Appointed to Investigate the Failure of the Globe Savings Bank , and to Inquire into the Condition of the Funds of the University of Illinois, and for the Purpose of In- vestigating the Girls' Reformatory or Home for Juvenile Offenders . Report of the special committee appointed to investigate the fail- ure of the Globe Savings Bank, and to inquire into the condition of the funds of the University of Illinois in connection therewith: Jo the Honorable the Senate: Your committee appointed under Senate Resolution No. 46, to inquire into the causes of the failure of the Globe Sayings Bank and its condition, and the condition of the funds belonging to the University of Illinois, and the causes of defalcation of Charles W. Spalding, late Treasurer of the Board of Trustees of said University, having performed the duty assigned them under the iso- lation beg leave to submit the following report : Your committee held its first meeting in the city of Chicago, at the Great Northern Hotel, April 23, 1897. It continued its sessions there from time to time, and during said investigation examined the following named witnesses: W. S. Shattuck, Charles M. Jackson, W. L. Pillsbury, Charles J. Ford, L. A. Bullard, Allison W. Harlan, Alexander McLean. C. W. Spalding. N. W. Graham, Henry W. Magee, I. S. Raymond, R. Blanche McCom ell. Lucy Flower, A. D. Avrill, Geo. R. Hayden, Richard Morgan, John P. Altgeld, N. B. Morrison. C. C. Jones. T. E. Morrison, Edward E. Gore. J. E. Armstrong, Hiram B. Prentice, Francis McKay, John P. Wilson, Charles E. Churchill, Mrs. J. D. Harvey, Herbert E . Skinner, Victoria M. Richardson, James B. Forgan, James 0, Mason, John J, Mitchell, William Prentice, W. M. Robertson, Sarah Louise Ervin, David Gore. Your committee determined prior to beginning its inquiry to investigate three propositions: First— The condition of the Globe Savings Bank during the time that Charles W. Spalding was treasurer of the board of trustees of tne University, and the causes which lead to its failure. Second— The causes that lead to the election of Charles W. Spalding as treasurer of the board of trustees. Third — Whether or not the board of trustees of the University of Illinois had properly discharged their duty to the State. 2 Pursuing this course of investigation your committee find that at the annual meeting of the Globe Savings Bank held November 9, 1892, John P. Altgeld, Edward Hayes, John Hays, George F. Anderson, W. S. Loomis, John W. Lanehart and Charles W. Spalding were elected directors of said bank. That on the same day Charles W. Spalding was elected president, Edward Hays, vice president; John P. Altgeld, second vice president; John W. Lane- hart, secretary, and W. S. Loomis, Assistant Cashier. That the office of cashier was left vacant. Your committee further find that in December, 1892, said bank was exam- ined by W. M. Robertson, one of the bank examiners under Charles W. Pavey, then auditor of public accounts and ex-officio having charge of the State banks of Illinois. According to that examination assets were found in said bank as follows: Two hundred shares of Unity Company stock, valued at $20,000. That stock was originally made to John P. Altgeld and was assigned in One hundred shares of Globe Loan Homestead Association stock; 36 shares of Globe Loan Homestead Association stock. This stock being held as collateral for two notes made by Charles H. Churchill and not listed among the stocks and bonds of the bank. Ten shares of the Nation Bank of Corn- ing, Iowa; 38 shares of Idaho Canal stock, $1,000 each; 10 shares of Idaho Canal Company bonds; 10 bonds of the town of Buckley, Washington; 19 town of Buckley water bonds; 6 water bonds, Wymore, Neb. ; 10 city of Monet te bonds, of the state of Missonri; 5 Freemont Gas and Electric Light Company bonds; total, $78,000 It was also found that C. W. Spalding, the two Mr. Hays and Mr. Camp were interested in loans from the bank to the amount of $248,650. That the Red Oak Investment Company also owed the bank $209,000. The Red Oak Investment Company composed of the two Mr. Flays and Charles W. Spalding. Also the Standard Trotting Horse Company’s note of $18,000, and A. B. Camp, another director, a note of $5,000, Charles . E. Churchill’s note of $2,400, a note of George Wetherby of $3,000, a note of A. W. Harlan of $6,700, and a note of S. L. Ervin of $4,000. S. L. Ervin is the same person as Sarah Louise Ervin. The bank books at that time showed that J. P. Altgeld, John W. Lanehart, C. J. Pord and E. A. Kimball were interested in loans upon which money had been got from the bank to the additional of $116,275. Adding the $20,000 of Uuity stock which belonged to John P. Altgeld, these persons were interested from the bank to the amount of $136,275. It was also found by further examination of the bank that no meetings had been held except this one and it being the annual meeting for the election of officers. That examination showed that persons connected with the bank one way and another held paper against themselves to the amount of $380,000. The capital stock of this bank was only $200,000. Your committee further find that the stocks and bonds that were eventually thrown out and which resulted in the closing of the bank were very largely the same stocks and bonds that were found in the bank at the examination in 1892. Your committee find that this examination of the bank and the report made by the Auditor about the last of December, 1892, a very short time before the change of administration, clearly show this bank to be in a very precarious if not insolvent condition. Your committee find from the evidence and reports of other bank examiners add from the correspondence of the Auditor’s office that they regarded this bank in a precarious condition ; and notwithstanding the fact that these ex- aminations showed this bank in such condition no other examination was made until February, 1894. I n 3 332.1 Co r That examination in 1894 is as follows : Hayden’s Report, page 768: $479,645 01 19 62, 115 50 31, 185 00 49,221 65 7,402 04 553 00 Total $630, 122 39 LIABILITIES. Capital stock $200,000 00 1,503 17 427,907 89 173 04 537 34 Undivided profits Deposits . Certified checks Cashier’s checks Total $630, 122 39 Idaho Company bonds $38,000 00 20,000 00 1, 150 00 965 50 Unity stock Globe Loan and Homestead Association bonds Newark and Granville bonds, premium Total $62, 115 51 From this report it is plain that the securities held by the bank were not satisfactory and that large notes were held by the bank against the directors of the bank and other persons directly or indirectly interested therein. The record of evidence taken by your committee shows that the Superin- tendent of the Banking Department in the Auditor’s office insisted that other securities should be put up and satisfactory arrangements made. But the evidence further shows that Mr. Spalding or somebody representing him came to the Auditor’s office, or by correspondence succeeded in continuing business without any change. And the evidence shows that every examination of this bank during the en- tire four years of the Altgeld administration it was found in a worse condition each time. The evidence further shows that while the bank officers promised from time to time to change the securities of the bank and comply with the de- mands made on them, they never did so, and were permitted for some cause unknown to your committee to continue in business. / Each of these examinations shows that the securities held by this bank were bonds and stocks largely issued by western towns and cities and were unsat- isfactory and unsafe ; many of them appearing in the bank for their face value when the evidence taken by your committee shows that all parties interested knew they were not worth, many of them, to exceed fifty cents on the dollar. All these examinations show that John P. Altgeld had large loans from the bank and did at the time of its failure, and that other directors had loans in large amounts and continued to have until the bank failed. The record further shows that the last examination made by Mr. Hayden, in January, 1897, was not sent in to the Auditor’s office until after this bank had been examined by an examiner from the present Auditor’s office. No satisfactory reason was given to your committee by Examiner Hayden as to why he did not send his report in much sooner than he did. That report clearly shows the bank to have been insolvent on January 12th, 1897, and should have been and no doubt would have been closed by the present Audi- tor had he received the report at that time. The letter dated Springfield, Illinois, January 24th, 1893, reads as follows: 4 Springfield, January 24, 1893. Edward Hays , Cashier of Globe Savings Bank , Chicago , Illinois: Dear Sir: — The report of the examination made of your bank under the direction of this department, on December 9, 1892, has been examined by me. I find from said report that the Red Oak Investment Company, a corporation under the laws of Iowa, is liable to the bank in a very large amount; the re port shows its liabilities to be as follows: 1 note, demand, secured by 1st mort. bond $30,000 00 9.000 00 8. 000 00 5,000 00 ‘ ‘ real estate notes “ “ “ “ * ‘ Total $52,000 00 51,241 96 76, 730 00 Discounts guaranteed and classed as two — named, 87 notes Discounts classed as real estate loans Loans secured by shares of stock of said company as collateral: Elmer A. Kendall, 100 shares, assigned in bank $10,000 00 500 00 2,500 00 5,000 00 15,000 00 $33,000 00 A. J. McKean, 5 shares, in his own name John Hayes, 30 shares, in his own name Carl J. Ford, 100 shares, in name of E. Hayes Carl J. Ford, 15 shares, in name of C. W. Spalding Total $212,971 96 Inasmuch as this corporation is being carried by your bank in this large amount, exceeding the capital stock of your bank by nearly $15,000, and the greater portion of said liability appearing to be for money borrowed, I have to request that you furnish this department at once with information as to the character of said Red Oak Investment Company, including a copy of its charter and the names of its officers and directors, and also evidence showing the character and location of its investments and of its business, and that you also send me a copy of the form of note given by said company for the loans made to it. The examiner’s report also shows, among your bonds and stocks, the fol- lowing: 19 bonds town of Buckley, Washington, 6s, at 19 “ “ “ “ 6s, “ 6 water works bond, Wymore, Neb., 5s, “ 10 bonds city of Monett, Barry county. Mo., 7s, at 1 “ “ “ “ “ 7s, “ 38 ‘ ‘ Idaho Canal Co., Bingham Co., Idaho, 7s, at 6 ‘ ‘ Fremont Gas & Electric Light Company, 6s, at $500 500 1,000 1,000 1,000 1,000 $9,500 9,500 6, 000 10,000 800 38, 000 6,000 These bonds being of municipalities remotely located it is important that knowledge of their market value be furnished to this office, and you are re- quested to furnish such information. I further find from the report that in July last an item of $10,000 designated “lease of basement” was credited to your profit account. The report does not show in what manner said item, is represented on your books among the assets. Please explain how the item is carried in the assets. 1 also note that in addition to the excessive liability of the Red Oak Investment Company, your bank has made excessive loans to John P. Altgeld, Chas. J. Ford and J. W. Lanehart. 5 I have to request that all liabilities to the bank for borrowed money, the amounts of which exceed ten per cent, of your capital stock, be reduced to the lawful limit as soon as the same can be judiciously done, and that all your loans in the future be made in conformity with the provisions of the law limiting 1 the liabilities for borrowed money to ten per cent, of the capital stock. Respectfully, (Signed) David Gore, Auditor P. A In the judgment of your committee this letter shows that the Globe Sav- ings Bank was in a very unsatisfactory condition and that some action should have been taken at that time. Your committee also submit a copy of letter dated February 18, 1895, which shows the condition of the bank to be worse than before, and yet your committee find from the evidence that no steps were taken to make this bank comply with the law or requests from the Auditor’s office. “Springfield, February 18th, 1895. Mr. C. W. Spalding , President Globe Savings Bank, Chicago, Illinois: Dear Sir: — The consideration of your letter of 1st inst. touching the se- curities for real estate loans acquired by your bank through the Red Oak Investment Company, of Red Oak, Iowa, and other matters pertaining to the recent examination of your bank by this department, has been deferred on account of pressure of other business until this time. From the statement in your letter the liability of the Red Oak Company to your bank was, on the day of its date: TTpon direct loan $9,000 00 68,175 00 Upon discounts Total $77, 175 00 To this amount, however, should be added the sum of $33j000.00, which comprises amounts loaned to individuals upon the stock of said company as collateral security. This stock being turned over to the bank when the loans were made as security therefor, of course became liable to the bank for the amount of the loans, and will remain so while in the bank’s possession, the same as individuals would be liable to the bank who might have signed notes with said borrowers. This amount added makes them, as showed by your letter, the total direct and indirect liability of the Red Oak Company to the bank the sum of $110,175.00. It appears from the examiner’s report and the printed advertising matter sent by you, that the Red Oak Investment Company is under the control and management of the same persons as the Globe Savings Bank, and the officers of the company are also the officers of the bank, and are stockholders in both corporations, hence the permitting by the bank of the accruing to it of this large liability of the company amounts virtually to the bank’s loaning that amount of its funds to its own officers and stockholders. This practice is not deemed to be consistant with a prudent and safe management of the business of our State Banks, and does not meet with the approval of this department. The further objection to this feature of your business is made by this de- w partment, that the securities made by and guaranteed by the said Red Oak A'-j Investment Company and its officers, are too remotely located to enable the examiner of the department to make the usual and necessary thorough in- spection thereof, in his regular official examinations. For this and other reasons I regard the liability of said company to your bank to have reached the full limit which safety and prudence should allow. This department will not establish the rule that a bank may not invest its funds in securities located in other states, but where so large an amount of its funds are placed in one company so located, I deem it my duty with a view to the absolute safety of the bank, and to the protection of the interests of its depositors, to require that the funds so invested be limited to an amount which, in case of emergency or accident to the company holding the funds would not bring disaster to the bank. At an early date this department will by its examiner, visit your bank for the purpose of obtaining information regarding the Red Oak Investment Company securities and other minor matters touched upon in the last report of examination. Respectfully, [Signed] David Gore, P. A.” (Record pages 909 and 910.) Your committee also submit a letter dated February 13, 1895, from the Auditor to Charles W. Spalding, president of the Globe Savings Bank which further shows that this bank was in a very precarious and unsatisfactory condition : “Springfield, February 13, 1895. Mr. C. W. Spalding , Preset Globe Savings Bank , Chicago , Illinois. Dear Sir: — The recent examination made of your bank shows your affairs to be in a condition far from satisfactory. Of your real estate loans, which amount to $158,958.65, about $73,000.00 is loaned upon property located in Idaho, Utah, Kansas, Iowa and Nebraska. Your attention has before been called to the fact that the security so remotely located as to place it beyond the seurtiny of this department is highly objec- tionable, and you have been advised to take same up. You will please immediate measures to dispose of such loans and discon- tinue investing your funds upon similar security. Some of your loans are secured by second mortgage on property outside the State, which was ob- jected to after your annual examination a year ago. You have over $82,000.00 of past due paper, $60,000.00 of which is secured as collateral. These claims should all be collected and the collateral sold whenever necessary to protect the loan. Your stocks and bonds amounting to $67,071.20 are objectionable, being of such a character that it is hard to determine their true value as assets. The examiner stated that it is your intention to convert these into first-class obli- gations upon which the face value in cash could be readily realized. Some such action is necessary to satisfy this department. Your assets are not in the condition that the interests of your depositors require and I must ask you to take immediate and active measures iooking to placing your affairs on a better footing. Your foreign loans shorld as far as possible be disposed of and all investments based upon remote security either disposed or so adjusted as to overcome this objection. Past due paper should be collected. Your Salt Lake real estate carried at $13,421.28 should be con- verted into cash if possible. Stocks and bonds should be adjusted as indi- cated, and your entire assets placed in such shape that they may be readily realized upon. I shall deem it my duty within a short time to make a special and searching examination of your affairs to ascertain to what extent their condition has been remedied. This may involve examining into all remote securities then found to be on hand, which, unless materially reduced, would necessarily be somewhat expensive for the bank. I trust that you appreciate the importance of at once addressing yourself exclusively and with the utmost energy to the task of placing your assets in a satisfactory condition. I have also the request that for the present you make no new loans. Respectfully, [Signed] David Gore, Auditor P. A., P.” Record pages 915 and 916.) 7 The correspondence above from the Auditor’s office is only a fair sample of the correspondence continually carried on between the Auditor’s office and this bank. Other evidence taken by your committee shows that considerable of this correspondence, if not all of it, was dictated by Mr. H. B. Prentice, who had charge of the banking department in the Auditor’s office during most of that time. The evidence further shows that after Mr. Prentice had kept this up for some time that he was asked to resign, being told by the Auditor that his remaining in office was embarrassing to the Auditor and that the Governor did not like him any way. He was succeeded in the Auditor’s office by Mr. Edward Gore son of the Auditor, wdiokept.up similar correspondence in some degree, and Avho himself testifies that this bank gave the office more trouble than all the other banks in the State put together, and that their mode of doing business was very unsatisfactory, and that they persisted in doing a class of business that was not business like. But he also testified that not- withstanding that condition of affairs nothing was ever done but talk; no action was ever taken to compel them to comply with the law and put their bank on a firm basis. Mr. H. B. Prentice testifies that the examination made in December, 1892, was not satisfactory to the Auditor’s office but that nothing was done. He also testifies that in the examination in February, 1894, they found substan- tially the same condition existing as shown by the previous report and prob- ably a less satisfactory condition. He further testifies that when the examination was made in January, 1895, they found on hand substantially the same class and character of paper that the bank had been carrying and ‘‘that examination seemed to be less sat- isfactory than those which had preceded.” Mr. Prentice further testifies that they severely criticised their stocks and bonds and insisted that they take immediate steps to dispose of a large num- ber of their loans and that they also requested the bank to make no more loans. He says: “Shortly after that, Mr. Spalding came down and had an interview with the office, not with me, but nothing was ever done.” On pages 958, 959, 960, 961, 962 and 963, Mr. Prentice says: “A. We found that matters had not mended with the Globe Savings Bank, and as I viewed it, they were growing more desperate. The same character of loans were being carried. They still had their funds invested in stocks and bonds that they did not seem to be able to place a satisfactory value upon as compared with what they were carrying them for on the books. We found a great portion of their real estate loans were secured by property in other states — Iowa, Nebraska, Idaho, Kansas and Utah, and I became rather insistant with the Auditor that we should acquaint ourselves with the char- acter of those securities. In order to do so, it would have been necessary for some one to have made an appraisment of these properties and that mat- ter was under consideration and we had secured a list of such doubtful secu- rities of a real estate nature that we expected to look into, and at that time I resigned — about the 1st of October, I do not know what the Auditor intended to do about that matter. And that report was left on my desk, as an unfin- ished piece of business to which I called the attention of my successor, stating to him, that I did not know what the Auditor wanted to do about it. Q. As the head of that department you had been insisting that some more heroic measures be taken in reference to that bank had you? A. I had. Q. They never were taken so far as you know? A. No sir. I was not pleased with the delay that seemed to be manifested in handling that bank. Q. I will get you to state if it is not true that during the time that you were at the head of that department every examination was not done satisfactory to you? A. It was. Q. And they would then make promises to do better? And the next ex- amination would develop a worse condition of affairs? A. Well, that is substantially true, and still they would mend their affairs to some extent. They would take up some of their paper, but when we would come around to the examination again we would find as much of the same character of assets as there were before, and perhaps more. And their gen- eral manner of doing business and of investing their funds in what seemed to me to be questionable assets caused me a great deal of anxiety. Q. I understood you to say a moment ago that you grew impatient at the manner of treatment of that bank by the Auditor’s office? A. Well, I did not use the word impatient, but I said I was not satisfied with the dilitoriness which seemed to characterize the dealings with that bank. Q. Now, what, in your judgment, was behind that, and what was the rea- son that the Auditor’s office was so dilitory with that bank? A. Well, I could not say that definitely. Mr. Spalding, when he was in Springfield, I think in June, 1895 — at that time I do not believe the Auditor was in the city — but Mr. Spalding talked with me and he pleaded to have that restriction released with regard to the loaning out of his funds. He said that restriction of the department was causing him a loss of just that much inter- est and he thought it was perfectly safe now to go ahead and loan out their funds. I insisted in the interest of their creditors that we thought they ought to conserve their assets and do all they could toward gathering in instead of distributing out, and not only to make no more such loans, but to call in such loans as they could in order that they might be fortified with a good strong re- serve to meet any emergency that might arise. And Mr. Spalding indicated to me that his friendliness with the Governor, intimating that that might have some influence in lenient treatment wdth his bank, and I very emphatically told him that the Governor had no part and no share in looking after the bank- ing department of the State. Whether Mr. Spalding had any relations with the Governor that would enable him to have favors with the department I am not prepared to say. I don’t say that he had. I don’t say that he had not. If he got them he did not get them from me. Q. If this rule was afterwards released it was released by somebody else beside you? A. Yes; you will find that substantiated by the correspondence. There was no correspondence during my incumbency of the office which shows that he was released from that restriction. Dunlap — Did you have any talk with the Auditor in regard to the adoption of the severest measures with the bank if they failed to comply with request? A. I kept urging the Auditor to some action with regard to the matter. Q. What did he say? A. As I remember it, he told me that he would see the Governor. Whether he ever saw him or not I don’t know, nor why he wanted to see him do I know. Q. You understood, however, that the matter was to be referred to the Governor? A. No; I understood that the Auditor was to confer with the Governor — not that the matter was to be referred to the Governor. Q. You understood that the Auditor wanted to talk with the Governor about the matter? A. Yes. Governor’s relations Q. Was that done in the ordinary course of business with other banks? A. No, sir. Q. Or was it just especially witn regard to this bank? A. It was not done with other banks. Berry — You started out to say something about the Governor; what was that? 9 A. I was going to say that we understood among us that the Governor had Ibeen an officer of this bank and knew of it officially. I think he was an offi- cer at the time we took charge; and in that first letter you showed me, which 1 dictated, we had to call the attention of the bank to the fact that Governor Altgeld and two or three others were borrowers in excess of the limit fixed by law, and asking that, the loan be reduced. So we knew all along that the Governor had been closely affiliated with the bank and felt that he was a friend of it. This was more strongly confirmed in the summer of 1895, when the Governor rather urged that two years appropriations to this University be advanced to Mr. Spalding, who was president of this bank and also treasurer of the University of Illinois. So that it came to be a feeling that the Gov- ernor was rather friendly toward the bank. Dunlap — Who did the Governor make that appeal to? A. Which appeal? Q. For funds. A. Well, I know that only in an indirect way. It was a matter of current rumor and general understanding that the Governor rather recommended that this be done. Your committee further find from the evidence that the Globe Savings Bank was incorporated in 1890 with a capital stock of $200,000. It was what was known as a State bank under the laws of this State. About half of the stock was loaned in the east. It was also known by the name of the Savings Bank and advertised and took in small savings from all classes of people from all parts of the city. A principal stockholder in the bank and its president was Charles W. Spalding. And the evidence clearly shows that it is what might be termed a one-man bank. That while they had, we presume in order to comply with the law more than anything else, a board of directors; yet the evidence shows that the board of directors, as such, had no individuality, and that they met but very seldom, and when they did meet only did routine busi- ness; that the officers of the bank were made and unmade by Mr. Spalding himself, and that his will and dictation ran and governed the bank. The evi- dence further shows that Mr. Spalding was a large dealer and speculator in western securities; that he did a great deal of business such a bank should not do, and that he was reckless in the kind of securities he dealt in, and a large amount of securities of various kinds were taken by the bank through him and carried in the bank at their full par value, many of which were of small value and some your committee regard as worthless. The evidence shows that the officers of the bank were changed frequently and, in the opinion of your committee, were changed to suit the convenience and to carry out the schemes of Mr. Spalding. The evidence shows, and we have already referred to it, that this bank was not, at any time within the last four years, in a satisfactory condition. And while the examinations all show this fact, some how or other, and through some influence that does not fully appear to your committee, he was enabled to continue in business and to hold in his bank during this entire period securities that, in the judgment of your committee, ought to have been stricken off long before the bank failed. Your committee does not believe that the banking department should per- mit itself to be influenced as it appears to your committee it was in this case in some manner, and thus permit the banks to continue in business to the great detriment frequently, and particularly in this case, to a large number of people and institutions. In the judgment of your committee, had this bank been dealt with as it should have been dealt with upon any one of the reports, beginning with the one in December, 1892, this failure never would have occurred and the bank, probably, would have remained solvent; but being permitted to put up as as- sets securities worth much less than par and of an unsafe and unsatisfactory character, we believe the bank was encouraged in this kind of business, and that it was largely instrumental in bringing about its failure. If the Globe Sayings Bank had been compelled to have had as its assets first-class securities, that could have been sold on the market at their par value, or substantially so, it would have been able to have tided over. But 10 one of the immediate causes of its failure was the fact it had been running along carrying as assets unsalable securities without any actual value upon the market; and when the time came to realize upon them, in order to get the cash to meet the demands of their depositors made upon the bank for cash, they were unable to sell those securities and thus unable to procure the money necessary to meet their demands, and thivs failed. Your committee believe it to be the duty of the banking department of this State to demand of every bank that it shall carry as its assets only such paper as may be readily turned into cash at any time in order to meet the de- mands of the depositors in their bank. If this were done many less failures, in the judgment of your committee, would occur. There is a great temptationtobuy second-class securities, because frequently they draw a larger rate of interest and can be bought at less than par. This ought not to be encouraged by the banks who are liable to be called upon, at any time, to cash their depositors checks. And your committee recommend that, in the future, the banking depart- ment of this State adhere strictly to the rule herein announced. A full and complete report of the condition of said bank in March, 1897, will be found as an exhibit to the testimony of C. C. Jones, bank examiner, be- ginning on page 833 of the evidence herewith submitted and ending on page 852. This report of Mr. Jones is very able and complete, and verifies all of the statements made by your committee as to the condition of this bank. ELECTION OF CHARLES W. SPALDING AS TREASURER. Second — Your committee further find from the evidence that John W. Bunn had been treasurer of the board of trustees of the University of Illinois for about twenty-six years; that his term of office expired in March, 1893. Your committee find that the annual meeting of the board of trustees of the University of Illinois is held in March of each year; that at such annual meet- ing it is the business of auch board to elect its officers for the ensuing year. Your committee find at said meeting, in March, 1893, N. W. Graham was elected president of the board of trustees; that at said meeting all of the other officers of the board — except the treasurer — were duly elected. No very satisfactory reason has been given to your committee why a treasurer was not elected at that time. Your committee is of the opinion, from the evidence submitted, that one was not elected because Governor Altgeld had not. ex- pressed any preference or directed who should be elected. The election of Charles W. Spalding, as treasurer of the University of Illinois, took place at the June meeting of the board, 1893. The evidence of Mr. Graham shows that at the March meeting he had not consulted about the treasurer with the Governor. It further shows that be- tween March meeting and June meeting he had consulted with the Governor, and that Governor Altgeld had expressed a favorable opinion of Mr. Spalding. The evidence further shows that Governor Altgeld told the board of trustees that they should require their treasurer to pay them at least two and a half per cent, interest on deposits, and that he was certain they could find some one in Chicago who would pay it. Mr. Spalding did agree to pay two and a half per cent, on the monthly balances. Mr. Graham, a member of the board of trustees, in reference to the election of Mr. Spalding, on page 160 of the evidence, says: “I have no doubt what Altgeld said to me influenced me to vote for him (Spalding).” Mr. N. B. Morrison, a member of the board of trustees, testifies, beginning on page 226 of the record, as follows: “The reason that I was not prepared to act at that time was that the feeling in the board, so far as I know, was that the State ought to receive interest on its balances, and I was told, as one of the board, that we could readily command two and a half per cent, on our balances. Q. Whom were you told that by? A. I think I was told that by Governor Altgeld; that is my recollection. 11 Q. Did he suggest who would be willing to pay that interest? A. He said we could find a number of men in Chicago that would pay us that interest and give us good security.” Mr. Graham further says, on page 234 of the record, that Altgeld said to him: “Spalding was a good man, and he thought he was a safe man.” The testimony of Mr. McKay, who was a member of the board, page 288 of the record, is as follows, in reference to the election of Mr. Spalding as treasurer : Q. Was there anything said to the board about the Governor’s views? A. Yes, I think that Mr. Morrison and Mr. Graham also. Q. Tell the committee, as nearly as you can, what they said about it? A. That they had talked with the Governor in regard to the matter and the Governor had recommended him as a suitable person for the position, as I remember it. Q. Upon whose recommendation was he elected? A. I think it was upon Governor Altgeld’s recommendation. Q. As presented to the board through those two gentlemen whom you have named? A. Yes, sir. Q. Did they say they had talked with him personally about the matter? A. Yes, sir.” Mr. Armstrong, a member of the board of trustees, page 260 of the evi- dence, in testifying about a conversation with Governor Altgeld in reference to the selection of treasurer, says: Q. “Did he ever mention a name to you later? A. Yes, sir. Q. Whose name did he mention? A. I don’t recollect any except the name of C. W. Spalding. I am not certain though but he did mention at that time some other name, but ex- pressed a preference for Mr. Spalding, on the ground he was a man of good character, a Dartmouth graduate, a trustee of Dartmouth College, and president of a bank here in Chicago, and he believed Mr. Spalding would give the university the time that was needed. Q. Now, was that communicated to you in a conversation with the Gov- ernor, or by letter? A. In a conversation. Q. About when was that? A. It was some time, I think, during the last of March, or the first of April, 1893. Q. Who was with you when you had that conversation? A. Morrison. Q. Did you communicate that to any other members of the board? A. Yes, sir; 1 believe I did, orally. Q. At different times between that and the June meeting? A. Yes, sir. Q. Did Governor Altgeld say to you, in a conversation, that Mr. Spalding would act in that capacity? A. I think he said Mr. Spalding would pay that amount of interest. Q. He said he would pay 2 1 2 per cent.? A. Yes, sir.” On page 202 the same witness says: 12 Q. “Is it your understanding that Mr. Spalding was substantially elected treasurer upon the recommendation of Governor Altgeld? A. I think so.” From this, and much other evidence that might be quoted by your commit- tee, your committee find that Mr. Spalding was elected treasurer of the board of trustees at the suggestion and upon the recommendation of Governor Altgeld. Your committee further find that none of the trustees of the University of Illinois had any personal acquaintance with Mr. Spalding, and relied entirely upon the recommendations and suggestions given them by the Governor. Your committee further find that when he was elected treasurer of the board of trustees and his bond fixed, and when the same was presented to the board, it was objected to by several members of the board. And the evidence further shows, after considerable discussion, the matter of the approval of the bond was postponed, and the finance committee instructed to investigate, approve, etc., if found sufficient. Upon this question of his bond and its approval, we submit the following statement from the testimony of Mrs. Lucy Flower, a member of the board of trustees: Q. “Will you tell the committee if there was any objection at that time t6 the approval of the bond by anybody? A. There was. Q. Can you tell us who objected? A. I objected, and, I think, Mr. Morgan objected. Q. Tell the committee your reason for objecting to the approval of that bond at that time. A. At the time of Mr. Spalding’s election I never had heard of him. His name was suggested. There was no opposing candidate. He had been a candidate two years before, and was elected, and I voted for him, as a matter of course; and I knew this bond was to come up afterwards, and did what was perfectly natural under the circumstances. 1 came back to Chicago and I made inquiries, as I had never heard of Mr. Spalding before. I inquired in regard to him and his financial standing and connection, and was satisfied that he would require, if elected, or ought to have, a very strong bond. When the bond was read to me there were several names, and not one of whom had I ever heard of before except Mr. Lanehart. 1 had in my own mind a very strong impression that out of so many men, who were qualifying as securities, there ought to be some one name that I would recognize as a man of financial strength. I thought my acquaintance in Chicago was suffi- ciently large that among that number of Chicago men there ought to be one whom I recognized as having financial strength. I also didn’t like the idea of so many men qualifying for so comparatively small amount. I also had some discussion at some times previous. I had had some experience in regard to collecting from out-of-town residents and the difficulty attending it. Q. Tell the committee if you made these objections known to the board at that time. A. Yes, sir. Q. State whether you spoke about it in open board. A. Yes, sir. Q. Do you remember whether Mr. Morgan did at the time? A. My impression is he did.” The testimony of Mrs. Flower is corroborated by other evidence in the record, unnecessary to quote at this time. Your committee further find that afterwards, and on July 5th or 6th, or about that time, this bond was submitted by the members of the board of trustees to Governor Altgeld, and we quote from the evidence of Alexander McLean, a member of the board of trustees, which is found on page 127 of the record- 13 Q. “Go right on and tell what occurred about the approving of this bond. A. Now, remember 1 am on the matter of approving of the bond, and not the election. The Governor, as that letter intimates, is to be in Chicago on Tuesday or Wednesday. I think August 2nd was Tuesday. We met at 11 o’clock in the Unity Building room, and present were: Governor Altgeld, McLean, McKay, Graham and Armstrong. The Governor was interrogated by Mr. McKay and Graham touching the financial ability of the several securities signed to the bond, and each name being read separately and the amount named for which the same had qualified. Whereupon the Governor gave his opinion as to the ability of each signer, and having gone through with each name and finding the aggregate of their financial ability, stated that he considered the signers unequivocally — that the bond was good and sufficient, and that he would advise the same should be accepted at once; and if it was a business transaction he considered that that bond was good and would accept it, and, if it was the duty of the Governor to accept it, he would unhesitatingly accept it, and, as an ex-officio officer of the board, he would accept it; and, as ex-officio officer of the board, he would accept it now.” We further find in the testimony of Mr. McLean, on page 125, a letter written by Mr. Spalding to Mr. Nelson W. Graham, president of the board,, and dated July 29th, 1893, which letter reads as follows: “As I stated to your committee, the election came to me unsought, and at the suggestion, as I understand, of Governor Altgeld. The bond I offered to you is more than ample, and I must, insist, in justice to myself and those who kindly consented to the use of their names as bondsmen, that it be accepted or rejected without further delay. If you have any doubt as to its sufficiency, I request that you submit it at once to Governor Altgeld, who will be in Springfield on Monday and Tuesday next, and I am willing to stand by his decision.” Your committee further find that the board of trustees were not acquainted personally with either Mr. Spalding or the sureties on his bond, and that they relied upon the representations made to them by the Governor, and at his suggestion and request, your committee believe, approved the bond. Your committee are of the opinion, from the evidence, and so find that the election of Mr. Spalding and the approval of his bond were brought about upon the recommendation of Governor Altgeld. Your committee are of the opinion from the evidence taken by them in this investigation, that the Globe Savings Bank was in a financial strait about the time of the election of Governor Altgeld as president, and his being vice- president of the bank, as well as director, must have known that fact. Your committee believe, from the evidence, that his selection by the Gov- ernor as treasurer was brought about for the purpose of bringing large de- posits of State funds to that bank, and your committee are of the opinion that had it not been for the State funds so received by Charles W. Spalding as treasurer of the University of Illinois, lie would have been unable to have con- tinued the Globe Savings Bank in business during the four years preceding its failure. Your committee are led to this conclusion from all the evidence, and par- ticularly from the fact that it appears from the evidence that Spalding was constantly after the Auditor for his warrants and the present treasurer for funds, many times before they were due him as treasurer of the University of Illinois. And from the further fact that Governor Altgeld in a letter, in his own writing, admitted by him to be correct, stated to Mr. Spalding that he has induced the Auditor to make an exception of him as treasurer of the Uni- versity and pay over to him the funds not yet due from the office of the State Treasurer. The evidence clearly indicates not only that Spalding -was seek- ing by every means possible to get the money appropriated to the University at the earliest day possible after its appropriation, but to get as large an amount of it as possible. In this the evidence shows that he was materially . assisted at times by the Governor. And from the fact that the Governor, according to the examination and the assets of the bank, was a heavy borrower 14 during- all of those years, leads your committee to believe that he must have known much more about the financial condition of the bank than his testimony would indicate. Your committee further find that Mr. N. W. Graham, while president of the board of trustees of the University of Illinois, made a large loan from the Globe Savings Bank and put up as collateral security therefor certain electric light stock of the city in which he lives, that, in the opinion of your commit- tee, from the evidence, was not and is not worth near the amount of the loan. It would seem to your committee a fair conclusion from this evidence, it being admitted that Governor Altgeld was a large borrower from this bank all of the time he was Governor, that he might have had this fact in view, when he suggested and had appointed, as we believe, Charles W. Spalding treasurer of the board of trustees of the University of Illinois. Your committee, at least, deem it unwise that the Governor of the State should dictate to the. board of trustees the appointment of a man as treasurer to whom he was under large financial obligations and continued to be during his entire administration. Nor do we believe that the Governor is justified in asking the Auditor or Treasurer of the State to make an exception in favor of uny treasurer of public institutions or any board by paying out to them larger sums of money than they are entitled to under the law and at an earlier period than they are entitled to receive it, for the purpose of making a cash balance to tide the bank over, that either one of them or both of them may be inter- ested in. We further find from the evidence of Auditor Gore and others that it was a direction of the Governor, when treasurers of institutions came to him for warrants that the auditor should send the treasurers to the Governor first for instructions in reference to the matter. Your committee can not see any reason why a treasurer should go to the Governor in reference to a matter of this kind; nor do they believe it is in the province of the Governor to dictate to the treasurer of any board how he shall draw the money, when he shall draw it, nor what he shall do with it after he has drawn it. The law fixes all of those matters and should be complied with strictly by boards of trustees and treasurers without the interference or direc- tion of the Governor or any one else. Third — Your committee, after a very careful examination of all of the evi- dence taken, and, with due consideration, submit, as to the trustees of the University of Illinois and their action in the matters herein above discussed, the following: The record shows that for a great many years prior to the election of Mr. Spalding as treasurer of the board, John W. Bunn, of the City of Springfield, had been treasurer of the board of trustees of the University of Illinois. The evidence before your committee shows him to have been a first class business man, a careful and conscientious officer; and, it is evident to your committee, that the board of trustees, having become familiar with his mode of doing business, and having entire confidence in his honesty, very largely relied upon him to manage and control the funds belonging to the University. And it is with great credit, be it said, that after a period of twenty-six (26) years and a careful examination of his accounts, at the close of that time, he was able to account and show a voucher for every dollar received and paid out by him. His integrity in the discharge of the duties of this office led the board to believe that every other man, so chosen, would be equally careful and honest. And, no doubt, was, to some extent, instrumental in the manner in which Spalding was chosen and his bond approved. Your committee believe that all of the bonds and other securities of any nature or kind, belonging either to the State or to any institution of the State, should be plainly and carefully marked in such a manner that any per- son, to whom they might be offered, could readily see that they were the property of the State of Illinois, or one of its institutions. Had this been done the bonds belonging to the university would have been kept in tact. Your committee further believe and recommend that the treasurers of the several boards of trustees of the institutions in this State, should be chosen, 15 if possible, in the town or city where the institution is located, thus making it much easier for the public authorities to know and determine the financial standing of the treasurer and his bondsmen, as well as the condition and the financial responsibility of any bank in which the funds belonging to the State or the institution may be kept. Your committee further believe and recommend that the treasurers should not be permitted to draw from the appropriations made for the several insti- tutions more than one-fourth ( 1 4) of the annual appropriation at one time, thus leaving the residue of the money in the State treasury, where, we be- lieve, it is safe, or safer, than any where else. Your committee find that the university had bonds and other securities be- longing to the endowment fund of the University of Illinois, in round num- bers, about $500,000. That in the neighborhood of $350,000 of those bonds were, by Mr. Spalding, hypothecated, and, in all probability, are entirely lost to the State and to the University. That the university will also lose in the neighborhood of $100,000 of the funds for current expenses of the University. Your committee further find that under the law, giving certain lands to the State of Illinois for the university purposes, was required to keep proceeds of said lands for the endowment fund in tact, and that if it were lost in any way, the State should make it good to the university. But your committee deem it unwise for the State legislature to appropriate directly to the university the amount of the endowment fund that will be lost by the failure of the treasurer of the university. They believe it to be the best interests of the State to take charge of the endowment fund of the uni- versity that will be realized, and also to take charge of any further sums that may be paid in, from sales of lands belonging to the university from time to time, and to charge itself with such amount, and tax to the university five (5) per cent, on said sums to be used by the university in paying its running expenses. In view of these facts your committee introduces in the present legislature a bill carrying out this idea, giving to the State all endowment funds now be- longing to or hereafter to be received by the university, and pledging the State to pay a rate of interest fixed by the Congress of the United States in giving the grant at five per cent, to be given to the university, and also ap- propriating the deficiency for general expenses of the university lost by said failure and authorizing certain officers named in the bill to collect and receive from any and all persons any money belonging to the university and to turn the same into theState treasury. This bill, your committee believe, will become a law, and will prove bene- ficial in the future and prevent any further failures in reference to the funds belonging to the university. In conclusion, your committee recommend not only to the trustees of the University of Illinois, but to the trustees- of every institution belonging to the State, a most careful and conscientious investigation of all bonds offered by treasurers, and a thorough knowledge of all persons chosen as treasurers of any of these institutions. Your committee recommend a most careful, business like way of doing bus- iness of the State. It is the belief of your committee that every person who assumes the duty of trustee of an institution belonging to this State, should give it the same per- sonal care and attention they would their own private business. Your committee are unable to determine how much, if anything, will be re- covered upon the bond of the late treasurer, Charles W. Spalding; but if there is a failure to recover upon the bond, it will result in the opinion of your committee in the fact of accepting a bond without a careful, personal knowledge of the sureties on said bond and accepting the statement of the Governor of this State, who assumed to know but who evidently did not know the financial standing of the sureties on the bond. Your committee believe that this investigation will lead to many reforms in the management of the State institutions. They believe that it has attracted 16 3 0112 105208729 sufficient attention of the officers of this State and the superintendents of in- stitutions, the presidents of educational institutions, trustees and other officers, to a sufficient degree that a more rigid and careful management will result. Your committee further state that criminal proceedings have been taken by the officers of the law of Cook county in reference to the matters contained in this report, and that the trustees have taken legal steps to procure the return of all the funds possible. Your committee having, to the best of their ability, discharged the duties imposed upon them by a resolution adopted by this body, most respectfully submit this, their report. 0. F. Berry, Chairman , H. V. Fisher, H. F. Aspinwall, H. M. Dunlap. I do not concur in the foregoing report for the reason that the conclusions reached by a majority of the committee are not justified by the evidence. Robert L. McKinlay. Your committee, appointed for the purpose of investigating the Girls’ Re- formatory or Home for Juvenile Offenders, under a resolution of this body, beg leave to report as follows : This institution is located at Geneva, Illinois. We find that three years ago William Prentice, Mr. Andrews, Mr. Carroll and Mrs. Hobart were appointed trustees, as was also Mrs. Laurence and Mrs. Henrotin. Mrs. Wallace was elected secretary, and Mr. Carl Maury was elected treas- urer. He was connected with the Illinois National Bank. In July, three years ago, we find that Mrs. J. D. Harvey was elected president of the board, and Mrs. Holt was elected secretary. About two years ago, your committee find that Mr. Charles W. Spalding, president of the Globe Savings Ban}s,was elected treasurer of that board. ( Your committee examined a number of witnesses, who were members of the board at the time of his election, but they were unable to ascertain from any of them how Mr. Spalding came to be elected. The record shows, from the evidence taken, that none of the members who elected him knew him per- sonally, and none of them, from the evidence, are willing to stand sponsors for his appointment; yet, in some mysterious way, it seems he was appointed treasurer, and he continued to be treasurer until the failure of his bannk, in April, 1897. At the time of his bank failure there was in the bank, belonging to the Home, about $8,000.00, which the new treasurer, Mr. James O. Mason, of Aurora, has been unable to get. Your committee find that Mr. Spalding gave his bond of $15,000.00 to the Home, with Dr. A. W. Harlan and J. W. Wassel as sureties. Dr. A. W. Har- lan is also a surety on his bond of the State University. As to the financial standing of the bondsmen on this bond your committee were unable to ascertain. So far as the evidence before your committee is concerned no steps at that time had been taken to secure the money from the treasurer or no action brought on the bond. Whether there will ever be anything collected your committee are unable to say. From the examination of the new treasurer and the board of trustees, out- side of the loss of $8,000.00 in the Globe Savings Bank, the institution seems to have been managed reasonably well. And the evidence before your com- mittee justifies them in saying that the present board of trustees and the treasurer, we have no doubt, will conduct the Home in a business-like manner. Your committee have no recommendations to make as to this institution. O. F. Berry, H. Y. Fisher, H. F. Aspinwall, H. M. Dunlap, Robert L. McKinlay.