of your corporation's common stck at $18 a share and was given the right to call upon your corporation to sell to it, Redmond & Co., 2,500 shares at the prices fixed in this letter, all at the option of Redmond & Co.?

Mr. PORTER. Yes.

Mr. PECORA. Under this option Redmond & Co. were given the right to put to your company or to sell to your company 1,500 shares of its own common stock at $18 a share if they wanted to, and to buy from your company 2,500 shares at prices ranging from $19 to $22 a share if they wanted to?

Mr. PORTER. Yes.

Mr. PECORA. So that if the price of the stock in the market fell below $18 a share Redmond & Co. were put in a position of obligating your company to take from them 1,500 shares at $18 a share? Mr. PORTER. That is right.

Mr. PECORA. And under this option also if the market price went up to above $19 to $22 Redmond & Co. were given the right to obtain from your company at those prices, 19 and 22, prices under the market, up to 2,500 shares?

Mr. PORTER. That is right.

Mr. PECORA. No margin was put up by Redmond & Co. under this kind of an option?


Mr. PECORA. None is required on puts and calls of this kind?

Mr. PORTER. Well, we only had altogether in this whole transaction two of what you would call puts, just two altogether in the whole year. That was all the transactions ever.

Mr. PECORA. Did Redmond & Co. under those put and call options call upon your company to take from them

Mr. PORTER. We purchased I believe under this

Mr. PECORA (Continuing). To take from them the shares that they had the right to put to you at prices above the then market? Mr. PORTER. That particular transaction, I believe, resulted in their putting to us 1,500 shares at 18, which we did take; yes, sir. Mr. PECORA. And what was the market at that time?

Mr. PORTER. The market was I think right at the moment probably below that.

Mr. PECORA. It was around 14 and a fraction, wasn't it?

Mr. PORTER. Probably. I don't know exactly, but assume that

it was.

Mr. PECORA. How would you expect that your company would profit through the giving of such puts and calls?

Mr. PORTER. I cannot answer that question any better than I have said before. We sold in the year 1932, 40,000 shares, which included the 15,000 shares purchased in that year. The 15,000 shares that were purchased were purchased at an average price of 17%, and the 40.000 that were sold were sold at 19%.

Now, while I do not attempt to say that this was very cleverly done, we did our best to obtain the very best price we could in the selling of these shares, and I think that a careful study of the daily quotations, monthly quotations, and the transactions, would indicate that was the case.

Mr. PECORA. But how did your company expect to benefit from the giving of these puts and calls of the kind that have been put in evidence here?

Mr. PORTER. Well, we thought, I presume, rightly or wrongly, that in order to interest someone to try to market these shares for us we would have to give them an opportunity to-something to work with.

Mr. PECORA. That is

Mr. PORTER. An option or something that would be of some advantage to them, presumably.

Mr. PECORA. That is, these puts and calls were given to these brokers in order to induce the brokers to make a market for the stock so that your company

Mr. PORTER. Could market it.

Mr. PECORA. Could dispose of the shares which it had and which it had bought in the open market previously, at a profit? Mr. PORTER. Right.

Mr. PECORA. Or under more advantageous terms than it otherwise could have disposed of those shares if a market had not been made by the brokers?

Mr. PORTER. Right; yes, sir.

Mr. PECORA. That was the motive behind the giving of these puts and calls, wasn't it?

Mr. PORTER. Yes, sir.

Mr. PECORA. To put it in a nutshell?

Mr. PORTER. That is right.

Mr. PECORA. And the inducement to the brokers in accepting these options in the form of these puts and calls was that it enabled them to operate in the market without losing themselves; isn't that so?

Mr. PORTER. I presume so. There were only two puts in the whole transaction. Only one of the puts was ever exercised, sir, in this whole transaction. The one you have just referred to is the only one that was ever exercised.

Mr. PECORA. At any time during the years 1932 and 1933 to your knowledge did any of the officers and directors of the National Distillers Products Corporation become members of or participants in any syndicates that were formed for the purpose of trading in the market in the stock of the company?

Mr. PORTER. Well, I can only speak for myself, sir. I was interested in two small syndicates, information of which I have given


Mr. PECORA. Were there any officers or directors of the company other than yourself interested in those two syndicates that you have just referred to?

Mr. PORTER. Yes, sir; I think so.

Mr. PECORA. Who were they?

Mr. PORTER. Mr. Loosby, myself, Mr. R. E. Wathen, Mr. O. H. Wathen, Mr. D. K. Wiesskopf.

Mr PECORA How about Mr. Schwartzhaupt?

Mr. PORTER. Yes, sir.

Mr. PECORA. He was also one of the directors?

Mr. PORTER. I did not mention him because I was not sure that he was a director at that time.

Mr. PECORA. What is Mr. Schwartzhaupt's full name?
Mr. PORTER. Emil.

Mr. PECORA. Are there any members of any stock brokerage firms that are also members of either one of those two syndicates?

Mr. PORTER. There was no member in that syndicate that I have just mentioned.

Mr. PECORA. When was that syndicate that you last mentioned. formed?

Mr. PORTER. All that I have, sir, is a statement that was handed to me by the man that handled that, which shows the purchases and sales and the distribution, and the first purchase was in July.

Mr. PECORA. Of 1932?

Mr. PORTER. Of 1932; and it was concluded in August of 1932. only lasted for 2 months.


Mr. PECORA. Wasn't there another syndicate formed also in July 1932 that included yourself, Mr. Loosby?

Mr. PORTER. Yes, sir.

Mr. PECORA. Mr. Elisha Walker?

Mr. PORTER. Yes, sir.

Mr. PECORA. Mr. L. W. James?

Mr. PORTER. Yes, sir.

Mr. PECORA. Mr. James was a special partner of the firm of Red-mond & Co., wasn't he, at that time?

Mr. PORTER. I don't really know, sir.

Mr. DAY. There seems to be a difference of opinion. I did not think he was. My brother partners tell me he was not.

Mr. PORTER. I did not really know, sir.

Mr. PECORA. And in that syndicate to which I am now referring was there an attorney named Loucks?

Mr. PORTER. Yes, sir.

Mr. PECORA. W. B. Loucks, also a participant?

Mr. PORTER. Yes, sir.

Mr. PECORA. Mr. Porter, on general principles do you think it is good practice and ethical and sound practice for officers and directors of a corporation to become members of syndicates to trade in the stock of their own company?

Mr. PORTER. Of their own company?

Mr. PECORA. Yes; to their own personal profit?

Mr. PORTER. I don't think it is unethical to

Mr. PECORA. You don't think it is unethical for officers and directors of a company to do that?

Mr. PORTER. Not necessarily, sir; no. I know very few people that are interested in companies that are stockholders that do not buy and sell shares in their own company.

Mr. PECORA. Buying and selling individually selling individually might be onething

Mr. PORTER. Yes.

Mr. PECORA. But forming a syndicate to trade in the stock is another thing, isn't it?

Mr. PORTER. These two syndicates were not formed for the purpose of trading in the stock. The first syndicate referred to was formed by a group of individuals who were all stockholders of the company who believed that the price of the stock was very low, and we

thought that an acquisition of some shares would result in a profit and would probably help the market.

Mr. PECORA. In the operations of that syndicate did not the syndicate both buy and sell in order to enable its members to distribute the stock that they wanted to distribute at a profit?

Mr. PORTER. It so happens, sir, that this syndicate purchased 3,900 shares, and it commenced the purchase of those shares on July 26, July 27, and on August 4 it completed them. And it so happens that they had not sold a single share that they bought in the whole 3,900 and that they began after the acquisition-I am not quite correct, almost correct-they made one purchase apparently afterwards. But the bulk, almost the entire purchase in that syndicate, was made before any selling started, and then it was all sold out. In other words, it was bought at 21, 22, and 20, and it was sold at 22, 24, and 25, and it resulted in a profit to me and it was divided equally among the seven people, $1,400.

Mr. PECORA. How about the other syndicate? What was the extent of the trading done by the other syndicate?

Mr. PORTER. That I was not at all familiar with, but I have been given since a statement of it. I was not apprised what they were doing, and I have heard it began on July 25 and it started by purchasing apparently two or three thousand shares at 18 to 20.

Mr. PECORA. Now, just give us the total amount of trading done by it.

Mr. PORTER. I don't know that I can do that, sir. It resulted in a profit to me of $2,300.

Mr. PECORA. How many shares did they trade in?

Mr. PORTER. It is not added up here, sir. There were quite a few shares.

Mr. PECORA. Eighteen thousand eight hundred shares, wasn't it? Mr. PORTER. If that is what that adds up; yes, sir.

Mr. PECORA. Now let us go to the year 1933. Did any of the officers and directors of your corporation in the year 1933 become members of or participants in any syndicates which traded in the stock of the corporation?

Mr. PORTER. No, sir; not as far as I know.

Mr. PECORA. Not so far as you know?


Mr. PECORA. During the year 1933 did your corporation give to anyone options on its common capital stock?

Mr. PORTER. We gave an option to William B. Levis and his associates for 12,000 shares in connection with the purchase of 40,000 shares which he made.

Mr. PECORA. Have you a copy of the option given to Mr. Levis? Mr. PORTER. Yes, sir.

Mr. PECORA. Will you product it, please?

(Mr. Porter searched for document.)

Mr. PECORA. While you are looking for it let me ask how many options all told were given by the company on its common stock during the year 1933?

Mr. PORTER. That was the sole one.

Mr. PECORA. Will you produce the copy of it if you can?
Mr. PORTER. We are trying to find it, sir.

Mr. PECORA. Let me show you what purports to be a copy

Mr. PORTER (interposing). Yes, sir; here it is [handing document to Mr. Pecora].

Mr. PECORA. I offer in evidence the copy of the option produced by the witness.

The CHAIRMAN. Let it be admitted.

(Letter dated Apr. 28, 1933, from National Distillers Products Corporation to William B. Levis was thereupon designated "Committee Exhibit No. 74, Feb. 22, 1934 ", and the same appears in the record in full immediately following, where read by Mr. Pecora.) Mr. PECORA. It is received in evidence as committee exhibit no. 74. and reads as follows:


965 Wall Street, Toledo, Ohio.

APRIL 28, 1933.

DEAR MR. LEVIS: We hereby confirm the sale to you of 20,000 shares of common stock of National Distillers Products Corporation, as and when listed by the New York Stock Exchange, and on forty-eight hours' notice to you at your office, 965 Wall Street, Toledo, Ohio, at $25 a share, purchase price payable on delivery of stock to you. As these 20,000 shares are part of the new issue of 200,000 shares just authorized at the stockholders' meeting on April 19th, delivery will have to be delayed until we are able to consummate certain details in connection with listing arrangements on the New York Stock Exchange which Counsul advises us cannot be completed until about May 11th. Therefore, we agree to make delivery as soon as possible after these arrangements are completed, and in no event later than 30 days from date.

It is understood in connection with this sale that it is the intent of the Corporation to issue to its present stockholders warrants covering the right to subscribe to additional stock on the basis of one share for each ten shares now held and that these warrants will not apply to the 20,000 shares covered by this agreement.

This sale is made with the understanding that you and one of your associates, to be selected by you with our approval, will be elected Directors of our Company.

In consideration of this purchase, we also grant you an option to purchase additional common stock of our Company to the extent of 12,000 shares good for 90 days from date of delivery of the 20,000 shares above referred to at a price of $27.50 per share. Upon acceptance of said option by notice to National Distillers Products Corporation at its office, 52 William Street, New York, N.Y., the stock, if not then listed, shall be immediately listed and delivered as soon as possible on forty-eight hours' notice to you at your office, 965 Wall Street, Toledo, Ohio, and payment therefor shall be made against delivery of said stock.

Very truly yours,

Accepted by:



At about the same time as this option was given to Mr. Levis did your corporation enter into any agreement with the Illinois Glass Consolidated Corporation, of Alton, Ill., to sell to it 10,000 shares of common stock of your corporation at $25 per share?

Mr. PORTER. The same date?

Mr. PECORA. Yes.

Mr. PORTER. Yes, sir.

Mr. PECORA. I show you what purports to be a photostatic reproduction of a letter addressed by you as president of your company to the Illinois Glass Consolidated Corporation, dated April 28, 1933, and I ask you if that is a true and correct copy of the letter evidencing the fact of the sale you have just testified to?

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