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STOCK EXCHANGE PRACTICES
WEDNESDAY, FEBRUARY 21, 1934
UNITED STATES SENATE,
Washington, D.C. The committee met at 10:30 a.m., pursuant to adjournment on yesterday, in room 301 of the Senate Office Building, Senator Duncan U. Fletcher presiding.
Present: Senators Fletcher (chairman), Barkley, Costigan, Adams, Townsend, Couzens, and Kean.
Present also: Ferdinand Pecora, counsel to the committee; Julius Silver and David Saperstein, associate counsel to the committee; and Frank J. Meehan, chief statistician to the committee.
The CHAIRMAN. The committee will please come to order. Mr. Pecora, who will you have first this morning?
Mr. PECORA. Mr. Brown will resume the stand.
TESTIMONY OF RUSSELL R. BROWN, CHAIRMAN OF THE BOARD, AMERICAN COMMERCIAL ALCOHOL CORPORATION, NEW YORK CITY-Resumed
Mr. PECORA. Mr. Brown, during the month of July 1933, was an application filed with the New York Stock Exchange by and on behalf of the American Commercial Alcohol Corporation for a third additional listing of its capital common stock?
Mr. Brown. Yes, sir.
Mr. PECORA. I show you what purports to be a printed copy thereof, which has been furnished to us by the New York Stock Exchange. Will you look at it and tell me if you can identify it as a true and correct copy of the application in question? Mr. Brown (after looking at the printed form). Yes, sir.
Mr. PECORA. Mr. Chairman, I offer it in evidence, but it need not be spread in full on the record of the committee's hearings. The CHAIRMAN. Let it be admitted and appropriately marked.
(An application to the New York Stock Exchange for an additional listing of common stock by the American Commercial Alcohol Corporation, was marked " Committee Exhibit No. 62, Feb. 21, 1934, and will not be spread in full on the record but retained in the files of the committee.)
Mr. PECORA. Mr. Brown, the listing application just referred to has been received in evidence as committee exhibit no. 62 of this date. I want to read into the record the following extracts therefrom, under the caption :
AUTHORITY FOR AND PURPOSE OF ISSUE
The company proposes to issue, upon due authority of the board of directors, up to 25,000 shares of its common stock, on account of the purchase of assets for which it is now negotiating and which may be acquired in the near future, upon official notice of issuance and payment in full, with the statement of the application of the proceeds for the property acquired.
The shares which it is proposed to issue will be registered with the Federal Trade Commission in compliance with the provisions of the Securities Act of 1933.
And under the caption “ Opinion of Counsel ", the following statement is contained in this application:
The legal details in connection with the said issue are subject to the approval of Messrs. Larkin, Rathbone & Perry, No. 70 Broadway, New York City, who are of the opinion that by reason of the authority provided in the certificate of incorporation of said corporation, and upon due authority of the board of directors, said shares of stock may be issued in the absence of fraud, and in the transaction of the purposes specified above, and for such consideration as may be fixed by the board of directors; and when so issued will be lawfully issued, and will be fully paid and nona ssessable, and valid in the hands of holders thereof, and will not be liable to any further call or assessment. · The application itself is dated July 19, 1933, and is for an additional listing of 25,000 shares of the common stock, of $20 par value, of the American Commercial Alcohol Corporation. It sets forth that the total amount of common stock authorized to be issued by the company is 375,000 shares under its charter; that there were previously authorized to be issued, or rather to be listed, 262,761 shares, of which there were outstanding on July 18, 1933, 260 715 shares, and that the total applied for, that is, for listing, is 287,761 shares; and that this application was authorized by the executive committee of the American Commercial Alcohol Corporation on July 19, 1933. The application is signed in behalf of the American Commercial Alcohol Corporation by Cecil Page as secretary thereof. The exhibit, constituting a copy of said application, contains the following:
This committee recommends that the above-mentioned 25,000 shares of common stock, of $20 par value, be added to the list, after final notice of issuance and payment in full with statement of application of proceeds or property acquired, in accordance with the terms of this application, making the total amount authorized to be listed 287,761 shares.
That is signed by Frank Altschul, chairman, and J. M. B. Hoxsey, executive assistant to the committee on stock list. It also shows it was adopted by the governing committee on July 26, 1933, being signed by Ashbel Green, secretary. That which I have last read refers, of course, to the committee on stock list of the New York Stock Exchange, and to the governing committee of the New York Stock Exchange.
Now, Mr. Brown, has any of the stock covered by this application, namely, 25,000 additional shares, ever been issued?
Mr. Brown. No, sir.
Mr. Brown. Well, because there were so many delays on the part of the lawyers in the handling of the transaction, that the company was put in a position in the meantime where it handled it by cash; because of the improvement in the business situation it was enabled to handle it by cash.
Mr. PECORA. Well, the purpose of the issue, according to the statement in the application, was to purchase certain assets.
Mr. BROWN. Yes, sir.
Mr. PECORA. That is, to enable your corporation, the American Commercial Alcohol Corporation, to purchase assets ?
Mr. BROWN. That is correct.
Mr. PECORA. I notice that the assets are not in any way designated or referred to except in the manner in which I have read it in this application. Now, Mr. Brown, what were the assets to be purchased through the medium of this proposed additional issue of 25,000 shares?
Mr. BROWN. We had two transactions in mind at that time. One of them was the acquisition of a distillery at Louisville, Ky.; and the other one was the Spirits Corporation, which was organized and acquired, or was organized to acquire and did acquire the Sid Klein Corporation.
Mr. PECORA. Did you say the Sid Klein Corporation? Mr. BROWN. Yes, sir. Mr. PECORA. Now, was there a Sid Klein Corporation in existence on the date of this application, namely, July 19, 1933 ?
Mr. Brown. I haven't the date here of the organization of the Sid Klein Corporation.
Mr. PECORA. I did not hear you.
Mr. Brown. I say, I haven't here with my data the date of the organization of the Sid Klein Corporation.
Mr. PECORA. Well, was the Spirits Corporation that you have mentioned in existence on the 19th of July 1953?
Mr. Brown. No. That was organized on July 29, 1933, and by charter amendment the name was changed to the American Distilling Co. on August 11, 1933.
Mr. PECORA. Who caused the Spirits Corporation to be organized ? Mr. BROWN. We did.
Mr. PECORA. That is, you mean the American Commercial Alcohol Corporation!
Mr. BROWN. Yes, sir.
Mr. PECORA. And was the Sid Klein Corporation eventually organized, either prior to or subsequent to July 19, 1953?
Mr. Brown. Yes, sir. Mr. PECORA. And who caused that corporation to be organized ? Mr. BROWN. Mr. Sid Klein. Mr. PECORA. Was Mr. Sid Klein in any way connected at the time with the American Commercial Alcohol Corporation ? Mr. BROWN. No, sir. Mr. PECORA. I want to read to you the following extracts from the minute book of the board of directors of the American Commercial Alcohol Corporation, which minute book has been marked for identification as Committee Exhibit No. 14 on February 13, 1934." I will read from the minutes of the board of directors of a meeting held on July 27, 1933.
There were present at the meetings: Messrs. Atkins, Atwood, Chadbourne, Colby, Foster, Grimm, Kessler, Kies, Page, Paine, Publicker, and Runk, being a majority and a quorum of the board! The chairman, Mr. Brown, presided, and Mr. Page acted as secretary of the meeting.
Now I quote from the minutes :
The chairman explained in brief to the Board the negotiations pending in connection with which the Executive Committee had tentatively authorized the issuance of up to 25,000 shares of the Corporation's common stock, as stated in the mintues of the committee, and as to which a listing application had been made to the New York Stock Exchange, and approved it.
On motion duly made, seconded, and unanimously passed, it was resolved: That the action of the Executive Committee, as stated in the minutes of its meeting held July 19, 1933, authorizing the issuance of 25,000 shares of the Corporation's common stock, of the par value of $20 per share, and the application for listing thereof on the New York Stock Exchange, be and the same hereby is ratified and approved.
Resolved that application for registering the proposed issue of 25,000 shares of the Corporation's common stock, of the par value of $20 per share, under the Securities Act, be made; and that the proper officers of the Corporation be and they hereby are authorized to do whatever may be necessary or proper, under the advice of counsel, to obtain such registration and authority for the issuance of said stock.
Now, that portion of the minutes which I have just read to you, Mr. Brown, relates to the listing applications which has been marked in evidence here this morning as Committee Exhibit No. 62, does it not?
Mr. Brown. Yes, sir,
Mr. PECORA. So that at the meeting of the board of directors of your corporation held on July 27 last, apparently you reported to the board that arrangements had been completed for the issuance of this block of additional shares, and that application for the listing of such additional shares had been already made to the New York Stock Exchange, isn't that so?
Mr. Brown. Well, that is the way that reads, but I do not quite understand it, Mr. Pecora. Mr. PECORA. What was that answer? I could not hear
you. Mr. Brown. I do not quite follow that which you have read. If you will hand me the minute book for a minute I will see.
Mr. PECORA. All right. Here it is.
Mr. BROWN (after looking at the minute book). What is the question now?
Mr. PECORA. The committee reporter will read it to you. (Thereupon the committee reporter read the following question:) Mr. PECORA. So at the meeting of the board of directors of your corporation held on July 27, last, apparently you reported to the board that arrangements had been completed for the issuance of this block of additional shares, and that application for the listing of such additional shares had been already made to the New York Stock Exchange, isn't that so?
Mr. Brown. I do not so interpret that. As I read that, I explained to the board the progress of the negotiations in connection with the Sid Klein situation, and the distillery matter, because the deals, I believe, had not been concluded at that time.
Mr. PECORA. What do you mean by the Sid Klein situation?
Mr. Brown. The Sid Klein Corporation, which was being acquired through the Spirits Corporation.
Mr. PECORA. The Sid Klein Corporation was being acquired through the Spirits Corporation?