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ber 23, 1933, and bearing the signature of Cecil Page, as secretary of the American Commercial Alcohol Corporation. Will you look at it and tell me if you recognize it to be the supplemental statement filed by and on behalf of your corporation last November with the stock list committee of the New York Stock Exchange?

Mr. BROWN (looking at the paper). Yes, sir.

Mr. PECORA, Mr. Chairman, I wish to offer it in evidence.
The CHAIRMAN. Let it be admitted.

(A paper marked "Supplemental " application of the American Alcohol Corporation, dated Nov. 23, 1933, to the committee on stock list of the New York Stock Exchange, was marked "Committee Exhibit No. 63, February 21, 1934 ", and will not be made a part of the record except as read by Mr. Pecora, but will be kept in the files of the committee.)

Mr. PECORA. Now, Mr. Brown, what was the purpose of the filing of this supplemental statement with the stock list committee of the New York Stock Exchange?

Mr. BROWN. I never knew that the thing had been filed. I was away, apparently, at the time it was filed. And it never should have been filed.

Mr. PECORA. So, apparently, at the time it was filed it should never been filed, you say?

Mr. BROWN. That is correct.

Mr. PECORA. Well, Mr. Cecil Page, the secretary of the corporation, is not only the secretary but also a lawyer, isn't he? Mr. BROWN. That is correct.

Mr. PECORA. When did you learn that it had been filed?
Mr. BROWN. Just the other day.

Mr. PECORA. Only the other day?

Mr. BROWN. Yes. You see, so that you will understand my statement there: If you had been in the whisky business in November, December, January, and February, there was a great deal of confusion. At the time when that was done I was at the Pekin plant supervising construction for production, because it was before Mr. Grimm went away-and he had a breakdown and had to go away the first part of November-and we had agreed with Klein to clear up the entire transaction by a cash payment, and agreed that this issuance of 10,000 shares, because of the substantial earnings of the company at that time and the prospective substantial earnings, it was unnecessary and we did not want to issue any more stock than we absolutely had to; and that was the time the deal was called off. That paper apparently went through as a routine matter in Mr. Page's office, and I knew nothing about it, because, as I understand it, no notice of issuance of the stock has ever been sent to the Exchange.

Mr. PECORA. Now, I want to read a statement from this supplemental statement filed with the committee on stock list of the New York Stock Exchange:

In its application A-10117, dated July 19, 1933, American Commercial Alcohol Corporation made application for the listing on the New York Stock Exchange of 25.000 additional shares of common stock of the par value of $20 per share, on official notice of issuance thereof, and payment in full, with a statement of application of proceeds or property acquired. It was stated in said application that the shares proposed to be issued would be registered 175541-34-PT 14--2

with the Federal Trade Commission, in compliance with the provisions of the Securities Act of 1933.

Since the date of said application, arrangements have been made for the issuance of 10,000 of said 25,000 additional shares to Mr. Knox B. Phagan, in exchange for the entire capital stock, being 10,000 shares of common stock without par value, of the American Distilling Company (a Maryland Corporation, formerly known as the Spirits Corporation). Honorable Angus W. McLean and Sanders, Childs, Bobb, and Westcott, Esquires, of Washington, D.C., after conference with members of the Securities Division of the Federal Trade Commission, have submitted an opinion to the effect that the issue by American Commercial Alcohol Corporation of said 10,000 shares is not required by the provisions of the Securities Act of 1933 to be registered with the Federal Trade Commission.

The American Distilling Company was organized on July 29, 1933, and has acquired certain valuable formulæ, processes, and so forth, for the manufacture of beverage spirits; also a lease on a completely equipped distillery property located at Pekin, Illinois. Also sales contracts with and interests in certain distributing companies organized for the purpose of the distribution of beverage spirits. Since July 29, 1933, the American Distilling Company has been in operation and the balance sheet and profit and loss statement annexed, certified to by Guy I. Colby, Treasurer, exhibits its condition as at October 31, 1933, and states the results of its operations July 29th through October 31, 1933.

I hereby certify that the following consolidated condensed general balance sheet and statement of profit and loss, in my opinion, correctly reflects the financial status of the American Distilling Company as at October 31, 1933, and the result of its operation for the period July 29th through October 31st. GUY I. COLBY.

Then follows the consolidated condensed balance sheet statement, and the profit and loss statement, signed:

AMERICAN COMMERCIAL ALCOHOL CORPORATION, By CECIL PAGE, Secretary.

Then it shows that it was submitted to the governing committee for information December 13, 1933, Ashbel Green, secretary. That is, he is the secretary of the New York Stock Exchange. Now, Mr. Brown, are you familiar with the balance sheet of the American Distilling Co. set forth in this supplemental statement?

Mr. BROWN (after looking at the paper). I am; yes, sir.

Mr. PECORA. Among the assets shown in this balance sheet is an item of "Notes receivable, $465,000." That refers to Phagan's promissory note, doesn't it?

Mr. BROWN. Yes, sir.

Mr. PECORA. Has that ever been paid?

Mr. BROWN. We were to have had a meeting on the 15th of February. I think the lawyers had completed all the legal mechanics to clear up the details, but the meeting had to be postponed. I think the papers are all ready to close up that deal by the American Commercial Alcohol Corporation taking over the Phagan contract.

Mr. PECORA. It is to take over the Phagan contract, or to take over the stock issued to Phagan in return for that note, by the Spirits Corporation subsequently called the American Distilling Co.

Mr. BROWN. I think the American Commercial Alcohol Corporation pays the note.

Mr. PECORA. The American Commercial Alcohol Corporation is going to pay Phagan's note?

Mr. BROWN. Yes, sir.

Mr. PECORA. Now, what was the plant or distillery property located at Pekin, Ill., that according to the statement in this supple

mental report or statement to the New York Stock Exchange, was acquired by the American Distilling Co. ?

Mr. BROWN. It was under lease.

Mr. PECORA. What was that?

Mr. BROWN. Under lease.

Mr. PECORA. Do you say under lease?

Mr. BROWN. Yes, sir.

Mr. PECORA. Who made the lease?

Mr. BROWN. It was between the American Commercial Alcohol Corporation and the American Distilling Co.

Mr. PECORA. That is to say, your Corporation giving a lease to the American Distilling Co.?

Mr. BROWN. Yes, sir.

Mr. PECORA. Covering its plant at Pekin, Ill.?

Mr. BROWN. That is correct. The reason for that is that operating as the company does now, the beverage regulations of the Treasury Department and of the Federal Alcohol Control Administration, requires every package to bear a serial number, and it has to bear the name of the manufacturer. And there again we come back to the point where we thought it would not appear advisable shown on a barrel of whisky that it was made by the American Commercial Alcohol Corporation. The Government stamp bears the name of the manufacturer. So we carry the name of the American Distilling Co., and the operations of the beverage business are carried under the name of the American Distilling Co.

Mr. PECORA. This distillery plant at Pekin, Ill., had been operated by the American Commercial Alcohol Corporation as a part of its business?

Mr. BROWN. Intermittently; yes, sir.

Mr. PECORA. Is that right?

Mr. BROWN. Yes, sir.

Mr. PECORA. And it was operated for the purpose of manufacturing alcoholic beverages?

Mr. BROWN. That is correct; yes, sir-no, not alcoholic beverages, but industrial alcohol.

Mr. PECORA. Yes; commercial alcohol.

Mr. BROWN Yes, sir; commercial alcohol.

Mr. PECORA Then the American Commercial Alcohol Corporation divested itself of that portion of its business and turned it over to the American Distilling Co.

Mr. BROWN. Well, the lease, at the time it was made, had to be filed with the Government before we could get a permit for the American Distilling Co. to do a beverage business, to conduct that business.

Mr. PECORA. The American Distilling Co. merely stepped into the shoes of the American Commercial Alcohol Corporation with respect to its Pekin plant, did it?

Mr. BROWN. Yes, sir; and the conduct of the beverage business. That is correct.

Mr. PECORA. And did that add anything to the assets of the American Commercial Alcohol Corporation?

Mr. BROWN. No. It was all hooked back, or a consolidated picture.

Mr. PECORA. It is the same thing, isn't it?

Mr. BROWN. It is a consolidated picture.

The CHAIRMAN. Do you mean that the stock of the American Distilling Co. is owned by the American Commercial Alcohol Corporation?

Mr. BROWN. Yes, sir.

Mr. PECORA. The American Commercial Alcohol Corporation acquired it by issuing stock to Knox B. Phagan.

Mr. BROWN. No stock was ever issued.

Mr. PECORA. How was it acquired?

Mr. BROWN. It has been acquired by a cancelation of the arrangement there, and a taking over of the contract of Phagan's, by which the note is going to be met by the American Commercial Alcohol Corporation, as a purely company transaction.

Mr. PECORA. These additional 25,000 shares, for the listing of which an application was made on July 19 last, to the New York Stock Exchange, are not to be issued?

Mr. BROWN. No, sir. The deal is all off.

Mr. PECORA. The plan for the issuance of those shares has been completely abandoned?

Mr. BROWN. Yes, sir.

Mr. PECORA. When was that decision made?

Mr. BROWN. In the first part of November.

Mr. PECORA. Last November?

Mr. BROWN. Yes, sir; just before Mr. Grimm went south as the result of a breakdown. And that increased my burden.

Mr. PECORA. Mr. Altschul, will you take the stand, please?

The CHAIRMAN. We will excuse you for a moment, Mr. Brown. Mr. Altschul, you will take the stand.

TESTIMONY OF FRANK ALTSCHUL, NEW YORK CITY, CHAIRMAN OF THE COMMITTEE ON STOCK LIST, NEW YORK STOCK EXCHANGE-Resumed

Mr. PECORA. Mr. Altschul, I presume you have heard the testimony given this morning by the preceding witness, Mr. Russell R. Brown? Mr. ALTSCHUL. I think I heard most of it; yes, sir.

Mr. PECORA. Are you familiar with the application filed by and on behalf of the American Commercial Alcohol Corporation dated July 19, 1933, with the New York Stock Exchange for the additional listing of 25,000 shares of the common stock of that corporation? Mr. ALTSCHUL. Yes, sir.

Mr. PECORA. I show you committee's exhibit no. 62 received in evidence this morning and ask you if you recognize it as a final printed application and the one in question?

Mr. ALTSCHUL. Yes, sir; I do.

Mr. PECORA. This application in due course, I assume, came before the stock list committee of the New York Stock Exchange last July while you were chairman of that committee?

Mr. ALTSCHUL. My recollection, Mr. Pecora, is that the proof no. 1 which is, I think, on all fours with the application, except that the opinion of counsel had not reached us at that time, was the thing before us.

you, which

Mr. PECORA. Was it the printed document known as proof no. 1 of this application, a copy of which I understand is before came before the stock-list committee of the exchange last July? Mr. ALTSCHUL. Yes, sir; I think so.

Mr. PECORA. And was it that proof of the application, that proof no. 1, which your committee acted upon.

Mr. ALTSCHUL. Yes, sir.

Mr. PECORA. And what was the action taken by your committee on this application?

Mr. ALTSCHUL. The action was to recommend the application to the governing committee subject to receipt of the material that was missing in the application itself.

Mr. PECORA. When did your committee take such action?

Mr. ALTSCHUL. I have a time table here I believe. [Addressing an associate: Have you the date such action was taken? [After conferring:] July 24.

Mr. PECORA. 1933.

Mr. ALTSCHUL. Right.

Mr. PECORA. And when was it acted upon by the governing committee of the stock exchange?

Mr. ALTSCHUL. July 26, 1933.

Mr. PECORA. When the matter was passed on for action to the governing committee, did it have anything other than the data contained in proof no. 1 of the application?

Mr. ALTSCHUL. It had the opinion of counsel inserted in the manner in which it appears in the final signed copy. Have you a copy, sir, of proof no. 2? I do not seem to have a copy of it in my files, and that is the proof that went to the governing committee. Is the opinion of counsel inserted?

Mr. PECORA. I have what is designated as proof no. 2 of this listing application, which I would like you to look at.

Mr. ALTSCHUL. Yes, sir. That is the proof that went to the governing committee.

Mr. PECORA. Now, proof no. 2 of the application corresponds to proof no. 1 with the exception that there is a paragraph under the caption "Opinion of Counsel" which was not in proof no. 1 of the application.

Mr. ALTSCHUL. So far as I know, that is correct, sir.

Mr. PECORA. Proof no. 2 appears to have been O.K.'d for final printing and was printed as the final printed form of application, a copy of which is in evidence here as committee's exhibit no. 62; isn't that correct?

Mr. ALTSCHUL. That is correct, sir.

Mr. PECORA. Did you notice that the opinion of counsel for the American Commercial Alcohol Corporation contained a reference to absence of fraud in the application?

Mr. ALTSCHUL. Yes, sir.

Mr. PECORA. Do you know from your experience as chairman of the stock list committee of the New York Stock Exchange whether or not such a reference is usually to be found in the opinion of counsel submitted in support of an application for listing?

Mr. ALTSCHUL. Well, it is very difficult for me to answer that positively, but I would think in a majority of cases it does not occur.

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