off our original debenture issue. I do not think that is very important now.

I come down, perhaps, to 1929. This company had originally inherited-perhaps, if it does not take too long I can make it plain to you. There was the old large whisky corporation of preprohibition days, known as the "Distillers Corporation." They were also engaged in the alcohol business, and they were engaged in the yeast business. At the time of failure they, of course, had tried, due to prohibition, to go into the food businesses. We inherited what was left of that. We had a whisky business which, of course, was limited by prohibition, this yeast business, and the alcohol business. In 1929 we sold the alcohol company, known as the "Kentucky Alcohol Corporation ", a wholly owned subsidiary, for 161⁄2 million dollars cash. That cash was taken and retired the debentures-we subsequently had to issue a second set of debentures-retired the debentures, and all the preferred stock, which was called at $110 a share, and the accumulated dividends. It had just then become cumulative. That left us with some surplus cash in our treasury. That was our position in the beginning of 1929, when things were quite booming in the security markets. Our whisky business was very quiescent, simply selling for medicinal trade, and we had the largest medicinal business in the country. That was the picture in the boom times of 1929, sir.

The CHAIRMAN. What was this you sold for 161⁄2 million?
Mr. PORTER. An industrial alcohol business.

Mr. PECORA. What changes thereafter were made in the capital structure of the company?

Mr. PORTER. We issued 107 thousand shares in exchange for common stock of the American Medicinal Spirits Co., which was a partially owned subsidiary company. That was done on December 31, 1929. That additional issue of common stock gave us 100 percent ownership of that subsidiary, the whisky company, and the next change-I have not dealt at all with the preferred stock, but perhaps you are not interested in that. The next change in the common stock structure, was in the spring of 1933, of 40 thousand shares sold for cash; 12 thousand shares sold for cash; and 27 thousand shares which were sold through stock brokers.

Mr. PECORA. To whom were those blocks of stock sold for cash in 1933?

Mr. PORTER. The 40 thousand shares and the 12 thousand shares were sold to a group represented by William E. Levis.

Mr. PECORA. William E. Levis at the time was president of the Owens-Illinois Glass Co., was he not?

Mr. PORTER. Yes, sir.

Mr. PECORA. And the 40 thousand share block sold at $25 a share to that group headed by Mr. Levis, or which included Mr. Levis? Mr. PORTER. Yes, sir.

Mr. PECORA. With the sale of those 40 thousand shares was not an option given to the same group covering 12 thousand shares at $25 a share?

Mr. PORTER. Twelve thousand shares at $27.50.

Mr. PECORA. Those 12 thousand shares were drawn down by that group under that option?

Mr. PORTER. Yes, sir.

Mr. PECORA. What other sales were made in 1933, of which you have not given us the price?

Mr. PORTER. There were 27 thousand shares offered to the stockholders coincidentally with that sale to Mr. Levis, at the same price, $25 per share. Then later there was some other. Following that, in June, there were 106 thousand shares of common stock issued in the purchase of the Overholt & Large Distilleries; 102 thousand of it was for that purchase and 4 thousand shares for the purchase of the Sunnybrook Distillery shares.

Mr. PECORA. The block of 102 thousand shares issued in June 1933 was issued to D. A. Schulte & Co., or his interests, were they not?

Mr. PORTER. Yes, sir.

Mr. PECORA. They acquired control of certain distillery properties which the National Distillers Products Co. purchased through this issue of 102 thousand shares; is that right?

Mr. PORTER. That is right.

Mr. PECORA. At what price were those 102 thousand shares issued to Schulte & Co., or rather, what value was given to them?

Mr. PORTER. $60, I believe.

Mr. PECORA. $60 a share?

Mr. PORTER. We have to state that, I believe. We have to place a value on them. I think it was $60. It was an exchange of properties.

Mr. PECORA. Were any other sales of capital common stock of the company made in 1933 by the company?

Mr. PORTER. That concludes all the shares from the formation of the company to the present date.

Mr. PECORA. In 1932 did your company sell en bloc to anybody any of its common stock?

Mr. PORTER. Yes, sir.

Mr. PECORA. Will you give us the details of any such transaction

in 1932?

Mr. PORTER. AS I have just stated, in 1929, as a result of the sale of the Kentucky Alcohol Corporation for 162 million dollars in cash-that was the most active subsidiary that we had-the company was left with considerable cash, and interest rates were very high. At first we loaned the bulk of that on call, on the street. My recollection is that we never got less than 6 percent. Interest rates ran very high at that time-perhaps 7 or 8.

Mr. PECORA. Do you recall about the aggregate amount that the company loaned on call in 1929 ?

Mr. PORTER. I think from a million and a half to two million, roughly.

Mr. PECORA. Did it make those call loans directly, or did it make them through any bank or other agent?

Mr. PORTER. We made them directly through banks.

Mr. PECORA. That is, you turned over the money to banks to be

loaned on call?

Mr. PORTER. To loan it to stock-exchange houses.

Mr. PECORA, On call?

Mr. PORTER. On call.

Mr. PECORA. And the bank charged its usual commission for handling the loan?

Mr. PORTER. Yes; very small.

Mr. PECORA. About a quarter of 1 percent?

Mr. PORTER. Something of that kind; yes, sir. Following that, interest rates fell, and we felt that some of this cash should be invested. We made two types of investment. We invested a considerable portion of it in our own common shares, which we bought on the open market, and another portion of it in the common shares of three other industrial corporations which we thought at that time we were picking with great care, acumen, and skill. We had a lot of bankers on our board, and I had their careful advice as to what we should buy, and we put about $440,000 in cash in the common shares of three companies that we had no interest in, that were very active and large corporations.

Mr. PECORA. What were those companies?

Mr. PORTER. They were the Anaconda Copper Co., the Kennicott Copper Co., and the American Car & Foundry Co.

Mr. PECORA. How many shares of its own stock did your company buy subsequent to 1929 with this cash surplus?

Mr. PORTER. This was in 1929, sir.

Mr. PECORA. In 1929.

Mr. PORTER. In 1929 and 1930.

Mr. PECORA. Were those purchases of its own stock, which you say it made in the market, made after the big break came in October 1929?

Mr. PORTER. No, sir. Unfortunately all these investments were made before the big break. We were like most people.

Mr. PECORA. Let me ask

Mr. PORTER (after conferring with an associate). I may not be quite correct in that. I can give you the prices, though, sir. After the break perhaps started, and a long time before the debacle took place, we bought a total of 26,39335 shares of our stock which had an aggregate cost of 3134. That was $836,000, roughly. We put $450,000 into the five thousand of the stock of these other corporations.

Mr. PECORA. From the stocks that you bought, like Anaconda Copper, and Kennicott Copper, I am led to infer that among the bankers you had on your board there might have been directors of the National City Bank.

Mr. PORTER. No, sir.

Mr. PECORA. That is not so?

Mr. PORTER. No, sir. We had at that time the vice chairman of the Irving Trust Co., who has since died; Mr. Jones, of the Bankers Trust Co.; and Mr. Loosby, the present of the Equitable Trust Co. Mr. PECORA. During the year 1932, did your company deal in any puts and calls in its own stock?

Mr. PORTER. Yes, sir. May I carry this just a little further?
Mr. PECORA. Go ahead.

Mr. PORTER. We began in 1931, as I have just stated, with twentysix thousand-odd shares of National Distillers' stock, at an average cost of 3134, and this other investment. In 1932 the whole situation changed. We then needed money, and we determined to try to sell

both these investments_ultimately, and particularly our own stock. That started in 1932. I will give you the over-all picture. In that year we sold those entire holdings, and in the process of selling them we bought additional shares, so that during the year 1932 the total over-all figures would show purchases of 15,000 shares at an average cost of 173th, and sales of 40,000 shares, which included the 15,000 and the 26,000 we already owned, at 193gths. In other words, if you might think we were buying and selling, we were fortunate in having bought a little lower than we sold. The loss on that National Distillers transaction from the beginning-in other words, the 26,000 shares at $800,000-was $200,000, from our capital investment, you might say. Disregarding the fact that that stock paid dividends during that period, and therefore the company did not have to disburse dividends on shares it held, we lost something like 25 percent of the capital investment. On these other shares we invested in, with really the greatest care, we lost over 90 percent of the money invested. We got a recovery of less than 10 percent. I cite that, not in defense of our judgment, or anything else, but merely to tell you what the result was. In selling that stock in that year we gave options, and one or two puts, and so forth.

Mr. PECORA. During 1932 did you give puts and calls on your capital common stock?

Mr. PORTER. Yes, sir.

Mr. PECORA. To whom?

Mr. PORTER. They were all given to Redmond & Co. in 1932.
Mr. PECORA. That is, this firm of stock brokers?

Mr. PORTER. Yes, sir.

Mr. PECORA. What was the purpose of giving those puts and calls in 1932, Mr. Porter?

Mr. PORTER. The market in this stock was very inactive. We had started to try to sell this stock in 1931. We had given some options to some other people in that year. We had a rather difficult experience. We were able to sell but very little without seriously breaking the market, and such experience as I have had led me to believe that giving an option for a short period, at or slightly in excess of the current quotations, and stepping up a little bit, was probably the best way we could dispose of this stock, or get the best price for it. We were solely interested, if I may say so, in getting the most we could for the company on the shares that we bought.

Mr. PECORA. These puts and calls were given to a firm of stock brokers with a view of having some activity in the market excited or created?

Mr. PORTER. No; they were given purely with a view of getting the best price we could. In other words, when we did this, as a rule the price was at the market, or a little more, and was stepped up. It was left to them to do as they saw fit with it.

Mr. PECORA. It was expected that as a result of the giving of these puts and calls the market price of the stock would be beneficially affected?

Mr. PORTER. Yes, sir.

Mr. PECORA. And it would be beneficially affected through the medium, among other things, of creating additional activity in the market, is that right?

Mr. PORTER. I presume so; yes.

Mr. PECORA. Can you tell the committee how many such puts and calls the company gave in 1932?

Mr. PORTER. Probably, roughly, a total of eight, of which not all were exercised, I believe. Only some were exercised.

Mr. PECORA. Was the giving of these puts and calls suggested to you, or the other officers of your company, by anybody?

Mr. PORTER. I can say this, as a frank answer to your question. When a corporation is known to have an ownership of its own shares of stock, Wall Street in general knows about it, and you are subjected to a good deal of solicitation as to whether you would not like to sell it, or what you would like to do with it. A good many people talked with us about it. We talked about it with a great many different people, sir.

Mr. PECORA. Who suggested the giving of the puts and calls for the purposes you have stated?

Mr. PORTER. I do not know that anyone in particular suggested it. It was known that we were going to try to sell these shares. I do not mean to say it was generally known. That would have been a very depressing thing on the market. They knew we were going to try to sell the shares, and I discussed it with Redmond & Co. How the thing came about, I do not remember, whether they came to us or whether we went to them.

Mr. PECORA. When you say you discussed it with Redmond & Co.

Mr. PORTER (interposing). I think perhaps they came to us.
Mr. PECORA. Do you recall which members of the firm?

Mr. PORTER. Mr. Mason Day primarily.

Mr. PECORA. Was the giving of these puts and calls approved by the board of directors?

Mr. PORTER. Yes, sir.

Mr. PECORA. Were they reported currently to the board of directors?

Mr. PORTER. What was done was this: These securities were bought under a resolution, as I recall it, authorizing the proper officers to spend a million dollars or thereabouts in the purchase; that is the resolution. The actual detailed transactions were reported. When the matter of selling these shares was decided upon a resolution was passed giving the proper officers, myself included, I think very wide latitude to dispose of them to the best advantage, and there were no detailed resolutions for every option.

Mr. PECORA. Were there any resolutions at all adopted by the board of directors authorizing the giving of these puts and calls? Mr. PORTER. Not specifically; no, sir.

Mr. PECORA. Was any formal report made?

Mr. PORTER. Oh; yes, sir.

Mr. PECORA. To the board of directors with regard to the giving of these puts and calls at the time they were given or shortly thereafter?

Mr. PORTER. Oh, yes, sir; at the regular meetings the status was always plain. It was thoroughly understood; yes, sir.

Mr. PECORA. Does the fact of the making of those reports to the board of directors appear in the minute books of the board of directors?