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STOCK-EXCHANGE PRACTICES

THURSDAY, FEBRUARY 22, 1934

UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

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), Adams, Kean, and Couzens.

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. I believe Mr. Day was on the stand when the committee adjourned yesterday afternoon. Mr. Pecora. Mr. Day, will you please resume the stand ?

Mr. Day. Certainly. TESTIMONY OF HENRY MASON DAY, SYOSSET, LONG ISLAND, MEMBER OF THE FIRM OF REDMOND & CO., NEW YORKResumed

Mr. Pecora. Mr. Day, at the end of the session yesterday you were asked concerning market letters issued by your firm, and particularly as to whether or not in those market letters it was recommended to your customers that they trade in the stock of the Libbey-OwensFord Glass Co.

Mr. Day. Yes, sir.

Mr. Pecora. And you said you were going to get in touch with your New York office with a view to ascertaining what the facts were with respect to that matter, and give us the facts this morning.

Mr. Day. Mr. Pecora, I have done what I could in that particular connection. Of course, when I got to the hotel last night it was rather late, and naturally, this being a holiday in New York, a majority of our force had gone home. However, I have done the best I could in that connection, and have had certain papers sent down to me. I, however, find, in talking directly with that department of the firm, that we discontinued all market letters on April 1, 1933.

Mr. Pecora. Well, in the market letters that had been issued prior to that time, did you find any mention of the Libbey-Owens-Ford Glass Co.?

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Mr. Day. Did you say prior to that time?
Mr. PECORA. Yes.

Mr. Day. Well, I haven't got those letters. But I do not believe there was such mention.

Mr. PECORA. Now-

Mr. Day (continuing). I have here what has been gotten up, just in analysis form.

Mr. PECORA. Have you been able to obtain, as you stated yesterday afternoon you would undertake to do, copy of a letter or of letters in connection with the pool in Libbey-Owens-Ford Glass Co. stock that was referred to you in your testimony yesterday afternoon!

Mr. Day. Yes, sir. I have here what is known to us as an exchange of letters relative to the purchase and distribution of this stock, dated June 1, 1933.

Mr. PECORA. Will you produce that letter, please?
Mr. DAY. Yes, sir.
Senator COUZENS. Was there more than one letter, Mr. Day!
Mr. Day. No, sir. There are a number of similar letters, however.

Mr. PECORA. That is, the form of letter that passed between your firm and the other participants in the pool ?

Mr. Day. Well, I should like to offer in connection with that letter, Mr. Pecora, a specimen of the letter that went to an individual.

Mr. PECORA. All right. The letter produced by the witness, Mr. Chairman, I now offer in evidence.

The CHAIRMAN. Let it be admitted.

(A letter dated June 1, 1933, addressed to Kuhn, Loeb & Co., was marked " Committee Exhibit No. 69, February 22, 1934 ”, and will be found immediately following where read by Mr. Pecora.) Mr. PECORA. The letter reads as follows:

JUNE 1, 1933. Messrs. KUAN, LOEB & Co.,

52 William Street, New York, N.Y. GENTLEMEN : We have purchased for ourselves and associates, including you, 65,000 shares of the common stock without par value, of the Libbey-OwensFord Glass Company, an Ohio Corporation, at the price of $26.50 per share, and in accordance with previous understanding we confirm your interest in the above purchase to the extent of 13,500 shares at such price.

We understand that you will leave this stock with us for sale proportionate with the balance of said 65,000 shares, you to accept the average net avails of such sales as determined by us in our absolute discretion, less brokerages, taxes, and other expenses in connection therewith,

In connection with our purchase of such 65,000 shares of common stock we have obtained for ourselves and associates, options to purchase additional shares of such common stock, as follows:

Up to 20,000 shares on or before July 3, 1933, at $27.50.
Up to 20,000 shares on or before August 1, 1933, at $28.50 a share.
Up to 20,000 shares on or before September 1, 1933, at $29.50 a share.
Up to 20,000 shares on or before October 2, 1933, at $30.50 per share.

Such options being, respectively, conditional on the full execution by us of the preceding option within the period specified.

We confirm your interest in the above options to the extent of 4,154 shares of such common stock out of each of said application of 20,000 shares.

And it is understood that to the extent to which we, in our absolute disere. tion, shall exercise such options the said purchases shall be proportionately for your account, and that you will promptly make payment on our call for the shares so purchased for you.

The stock purchased under such options and remaining unsold shall not exceed 20,000 shares at any one time.

It is understood that any such additional stock purchased by you will likewise be left with us for sale proportionately with the other stock purchased by us under such options, on the same terms provided above with respect to the original 65,000 shares.

It is understood that we shall incur no liability for any action taken hereunder in good faith.

If the foregoing is in accordance with your understanding you will please confirm your agreement therewith by signing and returning the enclosed duplicate of this letter. Yours very truly,

REDMOND & Co. Now, Mr. Day, did you receive a reply from Kuhn, Loeb & Co. to this communication?

Mr. Day. Yes, sir; we did.
Mr. PECORA. Have you got the reply letter with you?
Mr. Day. Yes, sir; I have.
Mr. PECORA. Will you kindly produce it for us?

Mr. Day. I have here a letter handed to me from our files as being the letter.

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

(A letter dated June 5, 1913, from Kuhn, Loeb & Co. to Redmond & Co. was marked " Committee Exhibit No. 70, February 22, 1934 ", and will be found immediately following where read by Mr. Pecora.)

Mr. PECORA. The letter just received in evidence and marked committee exhibit no. 70, being on the letterhead of Kuhn, Loeb & Co., reads as follows:

NEW YORK, N.Y., June 5, 1933. Messrs. REDMOND & Co.,

48 Wall Street, New York, N.Y. DEAR SIRS : We have your letter of June 1, 1933, regarding Libbey-OwensFord Glass Co. common stock, the contents of which letter are in accordance with our understanding.

We are enclosing duplicate copy of your letter, properly signed, and assuring you of our pleasure in being associated with you in this business, believe us. Yours very truly,

KUHN, LOEB & Co. Senator COUZENS. Does it show who that letter was signed by?

Mr. PECORA. The initials on the left-hand corner of the letter are: “ P.M.S.-B.B.” Now, Mr. Day, do you know to whom the initials " P.M.S." refer? Mr. Day. I do not. These papers were not gotten up by me.

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Mr. PECORA. I know that.
Mr. Day. I know nothing of the formation of those papers.

Mr. PECORA. Possibly Percy M. Stewart. Now, Mr. Day, I notice that in the letter which you addressed, or that your firm addressed, to Kuhn, Loeb & Co. under date of June 1, 1933, and which has been marked “Committee Exhibit No. 69," there is a reference to what was apparently a firm commitment on behalf of the syndicate for the purchase of 65,000 shares of the stock of the Libbey-OwensFord Glass Co. at $26.50 per share. It was understood by the parties to this syndicate that that was a firm commitment, wasn't it?

Mr. Day. Yes, sir.

Mr. PECORA. And the commitment was fulfilled by the purchase of 65,000 shares in behalf of this pool from the Libbey-Owens Securities Corporation ?

Mr. Day. Yes, sir. Mr. PECORA. Now, do you know who negotiated that transaction with the Libbey-Owens Securities Corporation ?

Mr. Day. Well, my recollection of it is that there were a number of gentlemen in it.

Mr. PECORA. Well, who were they?

Mr. Day. Well, there were representatives of this Securities Co., which is not, as I understand the situation, the Libbey-Owens-Ford Glass Co.; and there was Mr. Walker, my partner

Mr. PECORA (interposing). By Mr. Walker do you mean Mr. Elisha Walker, one of the partners of Kuhn, Loeb & Co.?

Mr. Day. Yes, sir.
Mr. PECORA. All right. Go ahead.
Mr. Day. Mr. Perry Osborn, my partner. I personally for a long

. time had been trying to buy a block of this stock myself. And the gentlemen representing the Securities Co., which desired to sell this block of stock, as I understood it, to pay off this big loan which they had—there was a gentleman by the name of Mr. Duncan, and Mr. Auchincloss; and one of the Lehmans I know was in it, but which one it was I don't remember exactly, or it was some one of their partners. And I have a recollection, Mr. Pecora, of the name Solvay, but just what the connection was is very hazy in my mind.

Mr. PECORA. Now, were all of the 80,000 shares which were optioned to the pool by the agreement or pool that was put in evidence yesterday afternoon, drawn down?

Mr. Day. Excuse me while my assistant looks that information up. Mr. PECORA. All right.

Mr. Day. Mr. Pecora, while my assistant is looking it up may I save your time by mentioning the testimony on yesterday in this respect: That when the chairman asked me on yesterday a question I made a mistake in my answer. He asked me what the dividend of Libbey-Owens-Ford Glass Co. was, and I stated : Mr. Chairman, it is $1. As a matter of fact it is $1.20. You also asked me what the market price was at the time the option was taken, and according to the record which was given to me, and which had been gotten up very hastily, the opening was $29. Mr. PECORA. That was on June 1, 1933 ?

Mr. Day. That is correct. Then you asked me the question: What was the price of the stock when I would consider that the distribution was over. You asked me that from the record. According to records that are handed to me, Mr. Chairman, it shows that the market closed at 321/3.

Mr. PECORA. What is the date of that?

Mr. Day. The date of that, according to this statement now before me, was September 18.

The CHAIRMAN. Then you were asked what was the low and what was the high of the stock.

Mr. Day. Yes, sir.

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The CHAIRMAN. I mean, during the time of the existence of the pool.

Mr. Day. Yes, sir. Mr. Chairman, I do not think that this statement represents it, because I think the testimony that was given on yesterday, or at least the suggestion was made on papers which I think Mr. Pecora had, but which I did not have, showed the high at one time was 37 and the low was 21. I think we said that we haven't got that figure here.

The CHAIRMAN. You said a low of 21. When it got to 21 I believe you said you bought 1,000 shares for your syndicate.

Mr. Day. No, sir. I started buying, I think my record will show, at around 28, and bought all the way down to 2i, and bought some 20,000-odd shares.

Mr. PECORA. Were those purchases for the account of the pool?
Mr. Day. Yes, sir.
Mr. PECORA. Or were they for your individual account?

Mr. Day. As you asked me on yesterday, they were for the account of the syndicate. Then you asked me whether they were distributed at a higher price, or at a profit, as I understood, and I said I didn't know but I hoped so. I think that was what I testified.

Jr. PECORA. Well, have you since been able to learn whether the distribution of the stock that you bought during the market movement for the pool, from 28 down to 21, was distributed at higher prices?

Mr. Day. I have not attempted to, and it would take a great deal of time to do it.

Mr. PECORA. You have referred to four or five gentlemen as having conducted the negotiations with the officers of the Libbey-Owens Securities Corporation, as a result of which the pool obtained this option on June 1, last. Mr. Day. Yes, sir; that is correct.

Mr. PECORA. Now, I presume there was a meeting of those various gentlemen who became eventually pool participants, and an agreement was reached at that meeting with respect to the formation of this pool or syndicate.

Mr. Day. I do not think in this particular instance that that is so. Mr. PECORA. Well, how did those three or four or five gentlemen come together and go to the offices of the Libbey-Owens Securities Corporation with a view to negotiating for the obtaining of this option? They did not go as independent agents, did they?

Mr. Day. No. I think my mind is clouded or confused on your question. What I wanted to convey was—and the question that you asked me before was—“Who took up these negotiations?" and I gave you what my recollection of it was. I understand now you are asking, although I am probably wrong: “Did the syndicate members as a group go into these negotiations ? Mr. PECORA. Yes. Mr. Day. No, sir; I don't think they did. Mr. PECORA. Well, you stated that the negotiations which led to the obtaining of this option were conducted in behalf of the group by three or four persons, whose names you gave. Mr. Day. Yes, sir.

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