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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. BROWX 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.

Mr. PECORA. Was it the printed document known as proof no. 1 of this application, a copy of which I understand is before you, which 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 gov: erning 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. Mr. PECORA. When you noticed it in this particular opinion of counsel filed in connection with this application, did it excite any suspicion or feeling that the matter should further be inquired into ?

Mr. ALTSCHUL. No, sir. We thought that that was a clause that was put in, because the final—this was an application for authority to list when a transaction under negotiation was finally completed, and that was simply the phrase that counsel used to protect themselves against the details of the transaction which they had not fully before them.

Mr. PECORA. It was a sort of a saving clause?
Mr. ALTSCHUL. Yes, sir.
Mr. PECORA. For the protection of counsel ?

Mr. ALTSCHUL. I don't know what that means legally. I suppose so. The full opinion is here. I suppose you have it.

Mr. Pecora. Yes, sir. Under the caption of “Authority for and purpose of issue” that appears not only in proof no. 1 of this application but also in the final printed application, the statement is made as follows:

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 a statement of the application of proceeds or 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.

Now, your committee approved this application without knowing what the assets which were to be purchased through the issuance of this additional stock actually were, didn't it?

Mr. ALTSCHUL. They approved the application under those conditions, sir, but the stock would not be issued until the information had been further furnished to us.

Mr. PECORA. Well, is it customary for the committee to make such conditional approvals of applications for stock listings?

Mr. ALTSCHUL. From time to time, when it is urged upon the committee that there are business reasons why the company, wants authority to add to the list certain shares for a purpose that will be disclosed before the listing is actually granted, to faciliate the business we sometimes grant the authority, with a view to having a chance to review the situation further.

Mr. PECORA. Do those situations arise more or less frequently?

Mr. ALTSCHUL. They arise from time to time. They have arisen in other instances. I would not say they arise every meeting or every month, but they do arise from time to time.

Mr. PECORA. Wasn't any information whatsoever given to the stock-list committee or any of its examiners or attaches by the American Commercial Alcohol Corporation respecting the matter of the assets which that corporation hoped to acquire through the issuance of this additional stock?

Mr. ALTSCHUL. Speaking only for the stock-list committee, the information that was before them is the information in the application. There was no further information available.

Mr. PECORA. The information in the application is of the most general character,

Mr. ALTSCHUL. The comment of the examiners, which will throw some light on what had come into their hands, Í think is in your possession, sir.

Mr. PECORA. By that comment do you mean, among other things, this so-called “memorandum" for Mr. Tirrell, signed by L. Hasselbach?

Mr. ALTSCHUL, No, sir.
Mr. PECORA. Dated July 20, 1933 ?

Mr. ALTSCHUL. No, sir; I don't mean that. I mean the comment to the committee, comment by Mr. Tirrell, meeting of July 24, 1933. Here; I will give you a copy, sir [handing document to Mr. Pecora]. The last thing on the page. That throws some light on the previous question, too, I believe, sir.

Mr. PECORA. I offer in evidence the document produced by the witness with respect to this comment.

The CHAIRMAN. Let it be admitted.

(Comment by Mr. Tirrell, meeting of July 24, 1933, produced by Mr. Altschul, was thereupon designated “ Committee Exhibit No. 64, Feb. 21, 1934 ", and appears in full immediately following, where read by Mr. Pecora.)

Mr. PECORA. The document has been received as “ Committee Exhibit No. 64” and reads as follows (reading]: AMERICAN COMMERCIAL ALCOHOL CORPORATION

7-24-33 Common stock $20 par, additional listing 25,000 shares.

The applicant company is negotiating for the purchase of what it regards as one of the important distillery properties in Kentucky. The issue of stock up to 25,000 shares has been authorized by the directors in connection with this proposition. The company believes it will be very harmful to the negotiations to describe the properties in the application, but is apparently willing to give a full description in final printing if negotiations are closed before that time, or to make complete disclosure as soon as negotiations are terminated.

In somewhat similar cases the committee has respected the wishes of the company, with the understanding that such disclosures would be made at the earliest possible time, and, provided the company can obtain a satisfactory opinion from counsel in relation to the bearing of the Securities Law on the issue of this stock, there is no objection to the listing requested. Meeting of July 24, 1933—Comment by Mr. Tirrell: American Commercial Alcohol Corporation common stock $20 par, additional listing 25,000 shares.

The company has been very late in submitting this application. For what it considers urgent business reasons, the company wishes to have the application considered by the committee at its meeting Monday. The stock has been fully authorized by its directors to be issued up to 25,000 shares in connection with the purchase of the assets of distillery properties in Kentucky. At the time of writing this comment the negotiations had not been finally completed, and until that time the company does not wish to announce, either in a draft of the application or in any other way, the name of the company whose properties are to be acquired.

In similar circumstances the committee, in the case of the Air Reduction Company, and more recently in connection with the Monsanto Chemical Company, has approved listing on condition that full disclosure be made promptly upon the termination of negotiations.

The company has been asked to submit opinion of counsel in relation to the bearing of the issuance of the stock covered by the application to the provisions of the securities law regarding registration. No definite opinion has been received, and unless this is cleared up before the meeting of the stock list committee, it may be considered an obstacle to the listing requested. An appearance before the committee has been arranged. If the company will undertake to make full disclosure regarding the properties to be acquired

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