. Q. And you wanted to get rid of $800,000? A. That was our policy. O. And you had sold it on December 31st, 1903? A. We had. Q. Why did you buy it back then on January 2, 1904? A. Because I intended to buy it back if I couldn't get par for it. Q. If you couldn't get par for it when, on New Year's Day? A. Well, the last day or any day. Q. So, when you sold it on December 31st, you intended to buy it back on January 2nd? A. If I couldn't get par for it in the meanwhile. Q. Was there any authorization by the finance committee for the repurchase on January 2nd? A. I don't know that. I will look that up. I don't think there was. Q. You did that on your own responsibility? A. I made that transaction because it was my judgment that was the best method on that particular transaction, because if I did sell it as I did we lost $80,000, and we would have lost $90,000 if I had not done it that way. Q. So, you didn't want to sell it outright ? A. No, and my only regret is that I sold it at 90. Q. If you didn't want to sell it outright at the end of December, 1903, why did you sell it at all? A. Because it was the policy 757 Testimony of George Walbridge Perkins of the company. We had to sell it, as I say. I wish we hadn't sold it. O. But you sold it to buy it back ? A. We sold it to protect our situation. Q. To protect what situation? A. We had bought a $3,200,- 000 block at par, and we were a part of this syndicate, and a syn- dicate means that people are more or less partners, going along together in one general transaction for their mutual good. Q. But the only situation you had to protect on December 31st, 1903, was the situation exigent by reason of your making your report to the superintendent of insurance ? A. I beg your pardon. We had the situation of selling those at a loss of $70,000 or $75.- 000 because that security was very much depressed at that moment. That is what I didn't wish to do. It was that, and it was reported. Q. That is, 'you had the option of reporting at four millions or selling at a loss? A. Quite so, sir. Q. And you didn't want to report at four millions, but you wanted to report at $3,200,000? A. That had been reported at $3,200,00. Q. And you had reported it at $3,200,000, and you didn't want to report any more at the end of 1903? A. That had been our policy, to keep it at $3,200,000. Q. And not being able to sell it out, you just sold it to J. P. Morgan & Company with the intention of buying it back the day after the sale? A. No, we made the sale to J. P. Morgan & Company for cash, and we put that cash into our statement, which was as good as anything else, and it was my intention, if we were not able to sell it during that very brief time, which was a very mere chance that we had, we would buy it back and go on trying to sell, which I did. Q. But your actual object was to keep your reported holdings at $3,200,000? A. Yes, and may I ask, that we reported that 758 Testimony of George Walbridge Perkins holding at par, therefore, if we had kept the other 800,000 we would have reported at par, so we had cash put in at par, which made no difference. Q. Of course, cash which you returned the next day? A. But we had it. Q. I know, but I am getting at the purpose ? A. The purpose was not to sell that participation at 75 or 80. Q. The purpose was to have your report show $3,200,000 in stead of $4,000,000? A. Yes, sir, and go on with our original entry. Q. That is it, isn't it? A. Yes; we try and go on with our original entry. Q. Now,.I notice on the back of this check, Exhibit 78, $48,- 702.50, some entries in figures. Do you know what they are? A. No, I do not. I will be very glad to look it up. BY MR. ARMSTRONG: Q. I take it, Mr. Perkins, these are possibly clearing-house figures? A. Yes, sir. Q. A memorandum not relating to the check? A. I presume not, sir. BY MR. HUGHES : Q. Did the matter of this check payment to Mr. Bliss come before the Finance Committee? A. No, sir; it was purely an executive action on the part of the president. Q. On the part of the president? A. Yes, sir. Q. With your concurrence? A. With the concurrence of the officers. I knew about it, yes, sir ; believed in it and approved of it as far as I was concerned. 759 Testimony of George Walbridge Perkins Q. There was no formal action taken ? A. No, sir, it was done under the general administration of the company's affairs. BY MR. ARMSTRONG: Q. Who else, to your knowledge, approved of that, Mr. Per- kins? A. Well, I don't recall whether any of the other officers did, other than Mr. McCall and myself. Q. Did you know how the figure came to be such an odd num- ber? A. No, sir, I do not, but I remember that Mr. McCall said to Mr. Bliss that the New York Life would contribute as much as $50,000 and when the — Mr. Bliss made various calls from time to time, which I paid myself. Q. Well . A. May I just finish that, please, Mr. Chair- man, and when the accounts were made up toward the end of the year this amount was the amount found to be due, and that amount was paid back to me. It was not paid to J. P. Morgan & Company, but it was paid to me. I had personally advanced that money. Q. You said you had no knowledge of any other political con- tributions except the ones you have testified to in 1896 and 1900? A. Yes, sir. Q. Were you in position to know whether or not any were made by your company ? A. Well, I don't know that I would be in a position to know absolutely whether they were or not. Q. Since you have been chairman of the Finance Committee I suppose you have been in a position to know ? A. No ; because as I say, this did not come — the Finance Committee, you see, under the by-laws had charge of the salaries and specific things, but they are not charged with supervision of general expendi- tures, and I think that that is a question that ought to be looked into, Mr. Chairman. I think there ought to be some broadening, perhaps, in this case of that authority. 760 Testimony of George Walbridge Perkins Q. Let me ask you, if the president of your company should by executive order pay out a hundred or fifty thousand dollars, could that be done without its necessarily coming to the atten- tion of the Finance Committee. A. It could. Q. But no one else than the president? A. The president. Yes, sir. That is a very good question, and may lead to . BY MR. HUGHES : Q. Is it your view, Mr. Perkins, that contributions by insur- ance companies to political campaign funds should be prohibited? A. I most certainly do. I think it is a very, very bad practice that has grown up , and I think you gentlemen could do nothing better, among other things, than, as it has occurred to me, enact a law that will do what the law requires now, as I understand it, gentlemen, viz., that if a man is running for office he must sched- ule what he has paid out.l I believe every institution that is deal- ing with other people's money ought to schedule and be made to show what they pay that money for. I think in a country like ours with the situations we are meeting, that there might easily arise a situation, as in the McKinley campaign, that we ought to contribute money that would be 25 cents, 50 cents, a dollar or io cents from each policyholder to protect his interests, but when it is done it ought to be known that it is done. That is my con- tention. And, Mr. Hughes, in that connection, that is a hobby of mine,jl think the only way in which you can now govern these great companies is by the greatest publicity .J Q. That is what we are getting at. A.tNow, if we had a law, I believe these particular contributions would have been justified and every policyholder would have endorsed that.7 0. You don't think that is safe to leave to the self-restraint of the companies themselves? A. Yes . No, I will put it in a different way. I think it is right to leave it to the judgment of 761 Testimony of George Walbridge Perkins the companies themselves because the judgment of these men must be governed by the immense responsibility they are under. Now, Mr. McCall is the best illustration. He is a Democrat. The first administration in which he was president of the New York Life he didn't contribute, because there was nothing at issue, but when it came to the McKinley campaign he contributed, although a Democrat, and he voted for McKinley and contributed his own money and contributed the company's money because he thought there was a grave peril threatening his policyholders. Q. How much money did the New York Life contribute to the McKinley campaign ? A. Fifty thousand dollars, as I recollect it. Q. And in the second McKinley cmpaign ? A. My impres- sion is the same amount. Q. I would like you to produce these accounts, to which these payments were charged. A. I will, sir. ' Q. Now, if the president, under his executive authority, makes a payment of $50,000 or $100,000 without any resolution of the Finance Committee, how is that ever brought to the attention of the officers of the company? A. I think I have already stated that the Finance Committee passes on salaries and things pre- scribed in the by-laws. They do not pass, for instance, on the grave expenditures, for agency accounts and general expenses of various kinds in any corporation, and that is why I suggested a few moments ago that I believed a broadening of that sort of supervision is in order. Q. You don't think so much should be left to the authority of the president? A. I don't agree to that, sir; no, sir. I think it should be left to the authority of the president, but I think blanks ought to be furnished that would call for all those par- ticular items. Mr. Hughes, you have got to give men authority, you see ; you have got to give them latitude. Q. In your company why don't the Finance Committee see to it that they know what the president pays, out ? A. Mr. Hu°-hes 762 Testimony of George Walbridge Perkins if they did that, they would go down there and sit there as clerks all the while. Q. Oh, no, they could call for a report of payments and find out what has been done, even if they can't take up every payment in advance. A. Well, I believe that is a good suggestion. I think that might be worth while. Q. In this same account, Hanover Bank office account, there are two payments put here by order of the president, under date of March 19, 1904, to A. Hamilton, aggregating $100,000. Do you know of your own knowledge what they were for ? A. No, sir ; I do not. Q. Do you know anything about them? A. No, sir. Q. I would like to have those two checks produced, unless they are here. MR. McCALL: There are those two checks and also the checks to Mr. Golding. MR. HUGHES : These checks are produced in accordance with my request, which I will read in evidence. Checks marked Exhibits 79 and 80 and read by Mr. Hughes. Q. Do you know whether those payments had anything to do with the home office annex account or with the acquisition of property at Worth and Centre Streets? A. I do not, sir. Q. Do you know any reasons why payment for property bought in New York should be made by checks to Mr. Hamil- ton which are deposited in Albany? A. No, sir; I do not; it might have been — may I see that? (Check handed witness.) Q. You don't know anything about that? A. I do not, sir. Q. The other checks called for, March 22, 1904, and March 763 Testimony of George Walbridge Perkins 24, 1904, for $13,000 and $5,000, to Mr. John N. Golding, are also offered in evidence. (Marked Exhibits 81 and 82.) Q. How long has Mr. Andrew Hamilton been connected with the New York Life Insurance Company in any way? A. Well, I really don't know, Mr. Hughes; quite some time, as I re- member it. Q. In what capacity? A. I think he is under the president's department, and under his directions as a general representative of the company's. Q. Isn't he in the law department? A. In the law depart- ment. Q. Is he the solicitor of. the company? A. No, sir. Q. Is he under a salary? A. I believe he is. I am not sure about that. I had better not be positive about that. My im- pression is that he is. Q. You speak of the President's Department. Do you refer to that as distinguished from the Law Department, for example? A. Well, our company we think is organized, and different gen- tlemen have charge of different things. That is an office expres- sion. We say the President's Department. That means one of the things the president looks after. If it is another department, if it is an Actuarial Department the actuary looks after it. I say that. as designating a department. Q. The Law Department isn't the President's Department? A. It is, yes, sir. It is under his immediate direction. . Q. Do I understand that when Judge McCall went on the bench Judge Hamilton succeeded him absolutely as solicitor ? A. I don't know that Judge McCall was a solicitor. Q. Perhaps he was not, but that was my impression he was in such a relation? A. No, he never was a solicitor. I think — 764 Testimony of John C. McCall no, he never was connected with our legal department in that way. Q. Mr. John C. McCall called my attention to the fact that Judge McCall was in charge of the real estate department. MR. JOHN McCALL : A portion of it, searching titles. Q. A portion of it, and Mr. Hamilton succeeded him ? MR. JOHN C. McCALL: Yes, in that portion of the real estate department. Q. And that was when? A. I don't remember. Do you? MR. JOHN C. McCALL: I don't recall when he came; I should say three or four years ago. Q. Did Mr. Hamilton live in Albany in 1904? A. I really don't know. Q. Mr. John C. McCall makes a statement to me about Mr. Hamilton which would be well perhaps to put on the record now, and as Mr. John C. McCall has already been sworn he can just make that statement. MR. JOHN C. McCALL resumed the stand. THE WITNESS : I heard Mr. Hughes ask the question with regard to Mr. Hamilton. I say that Mr. Hamilton has a residence here in New York city. He has got an apartment where he lives practically all the year round ; also has got an office in the New York Life building and spends really six days a week in the New York Life Insurance Company's building. 76s Testimony of George Walbridge Perkins BY THE CHAIRMAN: Q. Mr. McCall, can you not add to that the fact that Mr. Ham- ilton lives in Albany, that is, that his family is living in Albany? A. Yes, sir; he has a house in Albany. Q. And that his family lives there and several children, and he spends his Sundays there? A. I can't tell you where he spends his Sundays, but I know he has a house here in New York City and his family spends a great deal of time here in New York City, and he spends practically all his time in New York City. BY MR. HUGHES : 0. May I ask you another question, Mr. McCall? A. Yes, sir. Q. Doesn't Mr. Hamilton practice law in Albany, try cases there and devotes whatever time is necessary to his business in Albany? A. I think he also tries cases in Albany; yes, sir. Q. And is sometimes there for considerable periods engaged in such work? A. I presume if he has cases to try there he does spend considerable time ; yes, .sir. GEORGE W. PERKINS resumed the stand. BY MR. HUGHES: Q. Did you have anything to do with having these payments of $100,000 charged to the real estate account or know anything about it? A. No, sir. O. You have nothing to do with the real estate end of it? A. Nothing at all ; no, sir. Q. Or the home office? A. No, sir. 766 Testimony of George Walbridge Perkins Q. Do you know what the company paid for the properties it got on Centre and Worth Streets ? A. No, sir ; I do not. Q. Would that appear in the Finance Committee's records? A. Well, it would appear on some of our records. I don't know whether there or in the books. Q. Is there any resolution authorizing the payment by the president of this item of $100,000 to Mr. Hamilton? A. I really don't know. Q. Or through Mr. Hamilton for any purpose ? A. You mean in the Finance Committee's records? Q. Yes. A. I don't know. I will be glad to look that up for you. Q. Have you got the Finance Committee's records of March, 1904, here? MR. JOHN C. McCALL : I don't think they are here. Q. I would like to have any records there may be bearing upon that transaction? A. Very good, sir. Q. Now, recurring to the subject that we were touching MR. HUGHES : Mr. Rogers, you wanted to ask the witness a question about the matter, and as I am about to go to another topic, if you will MR. ROGERS : You haven't taken up that matter since, have you? MR. HUGHES : No, I have not. BY MR. ROGERS : Q. For my own information, Mr. Hughes, I want to get a little more clearly the details of this transaction of December 31st with reference to the sale of the $800,000 of those bonds ? 767 Testimony of George Walbridge Perkins A. Well, if you will, kindly ask me any questions; I will, of course, be very pleased to answer them. Q. Did I understand you to say that in that sale and in the repurchase of it you acted for the company? A. Yes, sir, en- tirely ? Q. And likewise for J. P. Morgan & Co.? A. Well, I Yes, sir. Q. I so understood you ? A. I acted for J. P. Morgan & Com- pany, because that was the only place that I could have realized par or any other fair price at that time for those securities. I do know this, that if it had been anybody else's syndicate account I would have gone in the same way to the managers of that particular syndicate, don't you see. But I believe it has gone on the record, Mr. Rogers, that we were dealing with a par trans- action it remained at par. I don't want the impression, please, that there was — that J. P. Morgan & Company had any connec- tion with it. Q. You stated this morning that Mr. Morgan, in one of your preliminary talks, raised some exception to the dual capacity in which you might be called upon to act? A. Yes, sir. Q. And I have been looking and listening to see how it worked in actual practice to have you affiliated with and representing per- haps the New York Life Insurance Company, the purchaser of securities upon the one hand, and J. P. Morgan & Company the seller of securities upon the other? A. Yes, sir. Q. And determining in which capacity, in the fixing of the price of the transaction, for instance, you might be acting. I thought perhaps you would explain how that works in actual practice? A. I don't suppose, Mr. Rogers, you expect to bring that out in one transaction, do you, sir? Q. No, sir. A. I don't think there has been anything brought out that would show that the company lost money in that trans- action. We made money in that transaction, or rather, it is the 76S Testimony of George Walbridge Perkins same thing. If you don't lose money you almost make it. That is, it is just as important in a financial transaction to not do Q. You consider that you made money because you lost less? A. No, that is not the point. It is just as important not to make a loss — it is more important to be in a position where your infor- mation is such that you will prevent your clients from losing money than it is to be in a position to make money for them. BY MR. HUGHES : Q. But a fair conception of this position which Assemblyman Rogers is calling attention as to the sale of December, 1903, is that you neither made nor lost. A. No, sir. Therefore, I used my judgment. If it had been a question that involved anything else why certainly, I would have been taking too much respon- sibility, probably. You see my point? . BY ASSEMBLYMAN ROGERS : Q. I was going to ask one more question, and that was whether there has been any other occasion either in the actual or seeming purchase or sale of securities, because I treat this transaction as more a seeming sale than an actual sale ? A. Yes, sir. Q. Whether there had been any order, either actual or seeming, in which you had acted both for the New York Life Insurance Company, and J. P. Morgan & Company? A. I recall no other sale, sir ; no other similar transaction. BY MR. McKEEN : Q. Did you confer with other members of the firm of J. P. Morgan & Company about this transaction? A. No, sir. 0. Then in effect you acted alone for J. P. Morgan & Com- 769 Testimony of George Walbridge Perkins pany, and also you acted for the New York Life A. Well, there was no transaction in the sense that there should have been any profit or any loss, and therefore, I did act in this matter myself in what I believed was the best interest of the New York Life Insurance Company, and, as I have stated, I sold them in this way to J. P. Morgan & Company, because they were the syndicate people, the people from whom we got it and I had no other way than to take a loss $160,000 and in that sense I did it acting on both sides of the question. Q. On Tuesday, when you brought back these bonds, did you have any conversation with any partner of J. P. Morgan & Com- pany about their selling the bonds back ? A. I don't recollect that I did, sir. Q. Or, did any of them know of this transaction ? A. I pre- sume someone in the office did; it passed through the office. Our check, J. P. Morgan's check went to the New York Life, and then afterwards our check went to J. P. Morgan & Company. BY MR. ARMSTRONG: Q. Mr. Perkins, did you carry the certificate of this stock from the New York Life Insurance Company's depositories to J. P. Morgan & Company's depositories? A. 1 never make any , of the deliveries. Although I have authority under the By-Laws to sign checks, I never, since I have been Chairman, have signed any checks or transferred securities. Q. Was the certicate actually delivered r A. I asked about that during recess and was informed that was the case. Q. There was an actual delivery of securities? A. You had better ask a question about that. Q. On your order? A. To my order or Randolph's order in the course of business. Q. When you determined to make this transaction you took 7 7 d Testimony of George Walbrldge Perkins the steps as Chairman of the Finance Committee or vice-presi- dent to cause the checks to be delivered to J. P Morgan & Com- pany? A. Yes, sir; I was responsible for the transaction. Q. Did the messenger who took the stock certificates to J. P. Morgan & Company carry back the draft from J. P. Morgan & Company? A. I don't know. We got the draft. Q. Did you then direct J. P. Morgan & Company to draw a draft for $800,000 to deliver to the messenger? A. Well, I or- dered a draft delivered to J. P. Morgan & Company for $800,000 on presentation of the certificates. Q. Well, when in that relation did the line of demarcation come between Mr. Perkins as an officer of the New York Life and Mr. Perkins a member of J. P. Morgan & Company? At just what point in that transaction? A. I don't know that I quite get your point. Q. Well, as the New York Life you determined to sell certifi- cates of stock to Mr. Morgan's Company, you directed the cer- tificate to be delivered to Mr. Morgan & Company. Now, then, Mr. Perkins, acting still, issues another direction to J. P. Morgan & Company to draw a draft to the order of the New York Life for $800,000 and deliver it to the messenger who brings that certificate to the office. Now that all might have been done while you were sitting at the desk in five minutes, and when in that five minutes, if it took no longer than that, did you cease acting as a New York Life officer and begin acting as a partner of Morgan & Company, and where was the line of demarcation in the transaction? A. The whole transaction was made in the bank. It was done with J. P. Morgan & Company, as I say, be- cause they were the people. If this had been some other firm I would have gone in the same way to the other firm. I did it, as you said, as chairman or vice-presidnt of the New York Life, and did it with J. P. Morgan & Company because it was clearly- best in my judgment to do it. 771 Testimony of George Walbridge Perkins Q. When, in your judgment, are you acting for the New York Life? A. All the time. Q. When are you acting for J. P. Morgan & Company? A. It depends on what the actual case is. Q. There is no time lapse, if you are acting all the time for the New York Life? A. Mr. Chairman, I know no difference of time. I know when a transaction comes to me, whether it is in J. P. Morgan & Company, or the New York Life or the Steel Corporation, or wherever it may be, I take up that question and dispose of it as I see my duty to that institution, and if I err then I am to blame ; if I do it right I don't expect to get very much credit, but I know myself I have done it right. Q. Whether they are concurrent acts or separate ones ? A. That doesn't enter into my mind. I cut to what I think is the right line. Q. And your loyalty being . A. My loyalty being to where my duty lies. BY MR. ROGERS : 0. The Senator is thinking of his Bible, where it says a man can't serve two masters? A. I have but one master. Q. Which one is that? A. My master, and my whole idea about this whole question, is this, that no business man of to-day, and especially no business man of my age, who expects to re- main in this community, if you will allow me to, for any length of time, can serve in the American business world for the future anything but the people's interests. And my greatest pride at my time of life is that I represent a great many people ; in the New York Life Insurance Company I represent perhaps over a million of people and their interests; in the Steel Corporation, where I am Chairman of the Finance Committee, I represent thousands of people, and so in many other corporation, and one 772 Testimony of George Walbrxdge Perkins of the things I represent is all the people of this State and all the people of the State of New Jersey in handling a great many- hundreds of thousands of dollars that you, gentlemen, have handed over to me, with which to buy the Palisades, and you have never asked me for an accounting, and I think you ought to. I am ready to make it, and I think it has a very satisfactory showing. Q. As you say, that is a very good suggestion, and I think we will act on it. A. Yes. I want you to indulge me. My idea is that the business man of this country must to-day, and in the future, serve the people. Take J. P. Morgan & Company, the bonds that firm has marketed — this isn't the place for me to go into J. P. Morgan & Company's business, and I don't intend to, but Mr. Hughes made a point with some witness, a friend of mine, on that the other day — why don't these insurance companies deal direct. J. P. Morgan & Company, since I have been in the firm, a matter of four years and a half, have marketed more bonds in the time we are talking about than the New York Life and the Mutual and the Equitable have accumulated in 60 years. Now, you are accustomed to talking about the size of these insurance companies. What about that? We have marketed more bonds in that office in four and a half short years than these three companies have been sixty years in accumulating. Now, I want to ask you, provided I am an hones: man and know my business, is it not an advantage for the policyholders of the New York Life for me to have had that connection? And I want Mr. Hughes to let me submit later on a detailed statement of every transaction you have asked me about. You have asked me about one, and it has been asked and asked and asked here several days right on that one. I know you will let me before we get done bring a statement of all the transactions with J. P. Morgan & Company and what the transactions have been. 773 Testimony of George Walbridge Perkins BY MR. HUGHES : We would be very glad to have it. BY MR. ARMSTRONG: Q. Mr. Perkins, we wouldn't want you to think we are conduct- ing anything but an impartial inquiry ? A. I don't question that ; I am simply earnest. Q. We have no prejudice against you. We want the facts and we think you want to give them to us? A. I do, sir, and I want to say I appreciate the delicacy of my situation, but I have be- lieved in it and believed that I was working to get ultimately to a condition where my company, the New York Life, could get nearer to being the original purchaser, and this is a great step from where we were 10 years ago. But Mr. Hughes brought out a question a day or two ago, why shouldn't we deal direct ? Why, the New York Life, the Equitable and Mutual couldn't go to a railroad company that has a fifty million bond issue and say we will take that bond issue and market a part of it, because we would assume the moral validity and legal validity and all that in that bond to other people. Now, these banking houses go into that, they put their guarantee on those bonds, which to a reputable house means very much more than the money which is in it, and they take the situation and create it and make it possible for the Life Insurance Companies to go into it. When I was a boy the life insurance companies had to buy them at the second, third or fourth hand. We have gradually moved up closer and closer, and the ultimate situation will be that these life insurance com- panies will get to the point where they will, between them, come more directly to the financial situation. The old idea the we were raised under, that competition is the life of trade, is exploded. Competition is no longer the life of trade, it is 774 Testimony of George Walbridge Perkins co-operation, and whether it is co-operation between you gentle- men in re-framing these laws which need it, or whether it is co- operation between the policy holders of the New York Life for their own benefit, and they, by the way, are the biggest syndicate in the world, because whether it is Mr. Vanderbilt who carries a million dollars of insurance or one of these gentlemen here or any- where who carries a thousand dollars, the money all goes into one great treasury and is handled for the mutual advantage of every- body. That is a syndicate. And these are tremendous questions and will involve all the people of our country and every other country. And I hope later on, through some paper or some other way, you will allow me to frame my views on this subject. I beg your pardon for talking so long. BY MR. HUGHES: Q. The particular point we were at is this, that, on December 31st, 1903, you as chairman of the Finance Committee of the New York Life Insurance Company dealt with yourself as a member of the firm of J. P. Morgan & Company, you, in endeavoring to conserve the interests of the New York Life, were simply engaged in keeping 100,000 of that National Mercantile Marine out of your sworn reports. A. I was working in the interest of handling it to the best advantage. The question of keeping it out of the sworn report didn't enter into my mind. Suppose we had added that increase to our four million dollar entry. Q. You wouldn't have increased it, your interest was four million dollars A. I mean taken in it the statement at the time. Q. Then it would have represented the fact. A. Four million dollars. Q. That was the fact. A. That was the fact except as we 775 Testimony of George Walbridge Perkins sold for it for cash. Now, why did I do it, not because I wanted to keep it out of the report, but to keep it where I could sell it. O. You had it; you had it in your vault? A. No, I beg your pardon, we didn't have it in our vaults from the 31st of December. O. Where was it? A. We handed it to J. P. Morgan & Com- pany. O. Before you handed it to J. P. Morgan & Company, it was in your vaults? A. Most certainly, sir. Q. And nobody was going to take it away from you. A. I hope not, sir. 0. You didn't have to take it down to J. P. Morgan & Com- pany and get the $800,000 because somebody would take it away from you? A. No, sir. Q. You had it in your vaults and had it in your control and took it down to J. P. Morgan & Company's and got $800,000 for it in a check so you would show up $3,200,000 in your report? A. And $800,000 in cash in place of four millions in our report, which we thought was quite right, sir. Q. Now, then, are there any other transactions in which you have dealt on behalf of the New York Life Company, with your- self representing J. P. Morgan & Company, without regard now to the question as to your desire to conserve the interests of the New York Life, which we will understand. A. Thank you, sir. Q. But are there any such transactions A. I don't recall any other of that kind ; no, sir. Q. Now, we recur again to this subject of joint account. I find in the statement of purchases, the list that you have fur- nished, under date of May 24, 1905, Washington Terminal, joint account $737,000 at 96%, cost $710,283.75. Same date, Wash- ington Terminal, joint account, $500,000 at g6Yg, cost $480,625, vendors H. Fisk & Son. Who were the other parties to the 776 Testimony of George Walbridge Perkins joint account? A. Hadn't I better bring you, Mr. Hughes, a memorandum of each particular one of those accounts? Q. Well, Mr. Randolph informed me you had that and could testify to it. A. They are making up that and when they showed it to me I didn't consider it was complete and I would like to have it right. Q. Have you any recollection about that? A. Not that par- ticular one ; no, sir. I negotiated all these, but I don't want to talk, except by the cards. Q. I don't find that in your statement of profit and loss under 1905. I don't find that joint account mentioned. A. Well, that is why I say that I don't think they had it complete, and I want to get it right, and if you will let us have until the first of the week about that, we will do it. Q. Do you recall enough of that transaction to be able to state whether that was an operation in which you bought the bonds, and turned them over for joint account from time to time, as required, and divided the profits with the bankers, with whom you are associated. A. I do not recall that at all. Q. Well, you don't mean to say that isn't the fact A. I don't mean to say that might not have been the fact, but I mean to say I want to bring it to you just as it is. Q. I find another joint account, Boston City, 1905, joint account, $1,300,000, price 100-217, vendors Farson, Leach & Company. A. What is the date of that, please? Q. June 28, 1905. A. Yes. Q. Do you recall that? A. I recall that we approached Far- son, Leach & Company and said we would like to have them undertake to buy these Boston bonds. We didn't care to buy all of them, but believed they could buy them cheaply, and we went into the account with them and ultimately withdrew those bonds, which we got at the original cost price. Q. You told them that you would like to have them buy a 777 Testimony of George Walbridge Perkins large block of those bonds? A. We said we would like to get a portion of them, and if they would go in with us, they might have their part at the original cost, if they would give us our part at the original cost also. Q. And that you would supply the money for the entire block ? A. Yes, we furnished the money for the entire transaction. Q. That being $1,203,821? A. If the figures so state, sir. Q. Now, immediately following that, on July 6th, began sales for joint account, and I find an entry, under date of July 6th, Bos- ton joint account, $130,000 at 100.217, delivered F. L. & Co. That means that you had at once begun deliveries? A. What does F. L. & Co. mean? Q. Farson, Leach & Company, I suppose ? A. I don't doubt it. Q. And then on the 7th, and 8th, and nth, and 14th, and 18th, and 25th, of July, you proceeded with other sales for joint account according to this statement. Now, all those were on a division of the profits on the sale with Farson, Leach & Company ? A. I don't know that is so. I want to bring that to you as it is. It may seem so to you, but I want to get it right. Q. Who conducts these joint account transactions on behalf of the New York Life? A. I do; practically I originated them. Q. Then yon know all about them? A. I do. O. Don't you know Farson, Leach & Company, within the past few months, have been your company's partners on a division of one-half of the profits on this Boston City three and a half? A. I don't recall that fact. But let me tell you what I recall, and that is that all these joint account transacions have been gone into by us with various firms according to the advantages that we thought they enjoyed for securing a particular security, and we have either gone in on the basis of half or two-thirds, or a third, as in our judgment we could make the best trade. I very often have suggested these things myself to these people, the idea being, as I have shown you, in some large cases, that we 778 Testimony of George Walbridge Perkins might get the bonds at the lowest price. Now, what these people may do with their half don't make any difference to us at all so long as we get ours cheap. Q. Well, you could have bought Boston City three-and-a-half on June 22, 1905, at 100.217? A. I don't think that we could, sir. Q. Do you know that you couldn't? A. I don't know that we couldn't; I don't know either way, because I haven't the quotation. But, I can tell you this, when we bought those bonds we bought them as cheap as they could be secured, because we bought direct from the City of Boston. Q. But you bought the bonds for the purpose of marketing them on joint account and giv.ing Farson, Leach & Company half the profits, and you retaining the three hundred thousand? A. I beg your pardon ; no, we did not. Q. What did you do? A. We went in with the idea of get- ting the Boston bonds as cheap as they could be sold, because we were buying direct from the City of Boston. Farson, Leach & Company received no profit on our bonds. Q. You mean those you took, the 300,000? A. I don't know how many we took. Q. It is here 300,000? A. I am not going to testify from what you have there. Q. It is your own memorandum. A. Very well. Q. Now, when you purchased on joint account Boston City 3%'s, didn't you take 300,000 ? A. That is- what we did at that time. Q. You did? A. Or might have withdrawn them later. I don't know. Q. That accounts for the lot, I understand. A. You may know ; I don't know. I want to get before you this fact, you are trying to prove that there is something about this that is more to the advantage of the other fellow than to us. 779 Testimony of George Walbridge Perkins Q. Not at all. A. All right. Q. It is just as much to your advantage, you get half the profits and they get half the profits? A. I beg your pardon, it is more to our advantage than to theirs because it is the way we have of getting these securities at the original cost price. Q. In other words, you think that by taking $1,300,000 at the cost price you get part of those, 300,000 at less than you could otherwise get them? A. In almost every case. I don't think there is an exception. Q. Was that true of the Boston 31/2's ? A. It was. Q. Do you know it to be so? A. I know it to be so because we bought them at the original price from the City of Boston. Q. Why couldn't you have bought the 300,000? A. Would the City of Boston have accepted a bid from us for $300,000? They were putting out all the bonds'. Q. You could have put in a bid with any of the brokers, couldn't you? A. That is what we did, with Farson, Leach & Company. Q. You went further than that, you took them on joint ac- count for the purpose of a division of profits? A. I beg your pardon, we did not. I don't know whether that is what we did._ Q. You mean you didn't intend to do what you did do. A. Ex- actly what I mean. I mean when we go into every one of those transactions we go in with the idea of getting the bonds. We don't go into any syndicate or any joint account without dis- cussing whether or not we would take the total amount of bonds for which we commit our company. Now, that is our judgment on Monday. If the whole financial situation changes on Tues- day we might sell them or we might keep them for ten years. That was our judgment, always reserving to ourself the right to use our judgment. Q. Where does the joint account come in? A. Where does the joint account come in? Simply by using the other house to get 780 Testimony of George Walbridge Perkins it to do this business for us, and for that we give them the ad- vantage of buying some of the bonds to do what they like with them. Q. And take half the profits on the transaction? A. Take half the profits on their part of the transaction. Q. Didn't Farson, Leach & Company get half the profits on the sale of the million dollars of bonds of Boston City 3%'s that you took and paid for? A. I don't know whether they did or not, because I haven't the facts here. Q. Will you state they did not? A. I won't state either way until I bring you the facts. But I will bring you the facts. Q. I don't see the Boston City 3 1 /2' s on this statement. A. I have told you, sir, as soon as I saw that list I didn't think it was quite complete, and I want our people to get it complete. I am very proud of this joint account business ; it was of my origin and we have gotten securities very cheap under it, and have made a good deal of money out of it. O. Of course. You can make a great deal of money with all your knowledge of the financial situation. A. I am glad you think so. Q. By getting bonds and selling them. A. Exactly, sir. Q. And the New York Life Insurance Company, with your information at its hand, through your connection, could do a banking business to great advantage? A. I think they come as near it as we can. Q. That is your aim? A. Our aim is to get as near to the original price of bonds. In many bonds, as I have explained to Mr. Rogers Q. One of your ways is to buy and resell and get the ad- vantage of the market and put that profit against the cost of what you obtain, so as to get your part cheap? A. One thing we do is this : To-morrow we may buy $4,000,000 of a certain bond, the judgment of the Finance Committee being those bonds are 781 Testimony of George Walbridge Perkins soon going to appreciate in value, but in any event we are to get the four millions, but we might sell two millions or a million of those bonds a month from that and make a profit of 2 per cent., that would mark down the two millions, and if there is any change in the market situation we are just that much nearer to a very low price for those bonds. I hope 1 make that clear. Q. In these cases of purchases on joint account, if there is a loss the loss is divided ? A. The loss is divided if we make it that way ; but if the case was one or two thirds — we might have had a case where we would say to the firm we will take two thirds of this responsibility and you take one third, or you take two thirds and we will take one third. Q. And therefore the profits are shared as the losses are shared, and vice versa? A. Yes, sir, and we always reserve the right to withdraw our securities. That is a very great advantage. Q. But as long as they are kept on joint account and you haven't yet decided how much you will withdraw on investment and how much you will keep for sale . A. That is a great advantage we keep to ourselves. Q. Whether it is an advantage or not that matter is in abey- ance? A. When we withdraw no one gets the profits. Q. Well, while it is on joint account, whether you will take any bonds for investment or what you will take is a matter in abey- ance ? A. It is a matter in our control, not in abeyance, sir. Q. Well, it is in abeyance in your control, if not definitely de- cided. A. But we have the power to decide. I can't let you say it was in abeyance, because that would imply that the other fellow had something to say about it and he hasn't. Q. It is in abeyance subject to your option? A. Option and control. Q. Put it that way. I mean to say it has been eventually de- cided what you will take? A. Eventually decided by us; the other man has no rights in the matter. 782 Testimony of George Walbridge Perkins Q. Except to get a portion of the profits on the securities you allow to go to sale? A. That he may buy and sell from his half. He can't make any profit on our sales. Q. I didn't know he had a half. I thought you controlled the whole? A. Oh, no. If we make an arrangement with Farson, Leach & Co. for these Boston bonds to buy two and a half millions, I think in that case it was — I may be — I am using wrong figures — we would be entitled to $1,250,000 of those bonds. Q. And you pay for the $2,500,000? A. In that case we thought we would make the interest on the bonds by carrying them. Q. You pay for the whole amount. Now, do you mean to say the other man has an absolute right to have half of those for sale? A. An absolute right to have half of those for sale. O. Now, you control then merely your half? A. That is all we control. Q. And if the half that you control in that way is to any extent released, why then of course A. Then we have our profits on it. O. Then you have your profit on it? A. Yes, sir. O. If the whole is released and sold you have the profit on the whole? A. We have the profit on the whole of our half. O. Well, you have a half of the profit on the whole? A. If you please ; suit yourself. THE WITNESS : And Mr. Hughes, may I just add one word. All the while we have had all the interest on our bonds, and the other man's bonds for our money. Q. Which you have paid for? A. Which we have carried for his account. O. It is nothing more than just that you should have the interest on the bonds you have paid for. A. Thank you. 78.3 Testimony of George Walbridge Perkins THE CHAIRMAN: Gentlemen, the Committee is about to suspend. On next Tuesday the Secretary to the Borough Presi- dent advises me that the annual Comptroller's tax sale will occur, and it must be held in this room in order to be legal, so the Com- mittee will adjourn now until 10.30 next Wednesday morning. All witnesses under subpoena are requested to be present at that time. The Committee will hold a meeting at once in the side room. (Adjourned to Wednesday, September 20th, 1905, at 10.30 A. M."> 784 ALDERMANIC CHAMBER, City Hall, New York City. September 20, 1905. Met pursuant to adjournment. MR. HUGHES : Willis G. Nash THE CHAIRMAN : I will say for the benefit of those present who may desire to know it that we will hold only one session to- day, this morning, and will adjourn about one or one-thirty, unless something occurs to prevent it, because of the funeral of Senator Rambler, which occurs at Chatham, New York, this afternoon. WILLIS G. NASH took the stand. BY MR. HUGHES : Q. You reside in the State of New York, Mr. Nash? A. Yes, sir. Q. What is your business ? A. Cashier of the New York State National Bank of Albany. Q. How long have you been cashier? THE CHAIRMAN: Wait a minute, the gentleman has not been sworn, I think. WILLIS G. NASH, duly sworn, testified as follows : 785 Testimony of Willis G. Nash BY MR. HUGHES : Q. How long have you been cashier of the New York State National Bank of Albany? A. Since 1888. THE CHAIRMAN: There must be order in the room now during these hearings, and no smoking will be permitted, and perfect silence required. Q. You have been asked to produce a transcript of the account of Andrew Hamilton with the New York State Bank of Albany from January 1st, 1900, to date. Have you produced such a transcript? A. Yes, sir. Q. Is that the paper? A. This is the paper. Q. Consisting of 24 sheets? A. I haven't counted them. Twenty-four sheets. Q. Is that a correct transcript of the account of Andrew Ham- ilton with the New York State National Bank of Albany, for that period ? A. Yes, sir. Q. And a complete account? A. Yes, sir. Q. Showing all the items of credit and debit on that account as the same appear upon the books of the New York State National Bank of Albany? A. Yes, sir. MR. HUGHES : I will have this account, consisting of 24 sheets, marked for identification. Marked Exhibit 81 for identification. Q. These items on the debit side of this account, Exhibit 81 for identification, are items of draft? A. His checks. Q. His checks. There are no particulars given except dates and amounts, and are there any further particulars upon the books of your bank? A. No, sir. -86 Testimony of John A. McCall Q. The items on the right hand side of the account are items of deposit? A. Except the first one, which is the balance on hand at that date. Q. On January 1st, 1900? A. Yes, sir. Q. And when the item of deposits is a cash item the word ''cash" appears ? A. It does. Q. And when it is a deposit of a check, simply the word "C" ? A. Well, no, that is indefinite. It simply means that it was treated cash ; it is all cash or checks. Q. Is there anyone who had from Andrew Hamilton power of attorney to draw checks upon that account? A. No, sir. Q. They were all drawn by Mr. Hamilton individually? A. Oh. I beg pardon. His daughter has a power to draw checks against that account in her own individual name, and, as I understand it, for his house expenses. Q. Does Mr. Hamilton have checks cashed upon that account ? THE CHAIRMAN : Mr. Nash, if you will speak a little louder, please. The noise outside is a little confusing? A. I presume he has, but not of my . I couldn't testify as to my knowledge. Q. Have you any knowledge of any such transaction? A. No, sir. Q. Who would have? A. Well, all checks cashed are found on the teller's cash list, but I think it is doubtful if the name of the party to whom the check is cashed will be found there. Q. The teller, however, would know of the fact if checks were cashed? A. Yes, sir. Q. Who is the teller? A. Henry R. Pierson. JOHN A. McCALL, called as a witness, being duly sworn, testified as follows: 787 Testimony of John A. McCall BY MR. HUGHES : Mr. McCall, you are the president of the New York Life Insurance Company? A. I am. Q. And how long have you been such president ? A. Thirteen years. Q. Were you connected with any life insurance company prior to that time ? A. With the Equitable Life. Q. In what capacity? A. As comptroller. Q. And for how many years? A. From 1886 to 1892. Q. And what was your occupation prior to that time? A. Superintendent of the Insurance Department at Albany. Q. And for how long had you been engaged as superintendent? A. From 1883 to 1886. Q. As President of the New York Life Insurance Company have you had occasion, from time to time, to direct the drawing of checks on executive order? A. Yes, I have. Q. Without approval or reference to any committee of the company? A. Absolutely. Q. Has that been a frequent occurrence? A. Daily. Q. For large amounts ? A. For large amounts. Q. Amounts in excess of $25,000? A. Yes. Q. Has that been so for a period of years? A. Almost from the beginning. Q. In what way are such checks audited ? A. On my certificate they are sent to the comptroller's department, where a warrant is drawn, and checks issued on that warrant. Q. In what way is the propriety of the payment determined by other officers of the company? A. I am the sole judge of that. Q. Do you know Andrew Hamilton ? A. Very well. Q. How long have you known him? A. Ever since I was ten years of age. 788 Testimony of John A, McCall Q. Are you in any way related to him by blood or marriage? A. Neither. Q. How long has he been connected with your company in any capacity? A. Since 1892. 0. In what capacity did he then become connected with your company? A. In the trial of the Beers pension case, as lawyer. Q. He represented the company in the defence of that case? A. Yes. Q. What was his subsequent connection with the company? A. He continued as an adviser and attorney on retainer; no salary. Q. What was his retainer? A. Well, first off I think it was $2,000. Q. When was that? A. That was in the first four or five years of his service. Q. Down to about 1896 or so? A. Beginning about that time. Q. And then what became of his connection with the com- pany? A. Retained in the same capacity except that his duties were extended and he was given : Q. In what way? A. He was given charge of the entire United States of the matter of legislation and taxation. Q. In what way did he have charge in the United States of the matter of legislation? A. He employed all his own attor- neys and did work in connection with the various laws throughout the United States and Canada. Q. Representing the New York Life Insurance Company be- fore legislative committees and the like? A. I think he did; yes ; I think he did. Q. Do you know precisely what he did do ? A. No ; I know he was authorized so to do. Q. What retainer was he under at that time? A. $2,500 quarterly. 789 Testimony of John A. McCall Q. How long did that continue? A. To date. MR. HUGHES: Is Ledger No. 3, of the treasury depart- ment here — showing the Hanover Bank office account? Q. I call your attention to Folio 278, of Ledger 3, of the Treasury Department, to the account entitled "Hanover Bank Office Account, items under date of March 10, 1904, on the debit side of the account, Andrew Hamilton, check by order of presi- dent, $55,000 and $45,000." Were those checks given to Mr. Hamilton by your order? A. They were. Q. For what purpose? A. I will have to make a brief state- ment, Mr. Hughes. In 1903, the company determined to buy the block in the rear of its present home office, because the rooms occupied by the clerks at 346 Broadway might be rented to much better advantage, and the clerks disposed of with equal advantage in the annex building that we had in mind. Following out that plan I sent for Mr. John N. Golding, a real estate agent, and told him that I should like to have him take up the subject of ownership in this block, do so quietly and report back to me results. The New York Life was not to be known in the matter and everything depended on his keeping the intention of the company quiet. Pursuant to that plan, he reported to me again in the latter part of 1903, in- the month of December, that he had been making inquiries as to the values and the ownerships, and he thought that the block might be procured for a million dollars, probably eleven hundred thousand dollars. I asked him then what capital would be needed to swing that purchase and he said : "Where I can get at it readily and quickly fifteen per cent. of the amount would do." Pursuant to that I told him that I would put him in touch with Judge Hamilton who had charge of our real estate and mortgage matters in New York from the. 1st of January, 1903, and that Judge Hamilton would act with 790 Testimony of John A. McCall him in carrying out the plans. Pursuant to that conversation I directed checks to be drawn to the order of Judge Hamilton for the two amouts that you have mentioned entered here on this ledger in front of me. The voucher for them in the case that they are advanced to be accounted for, and the two checks were paid accordingly. Q. Have you those vouchers here? A. They are here. Q. Please produce them. (Witness produces papers.) A. There they are, Mr. Hughes. Q. This is the original voucher which you now show me upon which those checks were drawn? A. Yes, that and this (indi- cating) . Q. The two papers you show me, the one containing the entry of the Comptroller's warrant and the other Mr. Hamilton's re- ceipt? A. Yes. MR. HUGHES: I offer them both in evidence. The papers were marked Exhibits 82 and 83, and read by Mr. Hughes. Q. Were the words "Suspense Account" on that memorandum when it was drawn A. I take it that it was. It is not in my writing, but I think it is the Treasurer's. Q. Do you know in whose handwriting it is? A. It is the treasurer's handwriting, Mr. Randolph's. Q. What was the meaning of the words upon this voucher, "For temporary use"? A. The words there meant that it was to be used by him in the acquisition of this property, the pay- 791 Testimony of John A. McCall ment on account for it to be subsequently reported back to the Board in the purchases of the property. Q. In whose handwriting is this voucher, that is, the part that is in ink? A. That is Mr. Randolph's handwriting. Q. Did you instruct him to put on the voucher "For tem- porary use" ? A. No, I did not, he probably obtained that idea from the statement I made to him at the time I talked of the drawing of the orders. Q. Have the amount of $100,000 been accounted for by Mr. Hamilton ? A. It has, Mr. Hughes. Q. Have you an account of it? A. Yes. May I make a statement regarding it? O. I would prefer to have the account. A. What have you got there, John ? I think I have the entire checks for the an- nex property, Mr. Hughes. Q. Yes. I am now asking for whatever account Mr. Hamil- ton may have rendered of this matter. A. Yes, that was an ac- count personally to me at the office. Q. Have you that account? A. I say it was an account ren- dered to me personally at the office. Q. Have you that account ? A. No, it was rendered verbally. THE CHAIRMAN : Do you mean it was an oral account? THE WITNESS: Yes. Q. You have no written account of the expenditure of the money? A. It has not been expended. Q. It has not been expended? A. No, it is due from Mr. Hamilton. Q. Oh, it is held on open account as . A. Open account. Q. As in Mr. Hamilton's possession? A. Yes. I think if you would let me explain that, if you will 792 Testimony of John A. McCall Q. Just a moment. I see that Mr. Hamilton's bank balance here, on September 19, 1905, is $176. A. I cannot help that bal- ance. I would like to tell you about our own payment of it. Q. You will have, of course, very full opportunity to explain, for I am anxious that you should tell the whole matter, and tell it your own way, but I want to ask you this now, and that is, whether you have acquired property at the location you men- tioned ? A. Mr. Hamilton has paid out on property in that lo- cality $700,000. Q. Leaving the $100,000 still unexpended? A. Yes, leaving $235,000 still unexpended. 0. Were you quite right in saying that Mr. Hamilton paid that out? A. Yes, sir. Q. On Mr. Hamilton's check ? A. Yes. O. For monies which you made payable to Andrew Hamilton by your check ? A. Yes. O. Will you please show me the account of such checks, and produce the checks you have given to Andrew Hamilton for $700,000? A. Yes, the checks are here and the books are here showing it. Papers produced. Q. You produce here nine checks, four to the order of John N. Golding and five to the order of Andrew Hamilton? A. That is right. Q. And you say those were the checks which were to pay for the property which had been acquired by your company on the block bounded by Elm, Worth, Leonard and Centre Streets ? A. Yes, sir. Q. Since 1903? A. Yes. MR. HUGHES : I offer them in evidence. The papers were marked Exhibits 84 to 92 inclusive. 793 Testimony of John A. McCall MR. HUGHES: Now I will read these checks in evidence. (Exhibits 84-92 read.) Q. Have you a diagram of the properties acquired by your company before you? A. I have, sir. Q. The New York Life Insurance Building is on the block — the main building, bounded by Broadway, Catherine's Lane, Elm and Leonard streets? A. That is the main building. Q. I am speaking of the main building. Now the properties to which you have referred are in the rear of that block? A. Yes. Q. Prior to 1903 I understand the New York Life Insurance Company owned the corner . A. 106 x 74. O. Pardon me a second — owned the corner of Elm and Leonard streets. Is that right? A. That is right. Q. And that property had been acquired in 1897? A. Yes. Q. In several parcels? A. Several parcels. Q. And the entire holding of the New York Life Insurance Company was how much in dimension. A. 106x74 by 93x52x25 ; and irregular plot. Q. It had a frontage on Leonard street . A. Of 74, Mr. Hughes; a little over 74. O. Of 93 feet ? A. On Leonard street ? Q. Fronting on Elm street it was about the frontage, was it not, of the entire frontage on Elm street? A. A little more than half ; yes, sir. Q. A little more than half that block on Elm street? A. Yes, sir. Q. Have you acquired at any time the property on the corner of Elm and Worth streets adjacent to that you had acquired in 1897? A. No. Q. You don't own that now? A. No. O. Now, prior to the transactions to which you refer, that is 794 Testimony of John A. McCall April of 1903, you had this property on the corner of Elm and Leonard streets and had you improved it to some extent. A. Yes. Q. You carry that on your books at $600,000? A. It was on our books at seven hundred and some thousand, reduced to $600,000 after an appraisal by the insurance department. Q. Have you the card here which was used the other day? A. No, I have the Q. The card which shows the original charge. A. Yes, sir. Several items ; well, we have a copy of it in the record, and it appears that card, which shows the property known as the home office annex, and that is general description that you have given of the property east of the main building? A. Yes, Q. In the block to which we refer. It shows that property as charged to the home office annex at $500,000 under date of January 1, 1899? A. Yes; the book value was $700,000, Q. But that is after the reduction in accordance with the sug- gestion of the insurance department? A. Yes. Q. Now, when did you next acquire property in that block? A. April 22, 1904. Q. April 22, 1904. Now, in order that we may have this dis- tinctly clear, I should like to use this diagram which you have here, and I understand that some part of the diagram is read which is indicated as referring to a plot on the corner of Elm and Leonard streets is what you had prior to 1903, having ac- quired it in various parcels in 1897? A. That is right. Q. We will mark that block or plot A. And I understand that the parts in white to the south, bounded by Worth and Elm streets, of the plot in red marked A, you have never acquired? A. Never. Q. We will mark those B. And I understand that the plot that you first acquired in 1903 in that block is the strip running through from Leonard street to Worth street, 25 feet front on 795 Testimony of John A. McCall both, running to Worth street, running the en+.re width of the block? A. That is right. Q. We will call that C. The price of that entire lot was $120,000? A. $125,000. Q. Wasn't it $120,000? A. $125,000. $120,000 to Hamilton and $5,000 was to Golding. MRv HUGHES : I will offer this diagram in evidence. Marked Exhibit 93. Q. Now, when you acquired that property, that lot marked C, on April 22, 1904, you paid $125,000 for it, and the money that was used for that purpose is paid on the two checks, Exhibits 88, to Andrew Hamilton for $120,000, under date of April 22, 1904, and a payment to Mr. Golding of $5,000? A. Yes, sir. Q. And is the payment to Mr. Golding the one that is indi- cated by this one of March 24, 1904, Exhibit 85? A. No; it is 7138, one half a check for $10,000. Q. The payment to Mr. Golding is one half the check of $10,000? A. Yes. Q. Exhibit 86, under date of March 24th? A. Yes, sir. Q. Now, have you the resolution of the Finance Committee for the purchase of that property. (Papers produced by the witness.) Q. To which do you refer? A. The first one. Q. Are these minutes or copies of minutes that you now show me with reference to the originals the only minutes on this sub- ject? A. The only ones, sir. MR. HUGHES : I offer these minutes in evidence, subject to correction on examination of the originals. Marked Exhibit 94. 796 Testimony of John A. McCall MR. HUGHES : The first minutes then on the subject was the meeting of March 16, 1904, which I will read on the record. "March 16, 1904, Book 8, Page 236. The treasurer stated that the meeting had been called at the request of the president for the purpose of considering the advisability of extending the home office annex building at the corner of Elm and Leonard streets, and of purchasing land for same, as shown on diagrams submitted, which approximate asking prices for same. Where- upon on motion of Mr. Claflin, it was resolved that the president and the treasurer, according to the plan presented, are hereby authorized to negotiate for and purchase the adjacent real estate to our building, located now on the block bounded by Leonard, Centre, Worth and Elm streets, reporting back to the Finance Committee at each meeting the progress of their negotiations.'' Present : Mr. Langdon in the chair and Messrs. Claflin, Fair- child, Morrison and Randolph." Q. Prior then to March 16, 1904, the matter had not been before the Finance Committee ? A. Not formally. Q. It had not been presented at any meeting of that Commit- tee? A. Talked of several times before the Finance Com- mittee. Q. In meetings ? A. Yes, in full. Q. It was without formal action being taken? A. Without formal action being taken. Q. The second entry in your minutes is as follows: "March 21, 1904, Book 8, page 237. "In the mater of real estate purchases, authorized by special meeting of March 16. "Treasurer reported that the Radway property on Elm Street, offered at $25,000 and authorized to be bought at that figure, 797 Testimony of John A. McCall had been withdraw from sale ; that three Cammann estate prop- erties, southwest corner of Centre and Leonard Streets, author- ized to be purchased at $175,000, had been secured at $165,000, plus commission, and that the La Coque lot, adjoining on Leon- ard Street, for which price of $60,000 had been authorized to be paid, had been purchased at $52,000 net. The two lots of Katherine O'Brien, running through from Leonard to Worth Street, had not been found to be obtainable for less than $125,- 000 for both, and would not be separated, which, therefore, it might become necessary to buy in order to secure the required continuity of property. He also reported that the other parcels that had been under consideration were as yet not obtainable at all, or at figures that were prohibitive. Present : Mr. Langdon in the chair, and Messrs. Fairchild, Claflin, Morrison and Randolph." The next minutes are March 24, 1904, Book 8, page 238; "The treasurer made further report in the matter of real estate purchases authorized at special meetings of March 16th, that the lot in the middle of the block on Centre Street, owned by Mary V. Mott, of which the price was $150,000, has been purchased for $110,000 (about $25 per square foot) according to reported measurement), subject to a contested assessment of $1,285.38; "And also that the two lots of Katherine O'Brien, immedi- ately adjacent to our home office annex building, and running through from Leonard to Worth Streets, have finally been taken at $125,000 by order of the president, as being an essential con- necting link of the whole. "Present: Mr. Perkins, chairman; Messrs. Fairchild, Morri- son, Randolph and Langdon." March 28th, Book 8, page 238. 798 Testimony of John A. McCall "In the matter of the home office annex property the treas- urer reported reduction of price for lot southwest corner of Worth Street, 25 x 92, at $75,000, which was deemed too high, which he was directed to pay; also reported offer of lot 121 Worth Street, 25 x 92, at $75,000, which was deemed too high. "Present: Mr. Claflin in the chair, and Messrs. Fairchild, Langdon, Morrison and Randolph." Q. Are these all the resolutions relative to this matter on the minutes of the Board of the Finance Committee? A. Those are all the resolutions, six. 0. Now, the property upon this diagram, Exhibit 93, which has been marked C, the first of the properties which you ac- quired after this new plan was undertaken, for $125,000, is the one referred to in the resolution of March 21, 1904, as the two lots of Katherine O'Brien, running from Leonard to Worth Street, which it is stated were not to be obtained for less than $125,000? A. Those are the lots. Q. And also in the minutes of March 24, 1904, where it is said that the two lots of Katherine O'Brien immediately ad- jacent to our home office annex building and running through from Leonard to Worth Street, had finally been taken for $125,000? A. Yes. Q. Now, in the minutes of March 21, 1904, reference is made to three Cammann Estate properties, on the southwest corner of Centre and Leonard Streets, which were authorized to be purchased at $175,000, and were stated as having been secured at $165,000 and commission. That is the property on the corner of Leonard and Centre Streets, shown on this diagram, Exhibit 93, in red, being the lot on the corner which is marked in ink $165,000, and also the adjacent lot to that of which I marked B, is that correct ? A. That is correct. Q. And when was title taken to that? A. June 1, 1904. 799 Testimony of John A. McCall Q. And it was paid fqr by this check for $165,000 or the monies were obtained on check, Exhibit 92, to the order of An- drew Hamilton, for $160,000 and $5,000 additional? A. Check 7.130. Q. The $5,000 being a check to Mr. Golding for $5,000 under date of March 24, 1904, on the signing of the contract, I sup- pose, and the balance on the passing of the title? A. That is right. Q. Now in this resolution of March 21, 1904, reference to the LaCoque lot adjoining on the Leonard street, the properties which were purchased from Cammann, the property between the O'Brien lot to which you took title on April 22d, and the Cammann property, which I now mark E, is that correct? A. That is correct. Q. On diagram Exhibit 93. It is stated that this had been purchased at $52,000 net? A. Yes, sir, that is the price. Q. Now, what checks were paid for that? A. Checks 7148 and 7127. Q. That is the check of May 25, 1904, to Andrew Hamilton for $49,000 and check to John N. Golding, of March 22, 1904, for $13,000? A. No; it is part of that. Q. Or a part of that last-named check? A. Yes, a part of that, $3,000. Q. That is $3,000 of that? A. Yes. Q. That is $3,000 being paid on the signing of the contract and the balance when the title was taken? A. Yes. Q. Title was taken on what, date? A. May 5, 1904. O. Now, on March 24, 1904, the minutes refer to a lot in the middle of the block on Centre street, owned by Mary V. Mott, of which the price was $150,000, and that had been purchased for $110,000. That is the lot on this diagram 23, Exhibit 93, on Centre street, adjoining the Cammann corner property, which is marked F? A. That is right. 800 Testimony of John A. McCall Q. And what checks were paid for those? A. 7147 and one half of check 7138. Q. That is check to Andrew Hamilton date of May 2, 1904, Exhibit 89, for $105,000 and one half, or the remaining half, of check 7138 of March 29, 1904, to Mr. Golding's order. A. That is right. Q. That latter being on the signing of the contract? A. That is right. Q. And the other to Mr. Hamilton on the passing of that title? A. That is right. Q. Now, the only remaining property purchased by your com- pany in that block is the property on the corner of Centre and Worth streets adjoining this Mott property which is marked G on this diagram, Exhibit 93 ? A. That is all. Q. And that is the property referred to in the minutes of the Finance Committee under date of March 28th, "The Treasurer reported reduction of price from $200,000 to $175,000 which he was directed to pay"? A. That is right. Q. That $175,000 is made up of what checks, or paid by what checks? A. 7166 for $165,000. Q. To the order of Andrew Hamilton, being Exhibit 91, under date of May 31, 1904? A. And 7127. Q. That is the remaining $10,000 of the check of March 24, 1904, Exhibit 84, to the order of Mr. Golding, the latter being paid on the signing of the contract and the check to Mr. Hamil- ton when the title was taken? A. That is right. Q. Now, we have been all over this block and we have covered all the properties owned by your company — purchased by your company? A. We have. Q. Or contracted for by your company up to the present time? A. We have. Q. And no part of the payments to Andrew Hamilton by checks dated March 19, 1904, have been used for that purpose? A. No. 801 Testimony of John A. McCall Q. Can you explain why the New York Life Insurance Com- pany, with its millions on deposit, should leave in Mr. Hamilton's hands $100,000 unused from March, 1904, to the present time? A. I think I can. Q. Please do so. A. I now refer to the condition which a few moments ago I asked permission to state. In my talk with Mr. Golding he said that probably 15 per cent, of the land of the block would swing the trade and keep the matter seclusive to him and to Judge Hamilton, so that he would not have to deal with anyone else in the transaction. I accordingly put to the credit of Judge Hamilton that 15 per cent., which would be 165 — say $160,000 plus $75,000 that went to credit in December, 1903. Q. Plus what? A. Plus a check of $75,000 which went to Judge Hamilton's credit in December, 1903, at the inception of this purchase. Q. I don't understand what you mean by swinging the trans- action. How was Mr. Hamilton to use that money? A. Mr. Hamilton was to come in contact with Mr. Golding irrespective of the New York Life, and when Mr. Golding made his pur- chase he was to be in a position to give him any moneys that were necessary to carry out any part of that contract. Q. But he never did give him any moneys? A. He didn't have to, because we supplied it. Q. Now, for example, having given this money to Andrew Hamilton, on March 19th, Mr. Golding entered into a contract for the purchase of part of this property on March 24 and a deposit of $5,000 is required? A. Yes. Q. Then you draw your check to Mr. Golding's order — by you I mean the New York Life Insurance Company — to provide the money for that deposit? A. That is right. Q. The next contract which is signed for the purchase of property, March 22, 1904, where there are two contracts, one requiring $3,000 and one requiring $10,000? A. That is right. 802 Testimony of John A. McCall Q. Then you supplied the money to Mr. Golding by check of that date to his order? A. That is right. Q. The next contract is March 29, 1904, on which is a deposit of $10,000 required — were two contracts on which a deposit of $5,000 is required, and there you supplied the money to Mr. Golding? A. That is right. Q. And on April 6, 1^)04, you do the like? Q. So that whenever Mr. Golding wanted any money he didn't go to Mr. Hamilton; he went to you? A. No, he went to Mr. Hamilton because all his transactions were with him. Q. Well, he didn't get any money from Mr. Hamilton ? A. He didn't get it. because Mr. Hamilton had enough money to buy that whole block. Q. Why didn't he get it? A. Because he could come to the company and still leave with Hamilton enough in the event of the purchase of the other property. Q. Was it your idea to make a deposit with Mr. Hamilton for the purpose of buying property and then never use it? A. Not at all. Q. Why didn't you use it? A. Because we haven't bought the rest of the block. Q. You bought seven hundred thousand dollars worth? A. Yes, but there is $600,000 still remaining. Q. And you are leaving that with Mr. Hamilton with the expectation that some day you may use it ? A. Not at all ; it would have been closed up this year, the first part of this year but for a reason. Q. Now, I would like to see the record of that payment to Mr. Hamilton of $75,000 in December, 1903. A. That is here. MR. HUGHES: Checks are produced to the order of Mr. .803 Testimony of John A. McCall Hamilton, dated December 2d, 1903, and December 14th, 1903, which are offered in evidence. (Marked Exhibits 95 and 96.) Q. Were the payments of those amounts to Mr. Hamilton brought before the Finance Company? A. They were not. Q. Or any other officers of your company ? A. Except myself and the signers to the checks. Q. And the signers of the checks signed them upon your order ? A. They did. Q. Have you any vouchers for those payments? A. Yes; there is a voucher with the checks, I think, Mr. Hughes. Q. Is it this, are these the vouchers? A. Those are the vouchers. Q. These are the two vouchers? MR. HUGHES : Which I offer in evidence. (Marked Exhibits 97 and 98 and read by Mr. Hughes.) Q. Can you explain why it was that checks drawn on Decem- ber 14, 1903, and which went through and were actually paid in New York on December 16, 1903, should be vouchered on Jan- uary 8, 1904? A. It is accounted for by the voucher in your hand. Q. The letter? A. Yes. MR. HUGHES : I offer the letter referred to in evidence. (Marked Exhibit No. 99, and read by Mr. Hughes.) Q. Who is "S. M. B."? A. Seymour M. Ballard, secretary of the company, then the comptroller. 804 Testimony of John A. McCall Q. Do you have accounts from Judge Hamilton? A. We have letters and advices. Q. Do you have formal accounts? A. No. Q. What did you mean by the statement, which he may be able to settle before the ist of the year through his accounts, referring to the ist of January, 1904? A. On December 4th, if that is the first date there — December 4th or 12th, Mr. Hughes. Q. What do you mean, the first date? A. On December 2d, Judge Hamilton in my office was referring to the foreclosure of the Bennett building,. and in connection with the purchase of the printing house property he said, "I call your attention to what is called the Annex Property of the Bennett Office Building, which we are foreclosing. We don't own it. They supply us the electricity from this annex building absolutely, it is a me- nace to the Bennett building. Now, I recommend that we take the mortgage of that annex property," the Bennett property then being under foreclosure, "so as to protect ourselves on all sides in the event of acquiring that property." That $75,000 was paid because of that Bennett annex property. Q. Was it used for that purpose ? A. It was not. The Ben- nett building is still in the foreclosure. Q. What was it used for? A. On March 28, 1904, at an inter- view with Judge Hamilton he brought from his office his diary, and went over the amounts that he had in hand for us. Not accounted for in that account were four items. He said, "Now, the Bennett building, I think, we will get along without buying, I think the mortgagors will pay up and we won't have to take the property, so that is out of the way." On that date, March 28, 1904, a journal entry was made by my order, transferring the $100,000, Home Office Annex payment, of $45,000 and of $55,000, making the hundred, the $75,000 that I spoke of and $60,000, making $235,000, which was transferred from the sus- pense account to Home Office Annex Printing Room. 805 Testimony of John A. McCall Q. Did Judge Hamilton tell you on March 28, 1904, that he still had that $75,000 ? A. He did not say one word about it. Q. Did you ask him whether he had it or not? A. I did not. Q. Did you ask him what he had done with it? A. I did not, Q. I show you Judge Hamilton's account with the New York State National Bank, and call your attention to a deposit of $25,000 on December 5, 1903, and to the draft of $25,000 on December 7, 1903, and I call your attention to the course of the account, from which it appears that the $25,000 deposited as shown by the checks you have produced was drawn against on December 5, for some purpose. Do you know what that pur- pose was? A. Not the slightest. Q. Did you ever try to find out? A. No, and I don't know that these are the checks. Q. Well, you are a very intelligent man and familiar with ac- counts. If you can give any other explanation I wish you would. A. No, but how do you identify them? Q. On this sheet? A. Yes. Q. Can you? A. No. Q. Well, we will not have any dispute over it, but I thought possibly you would recognize them with a little care. Now, I call your attention to the check to the order of Andrew Hamil- ton, Marked Exhibit 95, December 14, 1903, and I call your attention to the endorsement on that check, "Pay to the order of the New York State National Bank of Albany, Andrew Ham- ilton," and call your attention to the entry of the credit, "To Andrew Hamilton, December 15, 1903, of $50,000." Are you able to follow that and identify that ? A. Yes, I am. Q. Now, I call your attention to the debits against Mr. Ham- ilton's account in 1903, and to the debit by draft on December 16, Andrew Hamilton, $50,000. Are you able to identify that? A. I am not. Q. You are not? A. Not the slightest. 806 Testimony of John A. McCall Q. You don't know that they had any relation to it. A. Not the slightest, so far as I know. Q. You mean to come here, Mr. McCall, and state to the com- mittee that you have no knowledge or notion that Mr. Hamilton has in any way disbursed all that $75,000? A. I haven't any more idea about what he has done with moneys advanced to him about the printing house property other than this, that I have got every notion in the world that that money belongs to the New York Life and when we demand it we will get it, and I want to say further, it is not coming from him I guarantee it. Q. And that is the thought that has been in your mind now for about eighteen months, hasn't it? A. Everything I am re- sponsible for in the payment of money out of the New York Life treasury not accounted for I will pay. Q. But you see we are interested in conditions and practices here where whatever the large responsibility which you are able to give as to these matters might not be sufficient to protect those interested in the company, and we want to know particularly what accounting Judge Hamilton has ever made to you. What conversations you have ever had with him about this amount of money which has been left in his hands? A. I have had many conversations, the last before he went to Europe. Q. Did he tell you he still had the money? A. I did not ask him whether he had or not. Q. Did not you suppose he had? A. I supposed that he had the money on demand of the New York Life when it wanted it. 0. Did you know of any purpose for which he, in accordance with your instructions, could have disbursed it? A. No, but I know of something which would have entitled him to it. Q. What? A. He made a contract with the New York Life in 1904 that if he would recover from the State of New York about $300,000 that had not been paid for four years without any payment to him in the event of defeat, carrying the suit to 807 Testimony of John A: McCall the United States Supreme Court, that then and in that event he was entitled to one-third of that recovery, and that recovery- was over $80,000. Q. When was that recovery? A. In 1904, by decision of the Court of Appeals of the State of New York. Q. Is it still on appeal ? A. Not at all. Q. It is settled? A. It is settled. Q. Did you settle with Judge Hamilton? A. He has not got his money, because the State does not pay it back for some time, and the amount stands to our credit. Q. The money has not come in yet? A. No. Q. Do you regard him as entitled to the money? A. The Comptroller has certified that we were entitled to it. Q. Do you say that the moneys were paid him on that account ? A. No, and I have not said so, or hinted at it, Mr. Hughes. Q. In any way? A. No. Q. Now I notice that in this item or letter of December 12, 1903, there is an entry charged to legal expenses and "Carry on sub-ledger." What is the sub-ledger? A. Is the sub-ledger in the room now ? The sub-ledger is a blotter ledger, as a matter of fact. One of the clerks can identify it for you and show you the entry. O. Are you waiting for the book? A. What does it relate to, Mr. Hughes? Q. $75,000. A. Send for it, Mr. Randolph. Q. Have you the account here where this item is charged to legal expenses? A. Here it is, Mr. Hughes. (Book produced.) Q. What is this account you show me? A. Cash account. Q. Have you an account headed Law expenses ? A. Yes, legal expenses. Q. Or legal expenses? A. Yes. Q. In other words, this entry in the cash book is the entry 808 Testimony of John A. McCall of the account to which this item should be posted? A. Yes, that is right. Q. Have you that account? A. Of the legal expenses? The ledger ? Q. Yes. A. Bring it here. What you want is the ledger account ? Q. Yes. While we are waiting for that account, what I want to get is this, was that charged in the legal expense account as a disbursement that had been made for legal expenses ? A. No, that charge was in the Legal Expense Account because of the direction in that voucher which you have there. . Q. I understand that, but I want to know whether it was charged in the Legal Expense Account as a disbursement that had been made for legal expenses? A. I must qualify that and say it was charged under legal expenses pursuant to that voucher. Q. We are not inquiring what it was charged pursuant to. In the entry in your books was it entered as a disbursement for legal expenses? A. It was entered in our books as a disburse- ment for legal expenses. Q. In December, 1903, was it reported as a part of your legal expenses to the State Department? A. It was not. Q. What was done with it before that day? A. The two ad- vances were carried — with Judge Hamilton's check on December 31, 1903, because at that time he expected to buy that mortgage in connection with the Bennett Building, and he gave his two checks to the company, which were carried as cash on December 31st, and when that mortgage was not bought that $75,000 went in the disbursement of the company to be accounted for according to the vouchers. Q. As I understand it, then, Judge Hamilton having received these two checks in 1903, aggregating $75,000, on or about De- cember 31, 1903, gave back to the company his two checks for 809 Testimony of John A. McCall $75,000? A. No, it was contemporaneous with his getting the checks. Q. Oh, he got the checks and he gave the checks. Did you bank the checks ? A. No, we had them in the cash box, in the drawer. We held them because the voucher distinctly says . Q. Well, we have the voucher here. A. I want to justify my statements. Q. Well, the facts will determine the justification or the re- verse, and that is what I want to get at. Now, the checks of Mr. Hamilton were for the same amounts and for the same dates as checks to him ? A. Yes. Q. So, when you came to the end of the year, December 31, 1903, you treated the New York Life Insurance Company as having $75,000 in cash, because you had Judge Hamilton's check? A. That is right. Q. Therefore you did not report the $75,000 as a legal ex- pense ? A. Not at all. Q. How did you get it out of your account for legal ex- penses ? A. In January, afterwards. Q. No, but before you made your report, how did you get it out of the account which you had charged it to? A. The $75,000 was not paid to him as a legal expense before Jan- uary. Q. It was charged before January, was it not ? A. To Judge Hamilton's personal account. Q. Oh, his personal account ? A. Yes. Q. Has he a personal account with your company? A. He has not a ledger account, no. Q. What is this personal account ? A. It is the order in that case on your desk, to make those two checks payable to him and in 'return to receive his two checks, to be accounted for be- fore December 31st. Q. This voucher for $25,000, part of the $75,000, is Decem- 810 Testimony of John A. McCall ber 2, 1903. It says that shall be charged to law expenses. Wai it so charged? A. That I could not tell you without the book being in front of me. Q. You do not know just how that item was treated in the .account prior to the end of the year? A. No, I do not. Q. But the account will show? A. The account will show. Q. Now, you have said that at the end of the year you still had these checks. You carried them for some time into the new year, 1904 — I refer to the checks of Judge Hamilton ? A. Yes. Q. When did you return them to him? A. On January 8, I take it from the date of the vouchers. Q. Why did you return them to him? A. Because he then reported that there was no use of using that money in connec- tion with that mortgage, as the parties owning the Bennett building would undoubtedly clear up the mortgage and keep the place for themselves. Q. If there was no use on his part for the money for the pur- pose for which it was originally given him, and you had his checks for that amount, why didn't you keep them and cash them and close the transaction? A. Because on March 28th, which was the first conversation that I had with him in connec- tion with that check afterward, he then explained from his diary the four payments that had been made to him and said, "Here are the four items that I have received charged to Suspense Account, to be accounted for." Now, that is the $100,000, the $60,000 and the $75,000. And on March 28th, a journal entry was made charging those four items to Home Office Annex, which was the amount that he would have in hand against the purchase of these properties. Q. Have you carried these two checks of Mr. Hamilton"s down to March 28, 1904? A. That I could not tell you. 811 Testimony of John A. McCall Q. Had not you returned them to him before that? A. I cannot tell you about that. The book . Q. I am asking, not for what you did on March 28th, but why you returned the checks to him when you did return them ? A. I cannot tell exactly the dates we did return them. If I had the account here I could tell you. Q. I see. I understood they were returned at the time the matters went into the Home Office Annex account? A. Well, I cannot answer without the books. Q. You cannot tell about that? A. No. Mr. Hughes, will you let me see the letter there, directing the entry to be made ? Q. Certainly (handing the paper). When you in March, 1904, had this conversation with Judge Hamilton, did you get his checks for $100,000? A. No. Q. Did you ever have his checks for $100,000? A. No. Q. Or for the $60,000 ? A. No. O. You only had the checks for the $75,000? A. Yes. Q. Why did you want checks for the $75,000 and not for the $100,000, I mean checks from him? A. Because, in the first place, the $75,000 had nothing whatever to do with the Annex building. Q. Why was it not just as important that you should hold his check for matters relating to the Annex building as that you should hold his checks for the acquisition of the mortgage ?. A. Because the money given to him for the Annex building was absolutely an advance and charged accordingly. Q. An advance for what? A. For the Annex building. Q. But nobody got it? A. No, nobody got it because the monies that were paid for the Annex building came from the company. But you forget that there was besides the $700,000 property that was bought, $600,000 worth to be acquired. Q. But we have not forgotten that you have not acquired it. A. No, but we wish we had. Testimony of John A. McCall Q. But there has been no occasion for the expenditure of that money yet ? A. Not at all. Q. I want to know why it was when you gave Mr. Hamilton, in December, 1903, checks for $75,000 in transactions which you expected soon to be closed, you took his checks for an equiva- lent amount and you did not do the same thing when you gave him checks for $100,000 in March, 1904? A. Because if we had taken his checks — if we had not taken his checks — we would have disbursed in December $75,000 for law expenses, which would not have been true. Q. Exactly. And now we have got it frankly and candidly, that you took his checks so you would not have to show that dis- bursement in your annual report? A. Not at all, nor you cannot make me make that answer. Q. I do not want you to state it if it is not the truth ? A. No.. Q. But what did you mean a moment ago by saying that if you had not taken his checks you would have apparently disbursed $75,000 when there had been no such disbursement? A. That Is right. Q. Did not the same situation exist in March, 1904? A. No. Q. But you had actually disbursed $100,000 in your books when it apparently had not gone for any corporate purpose? A. It had gone to a man for a corporate purpose. Q. And so had the $75,000 in December ? A. Yes. Q. What was the difference? A. Because that mortgage should have come back for the $75,000. Q. But it did not? A. No. Q. In the one case you thought to get a mortgage and did not get it? A. Yes. Q. And in the other case you thought to get land and did not get it ? Yes. Q. And in the one case you took return checks and in the other you did not. Explain candidly why you did not? A. You have 8n Testimony of John A. McCall there an explanation why that situation arose, and if you will turn to this voucher and read what is stated — it is satisfactory to me at least — just what was done. Q. I would be very glad to have you explain it. A. "In relation to Judge Hamilton's matters, which he may be able to settle before the first of the year, through his account, I want to advance him Monday, $50,000, for which he will take up the previous advance of $25,000, giving his own check, which will be repaid after the first of the year, if possible, and if not, to be setttled through his accounts afterwards." Now, that was not a law disbursement, we should not have charged it up in the books of the New York Life as a law disbursement. Q. I appreciate that fully, and I say the same thing as to the disbursement in March. Now, you can explain that or not. It has not been explained to my satisfaction as yet. A. Where do you get the idea that the $100,000 in March was charged to law expenses ? Q. I will ask you about it. Was it not? A. Was it? That voucher will show exactly what was done with it. Q. Was it? A. The voucher will show. Q. Let us follow that and see what was done with it. I think we can remember that. You have the book before you. It was charged to Hanover Bank Office Account? A. Hanover Bank Office Account. O. It was charged as a disbursement, was it not? A. Yes. Q. Does it make any difference in )'our mind whether a dis- bursement is labeled "Legal" or something else, upon the question of whether the monies have been disbursed ? A. I think it makes all the difference in the world, in the purpose of it. Q. In other words, in the one case you were troubled because the amount had not been charged to law expenses, but in the other case you were not troubled because it had been charged as an ex- pense to the Hanover Bank Office or against the monies to the 814 Testimony of John A. McCall credit of the Hanover Bank Office Account. Is that it? A. (No answer). Q. You have spoken of $60,000. When did these monies go to that account?' A. They went before March, in 1904. Q. Will you please produce the check. Papers produced. Q. Now, reference is made to two checks, or two checks are produced, dated January 28th, 1904. MR. HUGHES : I offer those in evidence. (Papers were marked Exhibits 99A and 100, and read by Mr. Hughes.) MR. HUGHES : I also offer the vouchers accompanying these checks. (Admitted in evidence, marked Exhibit iol and 102, and read by Mr. Hughes.) MR. HUGHES : I also offer in evidence receipt of Mr. Ham- ilton. Q. What is the item that makes up the residue of the $60,000? A. There is $15,000 in cash. Q. $15,000 in cash? A. Yes. Q. Not in checks ? A. No, it was not a check to him. Q. How was the cash obtained by him? A. He telephoned from his office to have $15,000 in relation to a real estate matter and that order was signed and he got the money in that way. Q. Were these payments to Mr. Hamilton of $45,000 on Janu- ary 28, 1904, drawn before the Finance Committee or any other committee of your company? A. They were not 8*5 Testimony of John A. McCa.ll Q. Or any officer of your company ? A. No. Q. What were those payments for? A. Advanced against the purchase of the printing house property. Q. The same as the $ioo,ooo? A. The same as the $100,000. Q. Has never been used for that? A. No. Q. He has never been called upon to use any money for that purpose? A. He has been called upon to use money for that purpose several times to the extent of $700,000. Q. Well, he has not used it? A. Yes, he has, and paid it. Q. You mean in the cases to which you supplied him with money? A. Yes. Q. You understand me of course as referring to these moneys, did you not? A. No, I have distinctly said Q. Well, I do refer to these moneys. I have not referred to these transactions where you have shown you gave him the money and he paid for the property ; I am referring to these checks for $45,000 and $100,000 . A. I understand you thoroughly. Q. I want to know in this case with reference to the $45,000 if he has ever been called upon to use that money? A. No. Q. In any way? A. No. O. On January 28, 1904, when you gave him this amount of $45,000 did you ask him for an accounting of the $75,000 which you had previously given him in December? A. No. Q. Say anything about it? A. No, the matter did not come up. Q. Did not you tell him he had already had $75,000 and ask him what he wanted $45,000 for? A. No. Q. The Bennett mortgage was entirely out of the way at that time, was it not? A. Not entirely, and it is not to-day. Q. Well, the matter had been given up temporarily? A. For the time being. 816 Testimony of John A. McCall Q. There was no reason why he should keep the $75,000? A. Net particularly. Q. On what bank were his checks to you for the $75,000 drawn? A. I don't know. Q. Any idea ? A. Not the slightest. O. Do you know whether he keeps any bank account save with the New York State National Bank ? A. I don't know where he keeps his accounts. Q. Were they certified checks? A. No, they were not. 0. I notice that this check of $25,000 bore no stamp or any endorsement with reference to the State National Bank of Al- bany. I mean the check of January 28, 1904. Do you know what Mr. Hamilton did with that check? A. I do not. 0. Where he deposited it? A. No. 0. I notice the check for $20,000, under date of January 28, 1904, appears to have been endorsed to the New York State National Bank of Albany by Mr. Hamilton ; I called your atten- tion to Mr. Hamilton's account with that bank under date of January 28, 1904, to a credit to his account of $20,000. I also find that on January 30, 1904, there was a payment of $15,000 and on January 22, 1904, a payment of $4,000. Do you know what those payment were for ? A. I have not the faintest idea. Q. You never asked Mr. Hamilton what he did with that money? A. Never. Q. Was it not customary for Mr. Hamilton to give you an account, a debit and credit account in which he charged himself with moneys received from the New York Life? and credited himself with disbursements made for the New York Life? A. He never did. Q. Are his accounts absolutely unaudited? A. Yes, there is no account from him in that way. Q. Nobody audited it ? A. No. Q. How long has that been so? A. From the beginning. 8.7 Testimony of John A. McCall Q. Do I understand that Mr. Hamilton is representing you with reference to legislation in various States ? A. He is. Q. Do you supply him with money for expenses in connec- tion with those matters? A. Yes, for expenses and services. Q. Does he keep account of those moneys? A. Except his own account. Q. Does he render any account to you for those monies? A. No. O. Do you supply him whatever moneys he asks for? Q. What moneys do. you supply him with? A. When he brings in a voucher and explains to me about his payment and work. Q. And what it is for ? A. Yes. Q. Then you do have vouchers from him? A. We do have vouchers. Q. For such items ? A. For every payment made to him. Q. Do you mean anything more than a simple receipt? A. That is all. Q. Have you any vouchers from him showing what he does with the money that he gets ? A. I have not a voucher showing a single thing he does with it. Q. And that has been so for years ? A. It has been so from the beginning with him. Q. When was the $15,000 paid to him in cash? A. I think January 8th or thereabout. We had that voucher here and it has been mislaid. It has been here several times. I do not mean this morning. Q. You had an envelope which contained an explanation about that ? A. Yes. Here it is (producing paper). Q. Oh, yes, $15,000. Is this a correct memorandum with regard to the $15,000 that I find in the envelope you have pro- duced ? A. That is it. .clves, respectively that is, did you each get that amount on the same transaction, in T9oo ? A. It would so appear, yes sir. Q. Have you a statement there of the transaction? A. Yes sir. (Producing paper). 876 Testimony of George Walbridge Perkins / MR. HUGHES: I offer that in evidence. (Admitted and marked Exhibit 109.) Q. I find the first entry in this, February 15th, 1899, to com- missions paid broker, $1,000. What is that? A. I don't know. MR. HUGHES: Do you know, Mr. Mattison? MR. MATTISON: It is a commission paid to the man who brought about the joint account. MR. HUGHES: Who was he? MR. MATTISON: I am not sure, I think it was G. W. Bar- tholomew. MR. HUGHES: Where is he? MR. MATTISON : He is dead just now. MR. HUGHES: And probably will remain so. MR. MATTISON: Yes. Q. In this case, as I understand it — I am referring to No. 4, New York, Ontario & Western Railway, the New York Life Insurance Company did not originally sell the bonds, but bought them for the purpose of cany ing them in joint account. A. Yes. Q. Paying out for that purpose $.1,248,415.83, that is for $1,198,000 at io2yi and interest? A. Yes. Q. Thus getting in all the proceeds cf sale, the New York Life tself paid out the half of the profits to Goldman, Sachs & Com- pany? A. Yes. Q. Bought the bonds, took the proceeds of sale in their en- 877 Testimony of George Walbridge Perkins tirety, and then paid Goldman, Sachs & Company on May 24th 1899, $12,148.13? A. Yes. Q. Then on February 17, 1900, made a further payment to Goldman, Sachs & Company of $2,845.17? A. Yes. Q. There must be a further one there somewhere? A. Prob- ably that is a balancing of accounts, paid at the end. Q. What is the next one, Long Island City 434's, No. 5, under date of December 28th, 1899? A. Yes, about which 1 have this memorandum. We held 264 of these bonds bought at par plus •expenses to the amount of $462.40. On June 25th, 1899. a joint account was formed with Farson, Leach & Company for "the sale of these bonds, the same being turned into the joint ac- count at the prices scheduled here of from 103.99 to 118.82. The cost of the bonds was $264,462.40. The total amount realized was $3°3>3 2 S-S5; making a profit of $38,863.15. MR. HUGHES: I offer that statement in evidence. (Marked Exhibit no.) Q. In this case the profits were equally divided between Far- son, Leach & Company and the New York Life Insurance Com- pany ? A. It so appears. Q. Recurring to No. 4 for a moment, the one that we had a moment ago of the New York, Ontario & Western Railroad Com- pany, I notice that this purchase of the $1,198,000 -was on Feb- ruary 1 6th, 1899. Now those were bought in the market, were they not? A. Apparently, I should say so. Q. Who bought them in the market? A. I don't know. Q. Goldman, Sachs & Company probably ? A. Undoubtedly. Q. Yes. Now of that $1,198,000 about $650,000 were dis- posed of in the market by Goldman, Sachs & Company within eight days ? A. So it appears, yes, sir. 878 Testimony of George Walbridge Perkins Q. So there the transaction simply was a purchase in the market and a resale of a very large amount quickly in the market, the New York Life furnishing the money for the purpose and di- viding the profits on the transaction with Goldman, Sachs & Company? A. No, sir, I would not say that is it. I would say that Goldman, Sachs & Company bought these bonds possibly in the market, just as like as not from the original people who issued them. 0. Well, do you know that? A. No, we will find out if we can, but I mean that a wholesale purchase of a million dollars of bonds ought to be made cheaper than you could sell 20 bonds, of course you understand having bought the million Q. 1 understand, you would get a block of $1,198,000 cheaper than in small lots. A. Exactly. Q. But the transaction was that in February, 1899, you got $1,198,000, operating with Goldman, Sachs & Company? A. Exactly. 0. They making the purchase, you supplying the money and within eight days you marketed in small lots $650,000 of them and then you give Goldman, Sachs & Company half of the profits? A. They originated the business and brought it to us and they were entitled to their share of whatever the profits were. If it had been a loss they would have had their share of the loss. Q. And the business they originated and brought to you was the business of buying a large block of bonds at a favorable price, marketing them quickly and getting the profit of a resale? A. That happened to be the result. It was not the object of going into the account, in all probability. Q. Well, that you do not know, do you? A. No, sir— yes, sir, I do, because our policy never has been Q. Were you there at the time? A. No, but I know the company's policy on this subject. 879 Testimony of George Walbridge Perkins Q. Do you know anything about this except the fact that the purchase was made and the sales made? A. I do not, but I know our policy has not been to buy bonds for the purpose of, immediately selling them. Is that No. 5, Mr. Hughes? Q. I have put No. 5 in evidence. Before leaving it, I should ask you whether the $264,000 charged into that account were bonds previously held by the New York Life Insurance Com- pany which were transferred to joint account or which were purchased for joint account? A. We had them. Q. That means you held them previously? A. Yes, sir, and desired to sell them. Q. Take No. A. Six? Cj. The next item, No. 6, Missouri Pacific 5's under date of December 24th, 1900. Who were the parties to that joint account? A. Goldman, Sachs & Company and G. W. Bar- tholomew. Q. Who was he? A. A bond broker. Q. Was that a case of thirds? A. No, sir. apparently not. sir. Q. Do you mean that Bartholomew and Goldman, Sachs & Company were owners of one-half participation and the New York Life another half? A. This statement shows that Mr Bartholomew received $8,924.82 as his interest. Q. Of profits? A. Yes. Q. What did Goldman & Sachs get ? A. $98,172.94. Q. Of profits? A. Yes. Q. And what did the New York Life get? A. $98,172.94. Q. So that there was a very small interest that Mr. Bartholo- mew had? A. Yes. Q. Have you the statement of the transaction? A. Yes, sir. MR. i HUGHES : I offer that in evidence. (Marked Exhibit in.) 880 Testimony of George Walbridge Perkins Q. Now it appears from this that on March 8th. 1S99. a joint account composed as you have stated was charged with $2,300,- 000 Missouri Pacific 5's at 90 and interest. Prior to that date had the New York Life Insurance Company held those bonds? A. I don't know. Does it show on the inside ? Q. (Handing paper to witness.) It does not appear. A. Then 1 could not say. MR. HUGHES: Perhaps Mr. Mattison will know. MR. MATTISON: We did not. Q. Mr, Mattison says you did not. Then on March 18th 1899, there were purchases in the market for joint account $2,300,000 in par value at the price of 90 and interest ? A. Apparently. Q. And they were marketed through Goldman, Sachs & Com- pany? A. Yes, sir; I should say sc from this statement. Q. The details are not given here, but thev were marketed at various prices aggregating $2,270,313.38 ? A. Yes. Q. The whole lot was marketed ? A. Yes. Q. And the proceeds paid over to the New York Life Insurance Company? A. Yes, sir. Q. And the New York Life Insurance Company, having sup- plied the entire purchase price? A. Yes, sir, for the interest on the bonds. Q. And the extent of the proceeds over the purchase price in the hands of the New York Life Insurance Company was disposed of as follows: 11 /23rd, to Goldman, Sachs & Company, 1 /23rd to George W. Bartholomew, the New York Life retaining the other eleven twenty-thirds for itself? A. Apparently. Q. The next item is October 21st, 190 1, Chicago & Alton 4's? A. This was a joint account with Goldman, Sachs & Company Testimony of George Walbridge Perkins for Chicago & Alton Railway 3 per cent, refunding 50 years gold bonds. Q. Equal participants? A. Yes, sir. Q. Have you a statement of it there? A. Yes, sir, the whole transaction. MR. HUGHES: I will offer that in evidence. (Marked Exhibit 112.) Q. I find charged to this account under dates between October 17th and December 15th, 1899, both inclusive, $10,000,000 of Chicago & Alton 3 per cent, refunding bonds at a price of 96 and interest. Do I understand that those were all purchases for joint account but that some of them had been held by the New York Life Insurance Company prior to the transfer to joint account. A. Mr. Mattison is more competent to testify than I . It was before my time. MR. HUGHES: How is that, Mr. Mattison? MR. MATTISON: They were bought for joint account. MR. HUGHES: Mr. Mattison, do you know from whom they were bought? MR. MATTISON: From Kuhn, Loeb & Company. MR. HUGHES: There was a syndicate floating those bonds, was there not, Mr. Mattison. MR. MATTISON : I cannot say as to that. Q. We will resume, Mr. Perkins. Having bought $10,000,000 of these for joint account, $4,000,000 on October 17th, $1,500,000 8S2 Testimony of George Walbridge Perkins on November 6th, $1,500,000 on November 22nd and $3 ,000,000 on December 15th, 1899, all at 96 and interest, Goldman, Sachs & Company proceeded to market the bonds in small lots ? A. Yes. Q. The marketing began on November 8th, 1899, and ran through 1900, and through 1901 down to June 29th, 1901, at that time the prices in excess of the purchase price were paid, &% and 99, but in 1901'the prices were96 and interest, the purchase price, and that continued until October 7th, 1901 , when you sold back to Goldman, Sachs & Company, $3,925,000 at 96. Prior to that time you had paid the $10,000,000 and got back simply what had come in on these small sales? A. Yes, and carried the bonds. Q. And carried the bonds? A. For the interest. Q. But in view of the state of the market in October, 1901, it would appear you required Goldman, Sachs & Company to take off your hands $3,925,000 at 96, which they did? A. Yes. Q. At the same time they did that, I find a charge "To tem- porary loans " of $400,000, apparently being an item correspond- ing to that on the credit side of the account December 29th by temporary loans $400,000. Do you know what that was? A. I do not. Q. Was that a temporary loan to Goldman, Sachs & Company? A. Probably, on these bonds. Q. Well, they did not have the bonds? A. I do not know. Ask Mr. Mattison. It was before my time. MR. HUGHES: Mr. Mattison, what was that temporary loan for? MR. MATTISON : We thought the bonds were probably not worth in the market what we paid for them and required Gold- man, Sachs & Company to put up that much margin. MR. HUGHES: They put up a margin with you of $400,000? 883 Testimony of George Walbridge Perkins MR. MATTISON: They did and that was returned when they took the $3,925,000 and their connection with the joint account ceased. Q. Then there were transferred on October 3 1st to the regular account of the New York Life Insurance Company for Investment $4,427,040? A. Yes, sir. Q. Then the account was closed showing a profit to each of you of $1,937.91? A. That is correct. Q. Now, what is No. 8, Wladikakes Railway Company? A These were some bonds of the Wladikakes Railway Company in Russia of which our annual statement shows a considerable holding, and which the International Commercial Bank of St. Petersburg, sent over to us to sell in this market on joint account with them. The New York Life to receive the profits on 80 per cent, of the price at which the bonds were sold above the issue price of 96^. 80 per cent of the amount at 96%" was deposited to the credit of the Russian Government and 20 per cenl . at the market rate was credited in the banking house of Van Hoffman & Company, to the International Bank of St. Petersburg, the bonds were not all sold and those remaining unsold were re- turned to St. Petersburg. The New York Life Insurance Com- pany's profits were $6,137.54. Q. And they received a similar profit? A. No, I think we received a little more because we were doing the work. Q. The next item is Queens County 4's under date of February, 1901. A. Yes, this was a joint account with Messrs. Farson, Leach & Company for the purchase of $1,500,000, as it appears, of Queens County bonds. Q. On equal participation? A. On equal participation. Q. Have you a statement there? A. Yes sir. 884 Testimony of George Walbridge Perkins MR. HUGHES: I offer that in evidence. (Admitted and marked Exhibit No. 114.) Q. Looking at the debit side of this statement with regard to Queens County 4's, I find under date of December 2nd, 1897, bought $490,000 at 108.77, less $20,000, and a series of other purchases mentioned below, aggregating about $1,100,000 at par value. Do I understand that those were purchased for the joint account? A. Yes. Q. In the market? A. I cannot testify as to that. MR. MATTISON. We bought from the City. Q. Through Farson, Leach & Company? A. Yes. Q. And these were marketed by Farson, Leach & Company and the proceeds turned over to you? A. Yes. Q. And you divided the profits on the transaction equally with them? A. Yes. Q. They did not put up any money and merely turned over the proceeds? A. How is that, Mr. Mattison? MR. MATTISON : We carried the bonds for the interest. MR. HUGHES: That means an affirmative answer to my question ? MR. MATTISON: Yes. Q. The profits were $22,005.07 to the New York Life and the same amount to Farson, Leach & Company? A. Mr. Hughes, another way, if I may put it, they did all the work, they origi- nated the business and brought it to our attention, and did all 885 Testimony of George Walbridge Perkins the work, and we furnished the money and carried the bonds, and received interest on our money for the bonds, and then divided the profits. Q. The work they, did was the work of selling the bonds? A. And bringing the business to our attention and carrying on the transactions and selling the bonds. Q. You mean by bringing the business to your attention, suggesting that you make the purchase? A. Exactly, sir. Q. The next one is June 30th, Long Island refunding 4's, 1904? A. One moment, that is No. 10? Q. Yes. A. This account was formed for the purchase jointly of $3,045,500 Long Island Railway refunding 4's, 99 less one per cent. Q. What date? A. April, 1904. Q. Who were the other parties to the joint account? A. W. S. Fanshawe. Q. And the interests were equal, your interests end his? A. No sir. When the account was closed up the profit was $30,- 682.50, of which Mr. Fanshawe received $22,500 and the New York Life $8,182.50. The New York Life retired $r, 000, 000 of these bonds at 97^- Q. This is the first time since the transaction in Savannah, Florida and Western in 1897, the first of the joint account that the New York Life took any of the bonds for investment. In all these other joint accounts we have mentioned it did not? A. Yes, so it appears. Q. Have you a statement of this last? A. Yes. MR. HUGHES: I offer it in ^evidence. (Admicted and marked Exhibit No. 115.) Q. Now, do I understand that these were bonds of Long 886 Testimony of George Walbridge Perkins Island Railroad 4's purchased in April, 1904, which the New York Life Insurance Company bought for the joint account and had not previously held? A. They were bonds bought— yes, sir; they had not held those bonds. Q. And the New York Life Insurance Company Dought $3>°45>5 ° at 99 less one per cent for the joint account? A. Yes, sir. Q. April 26th? A. Yes, sir. Q. Then on April 30th the New York Life Insurance Company retired $1,000,000 of those bonds at 97^- Is that right? A That is right, sir. Q. Then through June, 1904 with the exception of a small lot which had been previously sold, the remaining bonds not retired were sold by Mr. Fanshawe, or through him? A. Yes, sir. Q. For the joint account? A. Yes, sir. Q. And the proceeds were turned over to the New York Life Insurance Company? A. Yes, sir. Q. The New York Life Insurance Company having put up all the money in acquiring the bonds? A. For the interest on the bonds. Q. Then on June 23rd, 1904, profits to Mr. Fanshawe were given him of $22,500? A. Yes, sir. Q. And the account was closed with an entry of your, share of the profits of $8,182.50? A. Yes, sir. Q. Why did Mr. Fanshawe get $22,500? A. That was the way we made the trado. You see we got the distinct advantage of being allowed to withdraw a million of the bonds at less than the original price, of course, 97 %. Q. And to that extent you diminished the amount which would have been available for division between you? A. Yes, sir. Q. And so you thought you would give Mr. Fanshawe $22,- 887 Testimony of George Walbridge Perkins 500. That seems a round figure. Did he have a definite par- ticipation? A. No, sir, it wasn't a thought; it was the way we made the trade in the beginning. Q. It was your agreement with him? A. It was our agreement with him, yes, sir, at the beginning of the transaction. Q. Now, I see a resolution in regard to that. MR. HUGHES: I offer this resolution under date of April 21st, 1904, in evidence. (Marked Exhibit 116.) MR. HUGHES: I read it. Q. This is from the minutes of the Finance Committee, as I understand it? A. May I just see it. I haven't seen that. Yes, sir. MR. HUGHES: (Reading) "-April 21st, 1904. The Chair- man reported offering by Kuhn, Loeb & Co. ot about $3,000,000 Long Island Railroad Refunding Mortgage 4 per cent. Bonds guaranteed by Pennsylvania Railroad, at 98, accompaned by guaranty that our interest of $7 50,000 in syndicate through which said bonds are issued, shall yield a profit equivalent to one-half per cent, reduction in price of said $3,000,000 bonds. The Chairman thereupon proposed to take the amount offered on those terms in joint account with William S. Fanshawe, — (he to surrender to us his own syndicate interest of $100,000), — $1,000,000 of bonds to be withdrawn as an investment for the Company, which was approved. Present: The President, Mr. Perkins, Chairman and Messrs. Claflin, Langdon, Fair child, Morrison and Randolph." Q. That recalls to your attention that in the syndicate that 888 Testimony of George Walbridge Perkins was floating the Long Island Railroad Refunding 4's your Com- pany had an interest of $750,000? A. Yes, sir; yes; yes, sir. Q. It would appear from this that Mr. Fanshawe had an in- terest in that syndicate of $100,000. It says to surrender to us A. Yes, sir. Q. Then it appears that having that syndicate interest Kuhn, Loeb & Co. made an offer to sell you, that is, the New York Life, $3,000,000 of these bonds at 98, with a guaranty that your interest in the profits on your syndicate participation would be sufficient to make your cost of the $3,000,000 97 K? A. No, sir. That business came to us through Mr. Fanshawe. He arranged it and worked it up and brought it to us. Q. One minute: " The Chairman reported offering by Kuhn, Loeb & Co." that Kuhn, Loeb & Co. made a proposition to you? A. No, it was their business, but it came through Mr. Fanshawe. Q. You mean Kuhn, Loeb & Co. didn't approach you directly to sell you $3,000,000 of those bonds? A. No, sir; it came through Mr. Fanshawe in that transaction. Q. Why should they do that? A. We have done that very often. They probably offered to sell us. I don't say they didn't. Q. They were the syndicate managers? A. Yes, sir; they probably offered to sell us. Q. This is an offer? A. Of course they offered to sell any- body in the syndicate bonds, but this was worked up by Mr. Fanshawe and brought to our attention with the suggestion we could do it to our advantage in this way, which we did. Q. In short, you could have obtained three millions of those bonds from Kuhn, Loeb & Co. at 98 with a guaranty that they would net you 97 yit A. No, sir. Q. Well, isn't that the offer you reported? A. Was reported an offering by Kuhn, Loeb & Co. That may be a technical error 889 Testimony of George Walbridge Perkins there. It was Kuhn, Loeb's syndicate; the bonds came from them, but the business was done with Mr. Fanshawe. They don't agree for three millions of those bonds, you see Q One minute. Proposal was made by Kuhn, Loeb & Co.? A. No; the syndicate was Kuhn, Loeb & Co., but the proposi- tion was brought by Mr. Fanshawe. Q. He was the intermediary, but the proposition was made by Kuhn, Loeb & Co.? A. I don't know whether they made it to him or not. He brought it to our attention. Q. Why did you say an offering by Kuhn, Loeb & Co.? A. That may be a technical error of the minutes. Q. Well, is it? A. I don't know. That is several years ago — a year and half ago. Q. Yes, a year and a half ago. A. My memory as to that — remember the transaction being brought to us by Mr. Fan- shawe. Q. And the transaction so brought to you was a proposition made by Kuhn, Loeb & Co.? A. Yes, that is exactly it, yes, sir ; it being their business. Q. Now, do I understand you didn't perfectly well know that you could go to Kuhn, Loeb & Co. and get three millions of those bonds in the times there stated? A. No, sir; I don't think we could have done so. Q. Why not? A. Because you can find that out by finding the price at which the bonds were selling at that time. Q. I am reading your own proposition. A. Then I can talk to any other proposition, for I don't know. That was brought to us as a proposition by Mr. Fanshawe. Q. And presumably it was one which you could accept. A. And we did accept. Now, you see Q. Well, one moment. Now, what you did do was not to take three million of bonds from Kuhn, Loeb & Co. but to act on the 890 Testimony of George Walbridge Perkins proposal which you made to take the amount in joint account with Mr, Fanshawe? A. A proposal which he made to take it on joint account. Q. It says here: "The Chairman thereupon proposed to take the amount offered on those terms in joint account with William S. Fanshawe." A. Well, I presume that the proposition — that we accepted Mr. Fanshawe's offer, as you like. I don't want to differ with you on a technical wording of the minutes. Q. There were two offerings then, one from Kuhn, Loeb & Co. submitted thrugh Fanshawe and another from Fanshawe to take on joint account? A. I don't know what Kuhn, Loeb & Co. submitted' to Fanshawe. I know what he submitted to me. Q. As coming from them? A. Yes, sir, I presume so. Q. The result was that you, in the minutes, or in the meeting, proposed to take three million? of those in joint account with William S. Fanshawe, he to surrender his syndicate interest of $100,000, the New York Life to take a million of the bonds for investment, and the remaining two millions to be marketed for the joint benefit of Mr. Fanshawe and the New York Life Insurance Co.? A. No, sir if didn't work out as a joint benefit; it works out as you have the figures there ; it works out to the joint benefit. Q. Mr. Fanshawe get $22,000? That isn't quite joint; you meant equal? A No, I didn't mean equal. Q. I beg your, pardon. It was on the basis of those figures. Q. That is for the benefit ot both of you? A. That is right. Q. And the profits on the transaction were realized in the manner in which you have stated? A. Correct; quite correct. Q. Now, do you know any reason why you couldn t have got the three million bonds from Kuhn, Loeb & Co. and. sold them yourself — kept what you wanted in- your own funds at 97 y 2 and get all the profits that the market would justify on resale? A. Why, I know a great many reasons for that kind of business, if you want them. 891 Testimony of George Walbridge Perkins Q. No, in this particular case. I don't care anything about the general theory of it, but in that particular instance? A. We could not, because we could not have secured a million of these bonds in that way at as a low a figure as we did in the way we did the business. Q. You could have got three millions from Kuhn, Loeb & Co.? A. At the price they were selling them at. Q. 98? A. I don't know what they were selling them at. I will have to look that up. Q. I am trusting to your own minutes. A. I beg your pardon. That don't say what Kuhn, Loeb & Co. were selling the bonds on the market for at that time. Q You don't know about that? A. No. Q. But you know their proposition to you? A. 1 know Mr. Fanshawe's proposition to me. Q. Do you say that minute is in any way incorrect? A. I say it may be technically incorrect in this. Q. I don't care what it may be. Do you say of your own knowledge that is incorrect in any particular? A. I say the offer came from Mr. Fanshawe to us, and it was Kuhn, Loeb & Company's business, as original business, but we did it through Fanshawe. Q. I understand. But is that minute correct, or do you say on your oath it is not? A. No, I couldn't say either way, Mr. Hughes, I simply tell you how the business was done. Q. Did you have any dealings with Mr. Fanshawe in respect to this matter for Kuhn, Loeb & Co. prior to the meeting? A. Oh, yes, sir. I conducted all the negotiations. Q. Did you ever speak to Mr. Schiff about it? A. I don't re- call that I talked to Mr. Schiff about it, because I have talked with him about nearly every syndicate isstie of bonds they had. Q. No reason why you shouldn't do it? A. Not at all. Un- 892 Testimony of George Walbridge Perkins doubtedly knew what they were selling the bonds for at that time. Q. Mr. SchifE is quite as accessible to you as Mr. Fanshawe is? A. Yes, sir. Q. Now, I find under date of June 30th Pittsburg, Virginia and Charleston, is that? A. May I ask the number of that, Mr. Hughes, please. Q. No. 11. A. Yes, sir. Q. This was ?n account formed in November A. No, in June, 1904, with Harvey, Fisk & Sons to purchase $3,380,000 of these bonds at 104 and interest. Q. Have you a statement there of it? A. Yes, sir. MR. HUGHES: I offer it in evidence. (Marked Exhibit No. 117.) Q. Now, this was a case where Harvey, Fisk & Sons carried their half participation? A. Yes, sir. Q. You bought together $3,380,000? A. I don't think we did. We started out to, but we didn't get them. Q. You started out to, but you didn't do that. But the net result was you each carried your half of your cost? A. Yes, sir. Q. And divided the profits? A. Yes, sir. Q. Now, New York City 3^ A. And the net profit to us was $10,000. Q. Well, to each of you? A. Yes, sir. That is No. 12, the next one, Mr. Hughes? Q. Yes. New York City 3^ bonds, joint account between the New York Life and Harvey, Fisk & Sons. Have you a statement of it there? A. Yes, sir. MR. HUGHES: I offer it in evidence. (Marked Exhibit No. 118.) 893 Testimony of George Walbridge Perkins Q. That was a case where you each carried your respective proportions? A. May I look? Q. Yes, sir. A. Yes. Q. The next one is Long Island Refunding 4's, August 5th, 1904. A. May I have the record show that we made a profit of $9,151.66 on those New York City's? Q. Yes. You each made a profit ? A. Yes, sir, a joint profit. Q. You made half and they made half? A. Yes, sir. Long Island Railway Refunding 4's, No. 13. MR. HUGHES: I offer it in evidenc-. (Marked Exhibit No. 119.) Q. Do I understand that these Long Island Refunding 4's, bought on June 23rd, 1904, were bought for joint account? A. May I kindly look at that memorandum? Yes, sir. Q. They were bought in the market? A. May I just look again? Well, that I cannot say. That memorandum will show. Q. Apparently there was a purchase of $250,000? A. Yes, sir, that is right. Q. On June 23rd, 1904, and then in July, 1904, they were all marketed? A. No, sir; from July to August 4th. 0. July to August 4th they were all marketed apparently at the same price at which they were bought? A. The difference probably would be the interest in the meantime. Q. The profit, if any, was made from any coupon interest there may have been? A. The profit was very small. Q. That was a distinct transaction from the other of 500,000? A. Yes, sir. Q. Of which Mr. Fanshawe was the other participant and car- ried one-half of the account ? A. Yes, sir. Q. What is the next one? A. According to my list No. 14. 894 Testimony of George Walbridge Perkins Q. Oregon Short Line ? A. Yes, sir. Q. November A. September. Q. October 31st, 1904. Have you a statement of that? A. Yes, sir. This account was formed with W. S. Fanshawe. MR. HUGHES: I offer it in evidence. (Marked Exhibit No. 120.) Q. I understand that these purchases aggregating about $340,000 were made by the New York Life for joint account? A. Yes, sir. Made by Fanshawe and the New York Life supplied the money. Q. Yes, and took the bonds. A. Yes, sir. Q. And carried them for the interest? A. Exactly, sir. Q. And then they were sold out by Fanshawe ? A. Yes, sir. Q. And they were sold within about a month? A. Yes, sir. Q. And then the profits were divided equally between the New York Life and Mr. Fanshawe, each receiving $5,343.36 ? A. That is right, yes, sir. Q. I notice this minute of the Finance Committee under date of September 22nd, 1904, "Proposal of W. S. Fanshawe to pur- chase $500,000 Oregon Short Line participation 4's at 93% flat for joint account — the bonds to be carried by us for the interest they bear, was authorized to be accepted." Present: Mr. Perkins in the chair and Messrs. Langdon, Claflin, Morrison and Randolph. September 29th, 1904. "Chairman asked confirmation of purchase on joint account with W. S. Fanshawe of $350,000 Oregon Short Line participating gold 4's, .due August, 1927, at 99^ flat— this Company to carry the bonds. Approved." 895 Testimony of George Walbridge Perkins Present : Mr. Perkins in the chair, and Messrs. Langdon, Mor- rison, Randolph and Claflin. October 31, 1904 — "The treasurer reported that the joint ac- count with W. S. Fanshawe in $350,000 Oregon Short Line 4 per cent, and participating bonds had been closed out with profits to us of $5,343.36, checks for which had been received." Present : Mr. Langdon in the chair, and Messrs. Orr, Morrison and Claflin. Q. As a matter of fact you got the proceeds of the sale and gave a check to Mr. Fanshawe of $5,343.36, keeping an equivalent amount for yourself? A. In that case, yes. Mr. Hughes, I think perhaps you omitted to get this No. 3. I find that on my chair. Do you wish that in evidence? MR. HUGHES : Yes, I will have that marked as part of the No. 3 and put all those together. (Marked Exhibit No. 107A.) Q. Now we have November 30th, 1904 Northern Pacific-Great Northern ? A. Yes ; that was a joint account with Fanshawe & Company. There is a complete memorandum of it. MR. HUGHES : I offer it in evidence. THE WITNESS : No. 15, that is. (Marked Exhibit No. 121.) Q. How many bonds of the Northern Pacific-Great Northern does the New York Life hold? A. I believe twelve and a half millions. ' Q. $12,500,000 in par value, according to the statement fur- 8n6 Testimony of George Walbridge Perkins nishedus. This is your statement for the committee ? A. Yes, sir. Q. Who were the managers for the syndicate that placed those bonds upon the market? A. Originally you mean, Mr. Hughes ? Q. Yes. A. J. P. Morgan & Company. Q. From whom were the $ 1 2 ,500,000 of bonds now held by the New York Life acquired? A. You understand this particular syndicate we are talking about has nothing to do Q. We will come to that. A. I understand. In various — through various channels. Q. Well, I find on the list you have given me $7,400,000 from the New York Security & Trust Company? A. Yes, sir. I know we bought a large part of that. Q And I find $500,000 from W. S. Fanshawe. A. Yes, sir. Q. I find another lot of $300,000 on the Stock Exchange. A. Yes. Those were brought direct, of course from the market. Q. Then I found another lot from Barr, Luke & Moore, another lot from J. P. Morgan & Company? Q. They were all floated by J. P. Morgan & Company? A. Yes, sir. they were underwritten by J. P. Morgan & Company originally. Q. Well, they took the entire issue and marketed them in the first instance? A. Yes, sir — well — no, sir, they didn't market them. The stockholders of the road took a very large amount of those bonds, you know, direct. They simply under- wrote the matter. Q. Well, you mean underwrote what? A. Underwrote the business. Q. The acquisition of the stock ? A. No; they agreed that if the stockholders didn't take the bonds that they would take them, you see, so the stockholders took the most of them then, a very large amount. 8o» Testimony of George Walbridge Perkins Q. That is the stockholders of the Chicago, Burlington & Quincy? A. Yes, sir. Q. The underwriting was for the purpose of acquiring the stock of the Chicago, Burlington & Quincy and issuing against it the Northern Pacific-Great Northern collateral trust bonds? A No, sir, no, sir, the Great Northern and the Northern Pacific had issued those bonds and J. P. Morgan & Company agreed that the stockholders would take the bonds, and if they didn't that they would take them. There was no stock in the matter whatever. Q. Only as the stock was the security for the bonds ? A. No, sir. That was only collateral security. The written security is the pledge of the two great railroads up there. Q. Yes, I know, but the collateral security is the stock of the Chicago, Burlington & Quincy? A. Yes, but the collateral is secondary. Q. Always. A- It isn't the main security. Q. Well, you use security in a different sense. I was using it technically as differentiated from the promise of the obligor. A. The reason I do that is because the bonds in our statement have been criticised. Q. I am not going into that at all. A. I am giving you my reasons. Q. I understand. They are the obligations of the railroad companies, but are secured by the stock of the Chicago, Burling- ton & Quincy. A. Secondarily. That is secondary security. The great security is the Great Northern and Northern Pacific Railroads pledged to pay these bonds; like any other bond. Q. Well, that is the promise and the other is the security. We won't argue about that. A. Very good. Q. Now, leaving that, you being possessed of $12,500,000 of the Northern Pacific-Great Northern bonds on September 30th, 898 Testimony of George Walbridge Perkins 1904, entered into this purchase for the joint account of the New York Life Insurance Company and W. S. Fanshawe? A, Yes, sir. Q. That matter first being presented by resolution of Septem- ber 29th, 1904, of the Finance Committee as follows: "Authority was also given the Chairman to buy on joint ac- count with W. S. Fanshawe up to $1,000,000 Chicago, Burling- ton & Quincy joint 4's at from 97 to 97^. Present: Mr. Perkins in the Chair, and Messrs. Langdon, Randolph, Morrison and Claflin." Now, these bonds were purchased at various dates between September 30th, 1904, and October 4th, 1904, both dates inclu- sive? A. Yes, sir. Q. And the money for the purchase was supplied altogether by the New York Life? A. Yes, for the interest on the bonds, which was, of course, a very good rate then, four per cent. Q. Then on October 3d, 1904, 1 find a minute in your minutes of the Finance Committee: " The treasurer reported purchase on joint account with W. S. Fanshawe, as per authorization of September 29th, of Chicago Burlington & Quincy joint fours amounting to $767 ,000 at prices ranging from 97X to 97 % flat. Present: Mr. Perkins in the Chair, and Messrs. Langdon, Morrison, Randolph and Claflin." Now, those having been acquired and paid for in that way, they are sold out through Mr. Fanshawe for joint account on November nth and November 14th? A. Yes, sir. Q. And the proceeds of sales are paid over to the New York Life Insurance Company? A. Yes, sir. Q. And thereupon the New York Life Insurance Company 899 Testimony of George Walbridge Perkins makes its check to Mr. Fanshawe's order for $4,656.20, one half the profits on the resale, keeping a similar amount for the profits he has made on the transaction ? A. That is right, sir. Q. Then the matter is reported to the Finance Committee as closed upon that basis ? A. That is right, sir. Q. On November 17th, 1904. Now, we come to 1905, March 3d, Southern Pacific 4's? A. Yes, sir. That is an account with Q. Is this a statement of it? A. Yes, sir. MR. HUGHES: I offer it in evidence. (Marked Exhibit No. 122.) Q. Now, here it appears that the New York Life Insurance Company on February 24, 1905, bought $4,500,000 Southern Pacific Railroad first mortgage refunding fours in joint account ? A. No; not quite. Would you mind reading that ? Q. Well, to start with, they bought that amount. A. That is right, yes, sir. Q. And the amount was paid by the New York Life Insur- ance Company? A. Yes, sir. Q. The amount being at 97 less a quarter, $4,353,750, and then there was a commission paid to the man from whom the transaction came of $3,750? A. Yes, sir. Q. Who was that? A. I don't know, sir. Mr. Mattison, do you? MR. MATTISON: That was a commission to us of a certain price less than a quarter. That was a commission to us. It is charged to the account ? 900 Testimony of Milton Monroe Mattison MR. MATTISON: It is charged to the account and put in an- other account afterward. Q. What other account ? MR. MATTISON: Our commissions account; commissions on purchases of securities in 1905. Q. Now, having paid out $4,353,750 on February 24th, 1905, those bonds were carried for the following members of the joint account who were interested in the purchase, the New York Life Insurance Company an interest of $2,000,000, W. S. Fan- shawe & Company, an interest of $1,500,000 New York Security & Trust Company an interest of $1,800,000, Bankers Trust Com- pany an interest of $200,000. That is correct, is it not? A. Yes, sir. Q. Now, on February 24th, the day of the purchase, $1,500,- 000 of these were transferred at 97M, the same price at which they have been received — to whom? A. To the New York Life In- surance Company, into our bond account. We took them as an investment. Q. You took those as an investment and on the same day $500,000 are sold out at 97K. or was that so ^ to ^*- S. Fan- shawe & Company? A. Yes, sir. Q. That was sold to W. S. Fanshawe? A. Yes, sir. Q. Then $200,000 on February 24th were also disposed of to whom? A. I don't know, unless it shows there. Q. All those bonds were disposed of A. Except the million and a half. Q. Except the million and a half that you kept on the same day that they were received? A. And at the same price, the original price. MILTON MONROE MATTISON, resumes: 901 Testimony of Milton Monroe Mattison BY MR. HUGHES: Q. "Will you please explain these items of $3,750, two items of $3,75°, each in connection with the Southern Pacific Railroad refunding 4's? A. Yes, sir. The $2,000,000 which we retired from the joint account we bought at 97 — less a quarter. MR. PERKINS: Did we retire $2,000,000? THE WITNESS: We retired $2,000,000 and sold $500,000 later. We bought at 97 less a quarter. I put them into the books at 96^4 at first and later put them on at the original price, at 97 — , and placed the quarter in our commissions account. A quarter on $2,000,000 would be $5,000. Q. Why did you do that? A. Because we have an account for that purpose. When they originally were put on the book I didn't know they were bought at 97 less a quarter. Q. So these were just bookkeeping entries to adjust the ac- count? A. That is all, except $2,500 is profit on those sold. Q. In other words, those bonds were withdrawn at the same price they were purchased at, say, $500,000, on which there was a quarter profit ? A. No ; they went to the other members of the joint account; they retired their bonds at the same price they took them at. Q. The only profit was $2,500 in the account? A. That is all. Q. And the other items were simply bookkeeping items to straighten it out after you had entered it originally at a lower price than was actually paid? A. Yes, sir, that is right. Q. And that profit was divided in what way — oh, that was the profit on the sale to Mr. Fanshawe, wasn't it? A. That is right. Q. In other words, you withdrew $2,000,000 and gave Mr. Fanshawe $500,000 of them? A. At a profit of $2,500 to ourselves. 902 Testimony of George Walbridgc Perkins GEORGE W. PERKINS, resumes the stand: BY MR. HUGHES: Q. What is the next one, Jersey City 4's? A. Yes, it is an account with the New York Life, J. D. Everett & Company, ajid Farson, Leach & Company. I think that memorandum ex- plains it. MR. HUGHES: I offer it in evidence (Marked exhibit 123, and read by Mr. Hughes.) " Q. And those profits were divided? A. Yes, sir. , MR. HUGHES: I offer in evidence the resolution relating to that matter pinned to the statement. (Marked Exhibit 124.) Q. I have next Erie Convertible 4's, August 26th, 1905. A. No. 18. That is a joint account with the New York Life Insurance Company. Q. Who is the other party ? A. Fanshawe. MR. HUGHES: I offer the statement in evidence. (Marked Exhibit No. 125.) Q. In this case it states here that each party carries his own interest? A. Yes, sir. Q. The purchases are made jointly by Fanshawe & Company and the New York Life of two million of the bonds at 94 and interest, and then sales are made in the open market, $670,000 903 Testimony of George Walbridge Perkins having been sold in that way and a profit is realized which is divided? A. Yes, sir. Q. Has the matter been closed? A. The matter has been closed with a profit to the New York Life Insurance Company of $106,945.15. Q. And a similar profit to W. S. Fanshawe & Company? A. Well, I couldn't say as to that; we don't know at what price he sold his bonds. MR. MATTISON: There is no profit on this million. He carried his own. * THE WITNESS: What he did with his we don't know. Q. What he did with his you don't know, that is the point. How was this a joint operation then? Did you take yours and A. It was simply joint' in the purchase. Q. Simply? A. Yes. Q. Not in the sale? A. Not in the sale. Q. Now, I find on a separate sheet that you have given me, a statement of bonds retired? A. Yes, I think I have all those statements. Q. These are relating to joint accounts, a number of which do not appear in these statements already given me. A. I have them here. Q. Well, now, do I understand that where there are no state- ments of sales you have retired the whole number of bonds? A. At the original price, yes, sir. Q. Who were the parties with you in these joint accounts operations? A. I can go right along and give you each one. Q. Oh, they are all in there, are they? A. Yes, sir; I have each one. Q. Just let me see them? A. If you will be good enough to 904 Testimony of George Walbridge Perkins call those numbers to me so I will know I have given them to you. Q. This Exhibit 104, which we have been following in every- thing these matters explain, contains cases where cash has been realized? A. Yes, sir. Q. Now, the remaining cases are a different sort? A. The remaining cases are where we withdrew all our interest — our bonds. Q. You have No. 19, Central Pacific Railway Company first refunding 4's; the parties are, New York Life Insurance Com- pany and W. S. Fanshawe? A. And we withdrew two and a half millions. Q. And you bought two and a half millions? A. Yes, sir. Q. Well, where did the profit to Mr. Fanshawe come in? A. Does that memorandum show? Q. If you buy two and a half millions and withdraw two and a half millions? A. I beg your pardon. This joint account represents the purchase of five millions of bonds. Q. Of which you each took two and a half millions? A. Yes, sir. Q. And there are no re-sales? A. No, sir; I don't know what he did with his. We withdrew ours to keep. Q. Well, what is the advantage to W. S. Fanshawe & Com- pany in that transaction? A. In having us join him in so large a purchase, thereby getting their lot much cheaper. Q. And the same advantage to you? A. Quite right. Q. You were not in a position to get five millions of bonds at the same price at which you took two and a half millions? A. We might or might not have been; it was a question of his bringing the business to our attention or doing it in what we thought was the best way to get that advantage. 9°S Testimony of George Walbridge Perkins MR. HUGHES: I offer, the statement in evidence. (Marked Exhibit No. 126.) Q. Who was the seller of the five millions of bonds in this case, the Central Pacific Railway? A. I don't recall, sir. MR. HUGHES: Does Mr. Mattison know? MR. MATTISON: I suppose Kuhn, Loeb & Co. THE WITNESS: Probably. Q. Kuhn, Loeb & Company. Was any effort made to get those direct? A. I don't recall. Would you like to know? Q. Yes. A. The very next one will throw light on it. Q. Whose statement is it? A. My statement. I dictated that because I made the transaction. Q. Read it in answer to my question thus put. A. This is rather off hand. This is a memorandum on another amount of $2,558,000 Central Pacifies bought a few months afterwards. Q. Does not that relate to this transaction we have just talked about? A. No, it is the same bonds and immediately followed the other transaction Q. Let us see a moment, what is the date? The date of this transaction that we have just referred to as October 25th, 1904, purchase of 1,000,000 and February 1st, 1905, purchase of a million and a half? A. Well, then in August of this year there was a purchase on joint account of $2,558,000. Q. Well, is that the next memorandum? A. That is the very next memorandum; yes, sir, No. 20. Q. Have we any statement of that? A. You have it there, go6 Testimony of George Walbridge Perkins sir; oh, I have it in my hand; you have just handed it to ; me. I am going to read it. Q. That is the statement of the transaction? A. Yes, sir, it is. Q. It doesn't show what was disbursed and received? A. It will tell the whole thing. Q. Not in the form of an account? A. This is in the form of an account. There was no account, because there was no profit or loss. We withdrew all those bonds. Q. Make any statement you want to. A. On coming down town one morning I saw in the newspapers that Kuhn, Loeb & Co. had taken a block of these bonds from the Central Pacific Railway Company. On reaching my office I immediately called them up on the 'phone and asked what they would sell $1,000,000 of the bonds for. They named par and )4 and interest. I then asked them how many they had left, and they said $2,558,- 000. I negotiated for the entire lot and they finally offered to sell them at 99K an d interest. I secured an option on the entire lot at this price; then took the business before the Finance Committee, said I believed I could get other people to join us in buying them at this price, and I received authority to go ahead, provided we could get about one-third of the entire amount at 99/4 and interest. I then approached Harvey, Fisk & Sons, interested them in the business, and they agreed to take two-thirds of the amount at 99^ and interest. They said they would do it. I then went to Kuhn, Loeb & Co. again and succeeded in getting yi more off the price. We then bought the bonds, $2,558,000 at 99^/8 and interest, the New York Life withdrawing its $850- 000 at that price. MR. HUGHES: I will .offer that in evidence. (Marked Exhibit No. 127.) 907 Testimony of George Walbridge Perkins Q. I think that is a very illuminating statement? A. Now, Mr. Hughes, may I say right there that that is typical of how we have done all these things. Q. I understand. A. And gives perfectly our motives and our reasons and shows how we got $805,000 of those bonds cheaper than anybody else in town could have got them, and if I may add, I was somewhat gratified a few days after to hear that a large block of those bonds had been sold to a life insurance company outside of New York, and which looked upon Wall Street with holy horror, at 1 per cent, more than we paid for our bonds, simply showing what these things mean. Q. Its horror is still probably undiminished? A. People get wrong views and impressions of why these things are done, you see. Now, Mr. Hughes, that is 20 and 21. Q. Just a second. Whom did you deal with in this matter, Central Pacifies, at Kuhn, Loeb & Company's? Whom did you approach to get that proposition from — what individual ? A. I don't recall, but Mr. Kahn or Mr. Harnsheimer, I should think. I did it over the telephone. Q. Whom did you approach at Harvey, Fisk & Sons — what individual? A. Mr. Fanshawe. He is now a member of that firm. Q. Oh, he is now a member of that firm? A. Yes, and has been since the 1st of January. Q. Now, we come next to 21, Sanitary District of Chicago, Municipal 4^. That is really one that should be on the other statement? A. Yes, it is. MR. HUGHES: I offer it in evidence. (Marked Exhibit No. 128.) 908 Testimony of George Walbridge Perkins THE WITNESS: The cash profit to the Company in that transaction was $13,933.49. Q. In that case you bought on joint account with J. & W Seligman & Co. on February 15th? A. Yes, sir. Q. Did you put up the money? That is way back in 1895? A. Yes, that is a long while ago; I don't remember. Q. Simply a case and then resales were made within 60 days or so and the profits were divided equally? A. Quite so, sir. Q. By the way, in regard to the Central Pacific to which you referred, did you give the date when you came down town, and saw that in the papers, andcalledup Kuhn, Loeb &Co.? A. Early in August. Q. Of this year? A. Of this year, yes, sir. Q. And when was it that this other insurance company had to buy in the market at a higher price? A. Within a week. Q. So that the price at which you got this option from Kuhn, Loeb & Co. was considerably lower than the market price within a week? A. It was lower than the price. I think that was typical. They started in offering me a million at par and half an interest less a half, and I got them down, then went back and said "What will you close out all of your bonds at?" and trading in that way I got a reduction. Q. You got 99/^ and the market still rose? I took occasion to look that up and found that others went on and in a week bought all their bonds above par and a half. Q. It is almost a pity you didn't take the three millions. A. We had quite a lot of those bonds before. We discussed al] that in the committee and we had a round amount of them and thought we wouldn't take any more. Q. Now, No. 22 is Atlantic Coast Line? A. Nps. 22 and 26, they are the same kind of bonds — no, they are not. I beg your pardon. No. 22. 909 Testimony of George Walbridge Perkins Q. Yes, A. Well, that is where we withdrew with no profit; simply $357,000 at the original cost. Q. That was in 1904? A. Yes, sir. r Q. This is a statement of that? A. Yes, sir. -MR. HUGHES: I offer that in evidence. (Marked Exhibit 129.) THE WITNESS: We withdrew $357,000 at 97.61 and they are now selling in the market at ioi^- Q. Who was your partner in that transaction of the purchase? A. The memorandum I think will show, sir. No. 22. Q. And that was W. S. Fanshawe & Company? A. Yes, sir. Q. No. 23, New Orleans Terminal, July 1st, 1904- That was another case where you bought about $500,000 and you went in on the purchase with Mr. Fanshawe and yourself, that is, you were the two parties to the joint account, and last February, 1905, you each withdrew $250,000? A. Yes, sir. We withdrew ours at 93%, and the bonds are now quoted in the market at 95. Q. And what was the advantage to Mr. Fanshawe in that? A. He brought the business to our attention. Q. Well, the advantage was in being able to get the bonds cheaper by going in with you? A. That is it; yes, sir. MR. HUGHES : I offer that in evidence. (Marked Exhibit 130.) Q. Now, what is the next? A. 24. Q. Washington Terminal. A. 24, according 1 to my list, sir. Vz P er cent - f° r seven months, and the security changed to $150,000 of Union Pacific 4 per cent, bonds and $600,000 Chicago & Alton 3% per cent, bonds, or a margin of about 25 per cent., and the loan stands in this form now and is due January 14, 1906. The various changes in the rate of in- terest were of course brought about by the governing rate of interest at the time of the- loans. Q. I find in the list of collateral loans, 1903, under date of November 23d, a loan to the New York Security & Trust Com- pany of $1,000,000. Do you remember what was the occasion of such a loan? A. No, sir; I will be glad Q. Or the rate of interest,' which is stated here ? A. No, sir. Will you take that down, please, Mr. Robinson. Kindly give the date, Mr. Hughes. Q. November 23, 1903. A. November 23, 1903, to the New York Security & Trust Company. Now, Mr. Hughes, the next unfinished question I have was you wanted the details about those Erie bonds, that joint account. We went over that this morning. ' O. I think that is pretty fully stated? A. I suppose that is covered ; yes, sir. You asked me for some figures on the back of the $48,702.50 check Q. That was covered. They are clearing house figures? A. Yes, that is covered. They are clearing house figures. Well, another thing you wanted to know was the Washington Ter- minal joint account, which I gave you this morning. I think that clears that out. And another was a joint account with Farson, 942 Testimony of Milton Monroe Mattison Leach & Co. of $1,300,000 Boston 31/2's, the net result of which was that we secured and now have in our assets $300,000 of these bonds at $1,780 less than, the City of Boston originally sold them at. In other words, we got them cheaper than if we had bought them direct from the City of Boston when they were issued. I would ask permission, Mr. Chairman, and counsel, to emphasize on the minutes the fact that in all those joint accounts, whether we furnished the money or not, the party of the second part, whomsoever he might have been, was always responsible for his half of the account. If there had been a loss he would have had that as well as the profits — we were showing profits all the while. Q. You put up some money and he put up the responsibility? A. And security ; and security. Q. You think you have covered this ? A. My mind is relieved on unfinished business. 0. Mr. Randolph — recurring to this New York Security & Trust Company — also made a remark with regard to his anticipa- tion that other interests would come in and join with you in connection with the New Orleans Traction Company matter, and that that was influential in deciding your action. Do you recall anything about that? A. Why I talked with Mr. Randolph about, that. I think he said he ought not to say who those people are. I see no reason why we shouldn't. We were talking with people in Louisville and in New Orleans, and with the general banking- interests here, as to taking part of those bonds. It was in connec- tion — specially it was with New Orleans people where the market was and where many of those bonds had been from time to time marketed, and were to be marketed, and have since been marketed, I believe. Q. We had yesterday evidence that the president of your com- pany has put in the hands of one of its lawyers amounts aggregat- ing some $235,0000 which are wholly unaccounted for, and as to 94;: Testimony of Milton Monroe Mattison which he has no vouchers for as to its disposition. Did you know that? A. No. Q. Had you known that it was the practice of the president of your company to put into the hands of Mr. Hamilton from time to time large sums, as he might call for them, and that Mr. Hamilton's accounts were not audited or vouchered in such a way as to show the exact disposition of the moneys? A. No, sir, I testified on Friday that that was all in the President's depart- ment; entirely handled by him. Q. Now, how does it happen that that is in the president's de- partment in the face of your by-laws : "And it shall be the duty of the Finance Committee to take and have a personal supervision of the funds of the company?" A. Will you kindly read the rest of the by-laws on that. Q. Yes, it goes on to speak of the method, manner and time of making and calling in investments, examining the accounts of funds and securities, the reports of meetings, the condition of funds, investments, &c. A. But that has nothing to do with the general expenditures of the company. Q. So the Finance Committee does not take into its charge the disposition of funds, as long as they are not funds invested in securities? A. Investment funds, that is it, sir. Q. What committee does that? A. The agency committee takes charge of the expenditures of all moneys pertaining to the agency committee, and the president of general expenditures that would come under any special committee. Q. Do you happen to know what disposition Mr. Hamilton has made of the moneys ? A. No ; I do not. O. Do you know whether Mr. Hamilton engages attorneys throughout the country to represent the New York Life Insur- ance Company in matters pertaining to legislation in different states? A. I have said that is entirely in the president's depart- ment, and I have had nothing to do with it whatever. 944 Testimony of Milton Monroe Mattison Q. Now, we have been talking a good while about what moneys the New York Life Insurance Company gets in and how it manages its finances, and we want to avail ourselves of your presence upon- the stand to find out to some extent the disposition that is made of them. With regard to the agency department, you were for many years connected with that, were you not ? A. Yes, sir. Q. You were, as I recall it, an agent yourself for some time? A. Yes, sir; I was. Q. And were you chairman of the agency committee for some time? A. Yes, sir. Q. Until a recent period ? A. Until I should say three or four years ago; three years ago, perhaps. Q. Now, I would like to have you state how the agency field is divided ? A. Well, I will have to go back a little on that, Mr. Hughes. I will try to make it as straight and clear as I can, but it will take a few moments. The original method of securing business for the life insurance companies was on what is known as the general agency system, by which the companies farmed out territory to certain men, who in turn made sub-contracts with the soliciting agents, and the business in this way came to the general agents, but whatever profit there was between the general agent's contracts with the companies and the sub-agent's contracts and the general agent went to the general agent, and the business was turned in to the company at the maximum cost of the general agent's contract. That contract was usually a contract that called for a certain percentage of the first year's premiums paid in by the insured and a smaller commission on each subse- quent premium that the policy holder paid and which smaller commission usually ran from 10 years to the entire length of life of the policy. That method of securing business was in vogue for — oh, I suppose, 30 years in this country without much varia- tion. 945 Testimony of Milton Monroe Mattison Now, if you will pardon me for using the personal pronoun once in a while — I don't want to except as it necessary to make certain statements clear — when I left the office work of the New York Life in Cleveland in about 1886 I had been making a very careful study of the agency work as pursued by all the life insurance companies and been trying to forecast in my mind what I thought the future in life insurance was going to be, and I had some ideas of my own that I thought perhaps, in my youth at that time, were worth trying to develop. I finally, after a good deal of negotiation on my part between myself and the officers of the company, secured permission to go to the extreme West, the Rocky Mountain States, where the New York Life had no organization, and where I put into force my idea of what might be a better way to secure business and that was for the company itself to rent an office, to put that office in charge of a cashier whom the company would , pay and to whom all the policyholders would pay their premiums and deal. That cashier being the company's official repre- sentative out there, and the policyholders dealing officially with the company through him. Then in place of having a general agent or manager, we began to engage cut in that country what we call agency directors, the idea being that a manager or a general agent had learned to feel that he was of very great im- portance, and from my observation he sat down and let other people do the work and he took the intermediate profit. I thought the title of agency director would more impress on a man's mind that he was expected to direct something — to do something. Q. It doesn't always work in the case of directors. A. It has in this particular case. Every rule has its exceptions. Well, we began and experimented with the plan of the com- pany's doing its business direct through a salaried agency di- rector and a salaried cashier, and the solicitors then being 946 Testimony of Milton Monroe Mattison hired, each one of them in the name of the New York Life Insurance Company. After two or three years of experiment we finally brought that organization to a pretty effective shape in the Western States and I had succeeded, under direction of the officers at that time of the company, who were rather pleased with it, and gradually changing one agency after another in the West to this branch office system, and that brings us down to about 1892, when Mr. McCall became president, and when the Board of Trustees had looked over the field and felt that there was something in the ideas I was working, asked me to come to New York and created the position of third vice- president, and I came here, understanding that I should have a free hand to extend this plan to the company's entire organ- ization. Now, we have gone on and we have taken up all our general agencies, removed them all or changed them, and instituted this branch office in its place, and to- day the company's business throughout the world, not only here, but elsewhere, is a business by which each individual solicitor, wherever he may be, has a contract with the New York Life Insurance Company, and in that way, in place of going to his clients and saying that he wanted to insure them through the general agency of so and so, he brings them into direct feeling that they are policyholders directly in the com- pany, which we have found a very great advantage in steadying, as we call it, our business and securing a better permanency to it. Now, the old system, as I said, was compensating these gen- eral agents by a broad contract on a commission basis. We have had a great many difficulties to overcome in perfecting our new system, but we have perfected it to a point where now in the United States something over two hundred men are our body of agency directors. Each man has a specific amount of territory allotted to him to, as we say, cultivate. We know 947 Testimony of Milton Monroe Mattison the number of people in that territory, we know about what percentage of them are insurable risks, we know what the wealth of that territory is, and we get these agency directors together the first of every year and we go over with them their respective territories and they each one receive a salary agreed upon according to their responsibilities with the company. Then we say to each man : Now, we will say, the Peoria dis- trict in Illinois. We are entitled to so much business from that district. We give you a salary of so much money, say, $2,500 a year in the way, if you please, as a retainer and proceed to get the business in that territory that we think we ought to have. Now, if at the end of the year you have given us this business, we will pay you so much extra money, and that is conditioned also on the cost at which he produces that business, the num- ber of what we call standard agents that he has. By that we mean men giving their constant time to the company and pro- ducing at least $25,000 of business a year. That has enabled us to make practically each one of thse agency directors work for not only volume of business, which we don't consider the most important, but for quality and a reduced cost each year, with permanent agents, who, the longer they stay with the com- pany in our experience, are more attached to it and represent it in a very much better way. Now, that is in as few words as I can give you the net work of our agency organization. Q. Now, to come down to definite facts and figures. A. The framework, I should have said. Q. How many agency directors have you? A. I thought I had it here. Something over 200 or 220 or such a matter. John, do you happen to remember it? About 215. O. About how many of those are employed in foreign offices ? A. Oh, those are only the domestic ones. Q. Those are domestic directors? A. About fortv in for- eign fields. 948 Testimony of Milton Monroe Mattison Q. Now, in the domestic field, there is no one between the Executive Officers of the company and the Agency Directors? A. Yes, sir — in a way, we have the Agency Directors divided up into groups ; the country divided off into sections and each sec- tion presided over by an Inspector of Agencies. Q. Sort of a presiding elder? A. Yes, sir. Q. Well, you call him an Inspector of Agencies? A. An In- spector of Agencies. Q. Well, now, how many inspectors of agencies have you? A. Ten in this country now, and two foreign inspectors. Q. What do you pay the inspectors of agencies in the Domestic field? A. Mr. Buckner has this information, so that I can give it to you. Supposing I give you the names and the salaries. Mr. Buckner knows about it. Q. If Mr. Buckner knows about it and prefers to go on I will take it from him? A. No, I can go on with them. My instinct as a New York Life man comes to the front here, to proceed and give you these names and salaries. I suppose some of the other life insurance companies will be glad to see some of our best men. THE CHAIRMAN: Mr. Hughes, is it necessary to have the names ? MR. HUGHES: No. THE WITNESS : Thank you, Mr. Chairman. Let me give you the amounts. They run from $625 a month to $1,208.33 a month. Q. How many have you who get $15,000 a year, for that is what it amounts to? A. $1,208.33? Q. Yes. A. You ought to have been an actuary. Only I don't wish that for you, sir, but I say you might have been one. 949 Testimony of Milton Monroe Mattison Q. I am working hard in a good school. What is the next highest price or salary? A. A thousand dollars a month, which I believe would be $12,000 a year. Q. $12,000 a year? A. Yes, sir. Q. How many get $12,000 a year? A. Two. Q. What is the next? A. $833.33, $10,000 a year. Q. And how many get $10,000 a year? A. Two. Q. Go on now, give each group. A. Three receive $750 per month and one $625 per month. Q. Now, we have them all ? A. Then we have two Inspectors of Agencies at large. Q. What are they? A. They are men who travel anywhere we want them to, with headquarters at the head office and go anywhere. Q. What do they get? A. A thousand dollars a month each one of them. Q. Now, the total amount expended then on the domestic field for inspectors of agencies and inspectors at large per annum in salaries is how much ? A. Well, can I have some one foot this while we go -to something else, and put in those figures ? Q. It won't take but just a minute, so we won't have to go back to it. A.- Very well. O. What amount is it? A. Mr. Buckner makes it about $126,000 a year, Mr. Hughes. Q. Now, apart from the Nylic system, which I will talk about independently later, do the inspectors of agencies and the in- spectors at large get anything at all outside of their salaries? Do they get any commissions? A. No commissions, no, sir. O. Either on first premiums or renewal premiums? A. Not one cent ; no, sir. Q. Do they get any bonuses or any presents or anything out- side of those salaries? A. Only as shown in the Nylic Fund and offers sometimes made for a specific purpose, such as re- 95° Testimony of Milton Monroe Mattison duced expenses, or to improve the quality of the agents, and they receive a bonus of — you spoke of bonuses — of $2 a thousand of the new agents secured each year, over and above the standard they had reached the preceding year. Q. That is $2 a thousand on what? A. On the business of new agents secured in each current year, added to the organiza- tion of the office. Q. That is a regular stipulated thing? A. Yes, sir. Q. If they introduce new agents who get new business for the first year that that agent works the inspector of that agent gets $2 a thousand on the business written by the new agent ? A. Yes, sir. THE CHAIRMAN: Mr. Perkins. THE WITNESS : Mr. Chairman. This agency director gets that. Q. The agency director? A. The agency director. BY THE CHAIRMAN : Q. Is that bonus paid to the new agent irrespective of the dis- missal or removal of old agents? A. No, sir. Q. Must the volume of business, be brought up to last year's volume? A. He is debited with the number of agents he had at the close of the preceding year. He must have those anyway, and then add on to them. Q. Is he debited with the volume of business of that year as well? MR. HUGHES : Pardon me a minute. Q. I intended to deal, I see by a slip of the tongue I failed 9S 1 Testimony of Milton Monroe Mattison to deal exclusively with inspectors, the men at the top, next to the Executive Officers, salaries aggregating about $126,000 a year you have given. Now, those men, do they get anything by way of commission in addition to their salary? A. I will bring that in detailed form to-morrow morning. Q. You haven't that in shape at present? A. No, sir. Q. Very well, we will make a memorandum of that. ■ BY THE CHAIRMAN : O. You say the man is debited with the number of agents he had at the close of the year? A. Yes, sir. Q. Is he debited with the volume of business of that year as well? A. That depends altogether on circumstances. That would depend on our judgment of the outlook for the coming year. Q. Well, if I had thirty agents and had done three million dollars' worth of business in the preceding year in my district and in the next year my agency force I lost ten of my old agents, reducing the number of old agents to twenty, but acquired ten new ones, and the volume of my business was two and a half millions, nevertheless, would I get a bonus on the new agents' business? A. You would get discharged. Nothing personal, Mr. Chairman. BY MR. HUGHES : O. Well, what Senator Armstrong was referring to and what you were referring to a moment ago, mentioning a bonus of two per cent on new business of new agents, had reference to agency directors, not at all to inspectors, who were over the agency direc- tors? A. Yes, sir. Q. Whether inspectors simply or inspectors at large. Now, leaving the inspectors then, whose aggregate cost to your com- 952 Testimony of Thomas A. Buckner pany is $126,000 a year, we come next to the agency directors. You say you have 215 of those in the domestic field. Will you please state what salaries they get and what the cost of that service is irrespective of commissions by way of stipulated pay- ments? A. Suppose I read this in general like the others. Q. Just give how many you have in one lot and how many in another lot. MR. BUCKNER: They are all different. THE WITNESS : Would you mind swearing Mr. Buckner as to that? MR. HUGHES: If you prefer to have Mr. Buckner testify to it I will have him sworn. THOMAS A. BUCKNER, called as a witness, being duly sworn, testified as follows: BY MR. HUGHES : Q. Mr. Buckner, you are fourth vice-president of the New York Life Insurance Company? A. Yes, sir. Q. And under your charge is the agency department? A. Yes, sir. Q. Are you chairman of the committee on agencies ? A. I am. Q. I have just asked what amount of salaries is paid to agency directors, the 215 that you have, I understand, in the domestic field. Please state the range of salaries and the total annual pay- ments. A. I have here, Mr. Hughes, a schedule showing the salary of each agency director, but I haven't got them totalled up, which will take some time. They range from $150 a month to $500 a month. I think that is the highest. 95i Testimony of Thomas A. Buckner Q. How many have you at $500 a month or $6,000 a year ? A. That I don't know. Q. Approximately? State the figures approximately subject to correction if necessary ? A. I should say approximately a dozen. O. "What is the average salary? A. About $3,000 a year. Q. Now, in addition to the salary of the agency directors, is the bonus that we were talking about with Mr. Perkins a moment ago on the business of new agents? A. Yes, sir. Q. There was ad capitandum answer to a very pertinent ques- tion by Senator Armstrong as to whether the agency directors got this bonus on the business of new agents taken on during the year irrespective of the losses of the agent, losses on the business for that year in his territory? A. Yes. We have a few agency directors that have a contract — old contracts not quite in harmony with the present contracts which we make, and which we have been making for 'the past four or five years, but as a rule the agency director receives an addition to his salary a bonus of $2 a thousand on the first twelve months on each new agent he em- ploys during the entire year. That $2 a thousand applies only to the first twelve months' work of that new agent. Q. Does the other agency director get any other bonus or com- mission whatever? A. He gets a commission on his personal work. Q. As a salary A. As a salary. Then he receives, in addition to that, under the Nylic system for agency directors Q. Independent of the Nylic system for agency directors, inde- pendent of what business he may personally write, does the agency director get any bonus other than the 2 per cent on the business of new agents? A. Only on a few contracts, of which I will be pleased to give you a schedule. Q. But not under your present system? A. Not under our pres- ent system. 954 Testimony of Thomas A. Buckner Q. "What was the amount paid out in 1904 by way of bonuses to agency directors in all? A. Under that $2 per 1000, for in- stance ? Q. Yes, under that $2 a thousand which I have been wrongly calling 2 per cent. Two per cent on a thousand is $20. This is $2 per thousand. Have that clearly understood? A. I should say about $100,000. Q. Well, have that in mind please when you make up the statement of the salaries paid so that we can see the cost of that department? A. Yes, sir. GEORGE W. PERKINS, resumed the stand. BY MR. HUGHES: Q. Now, between the agency directors and the man who gets the business, the solicitor, -is there any intervening authority ? A. No, sir. Q. And each of these solicitors has his own contract with the New York Life ? A. Correct, Mr. Hughes. Q. Are they all on the same footing as to commissions? A. No, sir. Q. State what commissions are paid to solicitors for writing business ? A. Well, we have various methods of doing that. I think possibly Mr. Buckner will give you that better than I up to the moment, as to present rates. THOMAS A. BUCKNER resumed the stand. BY MR. HUGHES : Q. Now, Mr. Buckner, I have asked Mr. Perkins, and you will state, please, what are the commissions paid to agents for writing insurance? A. Under our present contract which we 955 Testimony of Thomas A. Buckner have made for the past three or four years our commissions are from 40 to 60 per cent, the first year according to the size of the policy, and from that down according to the plan of in- surance, on the first year of insurance, with a bonus offered on the second year, that is, on the renewal of that business for the second year, of from 5 to 20 per cent., conditioned on the volume of business the agent procures. I shall be pleased, Mr. Hughes, to submit a contract. They are printed contacts. Every agent gets the same. 0. Now this bonus that you speak of on the second year, is that in effect a renewal commission? A. Yes, sir, but it is conditioned — any bonus on the second year is conditioned upon a certain volume of business by the agent to be produced per- sonally during the year. Q. On your present form of contract do you give any renewal commission apart from that bonus and apart from the NYLIC system ? A. No, sir. Q. Is your present form of contract the only contract that you make with agents, that is, have you one form? A. At the present time, sir. Q. Now, how long have you had one form of contract for all agents? A. Since January 1, 1899, I think it is, or 1900- 1900. Q. Since January 1, 1900, no agents have been taken on by the New York Life Insurance Company except under that form of contract? A. I wouldn't say that, Mr. Hughes, possibly there may be some exceptions. Q. Do you know whether there are or not? A. I think pos- sibly there have been a few exceptions ; not more than a dozen, I should say, in the entire United States, and in connection with readjusting some old deal. Q. But not in taking on entirely new men? A. No, sir. Q. Then there are no secret arrangements made with agents 95 6 Testimony of Thomas A. Buckner by which one agent gets an advantage over another agent ? A. Well, there are not. Q. Then terms are not made with one that are not made with another? A. No, sir. . Q. You have said that the commissions on first premiums were from 40 to 60 per cent? A. Yes, sir. Q. And varying according to the nature of the insurance and also as to the amount? A. I should like to amend that. It is from 40 per cent, down, as to the plan of insurance, and from 40 per cent up to 60 per cent, on the size of the pol- icy. I will give you the detail of that, if you want. Q. I would be glad to have you state briefly and in concise form just what the different rates are which you pay to agents under your present form of contract? A. I should prefer to submit the schedule itself, Mr. Hughes, but I will say now that we paid 40 per cent, on $1,000 policies on the ordinary life, 20 year endowment and 20 payment life plan ; on other plans for the same amount of insurance the rates are scaled down. On policies of $2,000 five per cent extra is paid the first year ; on policies of $3,000 10 per cent, extra, making 50 per cent, on policies of $3,000; 55 per cent, the first year on policies of $4,000 — I should say, I beg your pardon, on policies of $3,000 50 per cent. ; on policies of $4,000, 55 per cent., and on policies of $5,000 and over 60 per cent, on the three plans named. The average commission is something under 50 per cent, on our present schedule of contracts. Q. I understand that 60 per cent, is the highest? A. Is the maximum that we make at the present time. The reasons lor this scale in our opinion is that the fixed charges of course are less on the larger policies than on the smaller. The cost of examination is practically the same and the cost of inspection and handling the business is the same for $5,000 as for $1,000. Q. Now I find on looking at the report of the New York Life 957 Testimony of Thomas A. Buckncr Insurance Company to the Insurance Department of the State of Connecticut for the year 1904, that the first year's premiums on original policies without deduction for commissions or other expenses, less $32,596.49 for first year's re-insurance, amounted to $14,048,536.60, and I find that the commissions and bonuses to agents on first year's premiums amounted to $7,276,853.27, which is considerably over 50 per cent, on the first year's pre- miums? A. Well, slightly over. Q. Well, it is nearly $200,000? A. Yes, on fourteen millions. Q. Those figures are correct? A. Those figures are correct. Q. Well, how much of that $7,276,853.27 was bonus? A. Well, that I couldn't tell you, without getting the figures for you. Q. Well, what bonuses do agents get in addition to the com- missions which you have stated? A. I presume those are bonuses in connection with our clubs and prizes that we offer through the — general prizes and bonuses that we offered to the field from time to time. I can get you the exact bonuses. MR. PERKINS : We can get that, Mr. Hughes, I think. THE WITNESS : I omitted to say when you asked me of con- tracts, you spoke of the usual form of contract to each agent. We do have certain general bonuses and prizes to the entire field which agents win in competitive contests, which are undoubtedly included in that statement. Mr. Hughes, I would like to make a correction of what I said awhile ago about the amount of that $2 per thousand bonus. I had in mind the Nylic commission for agents. That $2 per thousand didn't exceed $15,000, I said $100,000. Q. Now, you are referring to the agency directors ? A. To the agency directors, $2 a thousand regular bonus. 9S« Testimony of Thomas A. Buckner Q. You can't state offhand what was the approximate amount of the bonuses of agents, that is, the solicitors? A. No, sir. I couldn't make a close enough guess on that without looking on the books. O. What amount would be the largest sum that the crack agent of your company could get if he took all the prizes that you offer for writing business? A. That he might earn? Q. Yes. A. The best agent ? O. Yes, outside of these commissions under the contract that you have mentioned. Or put it the other way, what is the total amount he could get from everything ? A. Including his commis- sions ? O. Yes. A. I should say about $25,000 a year. Q. I meant percentage of premiums? A. I should say about 65 per cent. I should say the best, if he won all the prizes, but some of these are competitive, of course, if one man wins them • no one else can. MR. PERKINS : So it is scattered over a very large amount of business, you see, Mr. Hughes. BY MR. COX : Q. Mr. Buckner, were you Superintendent of Agents in 1901 ? A. Yes, sir, or prior to — I think I was made Fourth Vice-Presi- dent in the beginning of 1901. Q. Can you tell us whether or not your Company has paid bonuses to Agents to get them to come and work for the New York Life ? A. I don't think I quite understand you. Q. Have you ever paid out a specific sum to an Agent to induce him either to leave some other Company or employment to act as an Agent for your Company ? A. I don't know of any such case. 959 Testimony of Thomas A. Buckner Q. Well, you would have known of it if it had been done in your administration. A. I think I would, yes, sir. BY MR. HUGHES: O. I have here a statement furnished by your Company to the effect that for the year 1904 the amount of commissions charge- able against the first year's premiums, as I interpret the words, total expenses chargeable first year commissions to me, amounts to $6,650,138. Am I justified in assuming that this is correct? A. You told me that was made by our Actuary, Mr. Weeks. Q. That is as I understand it. A. And I assume it is correct. Q. We will assume that until the contrary appears I have given you the figures. A. Yes. Q. Now, then, there is another item for the year 1904 in addi- tion to the $6,564,180 of commissions, called other expenses, $4,221,395. I understand that a part of that item is bonuses $595,980. Now what bonuses were they? A. Those were un- doubtedly all the bonuses that we paid to general agency Direc- tors, or Inspectors of Agencies. Q. I find, in addition to that, salaries of Managers, Inspectors and Agents $1,606,471. What is that? A. That I take to be just what it purports to be, salaries of Managers, Inspectors of Agen- cies, and Agency Directors and all other salaried men in connec- tion with the Agency Department. Q. Who would come under the head of Managers? A. We have in Europe representatives who have the title of Managers ; they are practically the same as Inspectors of Agencies and Agency Directors. Q. I find another heading, Conventions, $125,735. What are they? A. Those I presume are the gatherings of the Agents and Agency Directors at different times and in different parts of the country in connection with our organization. 960 Testimony of Thomas A. Buckner Q. The expenses of the Agents as delegates to these conven- tions are paid by the Company? A. Yes, sir, but they win in competitive tests, this privilege. It is really in the nature of a bonus. MR. PERKINS: On the volume of the business done? Q. How much business do they have to do to entitle them to be delegates to the Agency Convention? A. The Agents attend two Conventions per annum, that is to say, those Agents who win. They are known as Clubs. They are divided into two Clubs, the $100,000 Club and the $200,000 Club. Every Agent who writes and pays for $100,000 of business per annum is a member of the $100,000 Club and attends the Convention once a year. Every agent who writes $200,000 of business and pays for it in the Club year is entitled to a membership in the $200,000 Club and attends that convention. The expenses in both cases are paid by the Company. MR. ROGERS: By Business, you mean THE WITNESS : A. The face amount. MR. ROGERS : The gross premiums. THE WITNESS: No, sir; I mean the insurance. THE CHAIRMAN : How does the Club year differ from the calendar year? THE WITNESS : The $200,000 Club year ends on July 1st. The $100,000 year ends at different dates, divided up in different sections of the country, some January 1st, April 1st, and some in the fall of the year. 961 Testimony of Thomas A. Buckncr THE CHAIRMAN: Then the man who writes $200,000 be- longs to both Clubs? THE WITNESS : No, sir, he belongs to the $200,000 Club and is eliminated from the $100,000 Club. Q. I find a separate item here under the expenses of 1904 of Clubs, $70,215. What are expenses of the Club apart from the expenses of the Conventions? A. In addition to members ac- quired by writing a definite amount of business, we have offered certain cash bonuses to those agents who acquired a membership and maintain membership for a definite amount of time. We have changed that from year to year. At the present time there are no bonuses in the $100,000 club. In the $200,000 Club there is a cash bonus offered of $250 to each agent who maintains his membership for two consecutive years, every other year. I do not know that that constitutes that item, but I pre- sume that it does. Q. And we have in addition, Home Office Agency Expenses, $195,161. A. Is that for 1904? Q. Yes. All this is for 1904 as I take it. No, that is for 1903. These items referred to in Mr. Weeks' letter that I am taking up with you and which we have thus far mentioned are for 1903. A. Yes, sir. Q. Now, what are the Home Office Agency Expenses? A. Well, I don't know what items are included in that account, but I presume it means the entire Agency Staff at the Home Office, including the salaries of myself and my associate, Second Vice- President Perkins, and the Staff in the Agency Department. Q. Well, do I understand that you refer to your salary as Vice- President and Mr. Perkins'? A. Yes, sir. I say I don't know what are in those items, possibly so. Q. Attention has been called to the fact that a few years ago 962 Testimony of Thomas A. Buckner the Home Office expenses of the New York Life were reduced a considerable amount, in the neighborhood of $200,000, as I remember it, making it appear that the New York Life's Home Office expenses were much less than some of the other large companies. Was that due to the fact that you deemed it proper to segregate some of the expenses of the Home Office and charge them to Agency expenses? A. I don't know, Mr. Hughes. I don't know what constitutes that item. I will get it for you. Q. Yes. But it is a fact that a considerable amount of the ex- penses of the Home Office are not included under Home Office Expenses in your report? A. Yes. Q. But are included under Agency expenses. A. Yes, I should say that was so, from the statements you show me. Q. Then we have in addition Physicians' fees, $748,418. I suppose those are Physicians' fees for examining applicants? A. Yes. Q. And we have Bureau of Inspection, $164,004. What is the Bureau of Inspection? A. That is a department that inves- tigates as to the financial standing of applicants for large amounts and as to the moral hazard involved in the case of every appli- cant. Q. Then there are various other expenses charged to the first year's business for 1903 upon a division basis? Mr. Weeks ex- plained that in reporting to Wisconsin, which report was taken as a basis for the communication, no particular instructions have been given regarding the proportions of expenses of telephones, telegrams, advertising, etc., which should be charged to first year's business. He goes on to say there is no unanimity of opinion on the subject, because the proportion would depend largely upon the distribution of old and new business, and in preparing the report for Wisconsin a uniform rate of 25% for all items was charged as against the first year's premium, that is a uniform ratio of 25% of all items which were charged 963 Testimony of Thomas A. Buckner in gross against first year and renewal premiums were charged against first year's business. In those items I find clerk hire, sundries, telephones, telegrams, printing, stationery, postage, etc., branch office expenses at the Company's offices. A. Yes. Q. Now all those items together which I have just mentioned, bonuses, salaries of Managers, Inspectors and Agents, bonuses, Home Office Agency expenses and Clubs, and Physicians' fees, Bureau of Inspection, make up $4,221,395, which is a charge against the business of 1903, in addition to commissions per se. A. Well, I do not say that that is correct. Q. Well, just look at Mr. Weeks' letter, so that we can get it on the record. A. But if this 25% is taken as a basis as to which should be charged to first year, which I do not think is correct, then that statement is correct. It is a very large item, of course, that he has arbitrarily for Wisconsin guessed at 25% as being the proper proportion of those miscellaneous expenses. Q. We will return to that in a moment. In this statement I have here for 1903 with reference to expenses chargeable to first year I find commissions $6,564,180. A. Yes. Q. Other expenses, $4,221,395. Total of commissions and other expenses, $10,785,575. The first year's premiums, accord- ing to Mr. Weeks' same letter, for 1903, were $13,906,488. Now in analyzing the item other expenses which were chargeable against first year's business, amounting to $4,391,395, we find that these items of bonuses, salaries, conventions, Home Office Agency, Clubs, Physicians' fees and Bureau of Inspection, and so the items which you say, or which he says, were distributable upon the 25% basis above mentioned. Please explain in what respect you think that is an inaccurate distribution. A. I do not say it is inaccurate, but I am not willing to say that 25% is the proper distribution of those miscellaneous items. Q. What do you think should be the proper distribution of the miscellaneous items? A. I think the distribution should 964 Testimony of Thomas A. Buckner vary according to the individual items. I think I would like to furnish you a statement of my idea. Q. I should be glad to have it. A. I should say that on the whole that more of that general item should be attributable to first year's expenses than he has put in. Q. Coming to 1904, the corresponding statement which has been furnished me has commissions $6,650,138, other expenses $4,466,726, making a total of $11,116,864 expended in getting that year's new business. The premium for the first year re- ceived in 1904, according to the same statement, being $14,049,- 507. May I assume those to be correct? A. Yes, sir, except with the reservation of the miscellaneous expenses, which should be attributable to new business. Q. Then, in giving the details of the item, other expenses, $4,466,726, I find for 1904 bonuses $626,715, and salaries, and the corresponding items to those quoted for 1903. A. Yes. BY MR. HUGHES : I will put that statement upon record for 1904. (Marked Exhibit 141.) Q. Are there included in this statement all the expenses of the branch offices ? A. I think so. Q. Are the rents included there? A. I think so. It says rent, company's offices. Q. Now I find in your report to the Insurance Department of Connecticut for 1904 that the total commissions and bonuses on the first year's premiums were $7,276,853.27. That appar- ently is made up of the $6,650,138 commissions shown in Mr. Weeks' statement and bonuses $626,715. A. That is correct. Q. I find further the item, salaries and allowances for agen- cies, including managers, agents and clerks, $2,844,724.46. A. Yes. 965 Testimony of Thomas A. Buckner Q. I find no corresponding item in this statement for that year. A. But this is a general statement here. Q. Just explain what items those are. A. I presume that this general statement here includes the clerk hire. I think I would rather give you the segregation of that item exact than to guess at it. Q. Is this item of $2,844,724.46 appearing in your report for 1904 to Connecticut chargeable to new business? A. I should say it should be. Q. Then the next item in your report to the Department of Connecticut, Agency Supervision, Traveling, and to all other agencies, $1,058,590.97 is also attributable to new business, is it not? A. I should like to modify the previous statement by saying that a portion of the $2,844,724.46 and a portion of the traveling expenses, $1,058,590.97, is attributable to new busi- ness. Q. Why not all of it? A. Because a portion of that is clerk hire and other expenses connected entirely with old business. Q. Are you able to segregate the items? A. Not definitely, but I am positive that includes the clerk hire and other ex- penses connected with the handling of the renewals of the company. Q. The next item in the Connecticut report, Medical Exam- iners' fees, $788,761.06, Inspection of Risks, $178,155.01, mak- ing a total of $966,916.07, that is all . A. That is all at- tributable to new business. Q. Did you explain who gets that $178,000.00 to the Bureau of Investigation or Inspection? A. Not in detail. Q. Just explain, if you will, who actually gets the money and on what basis it is paid. A. It is the entire cost, I take it, of the inspection department, including the fees paid to thousands of inspectors throughout the United States. 966 Testimony of George Walbridge Perkins Q. Who are in the Inspection Department? A. Mr. J. A. Dolan is superintendent of tke Inspection Department. Q. What is his salary? A. That I don't know. Q. Has he a staff at the home office ? A. He has a small staff at the home office and a very large staff scattered through every county in the United States. Q. Working independently of the home office, that is, inde- pendent!}' of the agency directors? A. Independent of the agency directors, but not independent of the cashiers at the branch offices. He works through them to some extent. Q. I should like to have you make up a statement for the years 1903 and 1904 which would show the premiums received for those years respectively, the commissions on the first year's premiums of the business of those years respectively, the other expenses, particularly classifying and itemizing the items incurred in those years respectively which were charge- able against the new business of the year. A-. In my opinion chargeable against it? Q. Yes, your own judgment upon it, taking it where it is plainly attributable in the exact amounts you have disbursed, and where there is an apportionment, stating the basis of the apportionment. A. Yes. Q. So we can see just what it cost you in each year to get the business which you got in those years. A. Yes, sir. GEORGE W. PERKINS, resumed : BY MR. HUGHES : Q. We have a few minutes, Mr. Perkins, before we adjourn. Now in all this statement that has been made of the amounts paid to agents for getting business, nothing has yet been said 9 6 ? Testimony of George Walbridge Perkins of the Nylic system. In the first place, are there two Nylics? A. Yes, sir. Q. The word Nylic is arbitrarily made up in what way? A. Why, we coined it from the initial letters of the company's corporate title, New York Life Insurance Company, NYLIC. Q. You have a Nylic for agents and a Nylic for agency di- rectors. A. Yes, "sir. Q. Take, first, the Nylic for agents and please tell me just what the system is and when it was instituted. A. I don't know that I can do it better than to file a pamphlet on that subject which is very explicit. Q. Well, we don't want to put the pamphlet on record. A. Well, we would like to put it on the record, if you don't mind. Q. It probably can be stated in a condensed form, the nub of it. A. Well, would you object to my putting the pamphlet on record? Q. Well, we might mark it for identification. A. Very good. (Marked Exhibit 142 for identification.) THE CHAIRMAN: Can't you summarize it in some way? We only have three or four minutes. THE WITNESS : This is the work of years. I cannot sum- marize it in three or four minutes. In my judgment the Agency Departments of these Life Insurance Companies will be a very great study — a study of them will be of very great ad- vantage THE CHAIRMAN : Excuse me, do you think we had better take up the Nylic matter to-night? MR. HUGHES : I think it will be just as well to postpone 968 Testimony of George Walbridge Perkins it until morning, and I would like to have you state in a brief and precise way the scheme of it. We don't want a great deal of verbiage upon the record from this book. Of course, the book can be referred to constantly to insure accuracy, but what we want is a condensed statement of the system, and per- haps it is not worth while to start it to-night. THE CHAIRMAN : We will now adjourn until 10.30 o'clock to-morrow morning. <^9