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Mr. PECORA. Forty-two thousand. That includes the 12,000-share option. Mr. Day. I see.

Mr. PECORA. And the 30 thousand shares, which excludes the 10 thousand shares that the glass corporation took over and paid for.

Mr. Day. Yes.
Mr. PECORA. That was $1,080,000, as I understand.
Mr. Day. That is correct, sir.

Mr. PECORA. Is it not a fact that those shares, those 42,000 shares, were disposed of shortly after their acquisition, and were taken down without the necessity of putting up any money other than the moneys realized from technical short sales that were made against the purchase contracts and the option agreement !

Mr. Day (after conferring with an associate). Mr. Gibson tells me that that is the figure here, and according to the figures compiled by him, there was a matter of $57,500 put up by Redmond. Mr. PECORA. By Redmond & Co.!

Mr. Day. Yes, sir; in addition to the $192,000 which Mr. Levis spoke of.

Mr. PECORA. That $192,000 was paid by the persons to whom an aggregate of 77 thousand shares were sold direct, isn't that so?

Mr. Day. That is right, sir.

Mr. PECORA. The balance of these 42 thousand shares was disposed of in the open market through Redmond & Co.

Mr. Day. Yes, sir.
Mr. PECORA. How long did the distribution take?

Mr. Day. I do not know off-hand. [After conferring with an associate.] Mr. Gibson tells me about June 15.

Mr. PECORA. What profits were distributed at the end of the period of distribution of the stock, in cash, and what in stock?

Mr. Day. As far as Mr. Levis was concerned, just exactly what he testified, from his Arthur Young statement; and I took over the balance of that stock and carried it along in my accounts.

Mr. PECORA. What was the amount of stock that was left over at the end of the account?

Mr. Day (after conferring with an associated). Mr. Gibson tells me I took down 21,000 shares of stock and certain cash profits, on which he has not the figure.

Mr. PECORA. Have you the total cash profits from the transactions?

Mr. Day. No, sir; I have not, because it carried into the other accounts. I simply put it in my accounts.

Mr. PECORA. Our analysis, made from records which Redmond & Co. have made available to us, show a distribution of cash profits of $252,158.75; and of 4,600 shares which, on July 26, 1933, had a market value of about $345,000.

Mr. Day. In other words, your figures show that the profit which was made by us was approximately $345,000.

Mr. Pecora. In stock; and in cash of $252,000.
Mr. Day. I have no figures on it.
Mr. PECORA. Making a total of about $597,000.

Mr. Day. I have no figures on it, so I cannot very well answer. I am perfectly willing to accept your figures.

Mr. PECORA. If you find that our calculations are incorrect, will you notify us, and we will have the correction made on the record ?

Mr. Day. I will be only too glad to. I have not closed the accounts, as far as I am concerned. Unfortunately, I took very considerable losses in other things in my accounts. However, Mr. Pecora, I am very glad to accept those figures and, as you say, if there is any difference that we find, we will send you a statement.

Mr. PECORA. Did your firm have any options covering any shares listed on the New York Stock Exchange other than the options that have been discussed here in the evidence, with respect to the American Commercial Alcohol Corporation and the National Distillers Products Corporation?

Mr. Day. What was the year?

Mr. PECORA. When I say your firm, I mean your firm or any of the partners therein.

Mr. Day. I have copies of them, which I think you are also holding, the first one of which is the 1932, National Distillers Products; 1933, Libbey-Owens-Ford; 1933, American Water Works; 1931, Petroleum Corporation of America; 1933 to February 1934, GrahamPaige; 1932 to 1933, Warren Foundry and Pipe; 1933, Consolidated Aircraft; 1932, Zonite Products; 1931, Houdaille-Hershey; 1933, Barnsdall Corporation.

Mr. PECORA. I believe your firm has turned over to us photostatic copies of all those options. Mr. Day. That is my understanding, sir.

Mr. PECORA. I have before me the photostatic copies that were received from your firm. I will ask you to look at them and see if they are true and correct copies of those option contracts [handing papers to the witness).

Mr. Day. I notice that some of these that you hand me I have not on my list here.

Mr. PECORA. Do you recognize them as copies of options that your firm, or any member of your firm, had?

Mr. Day. I was neither a partner of my firm at this time, nor was I an employee, which I was before I became a partner of this firm. Some of them are dated 1930, which I know nothing about.

Mr. PECORA. Mr. Gibson, will you look at the photostatic copies of options?

Mr. Day. I just cannot tell about something I do not know the first thing in the world about. I will say substantially, Mr. Pecora, unquestionably they are photostatic copies of records which you got from our office, and our name seems to be contained in all of them, back as far as 1929, and we had something to do with them.

Mr. PECORA. Do they constitute copies of all the options that were given by anyone to Redmond & Co., or any of its partners, during the years 1929 to 1933, both inclusive?

Mr. GIBSON. If these were submitted in answer to your questionnaire, they do.

Mr. PECORA. I will offer them in evidence, Mr. Chairman, as one exhibit, and they can be marked. Each separate option may be marked“ A, B, C, D, E”, and so forth, with the exhibit number. The CHAIRMAN. Let them be admitted.

(Copies of options given to Redmond & Co., 1929 to 1933, were received in evidence, marked “ Committee Exhibit No. 78, Feb. 22,

1934 ", and the same will be found at the conclusion of today's proceedings.)

The CHAIRMAN. Is it the common practice for members of the exchange to operate under options like these ?

Mr. Day. I think it is, sir.

Mr. PECORA. And the purpose of obtaining these options is to enable the optionee to distribute the stock covered by the options at a profit through the medium of market operations!

Mr. Day. Market or private. In other words, the object of obtaining one of these options, most naturally, is to make some money legitimately. Mr. PECORA. Now, you are going to enter into a long controversy.

Mr. Day. I will leave that out, rather than take the time. All right; to make money. I want to finish as bad as anybody.

Mr. PECORA. It was a practice under which members of the exchange from time to time conducted market operations at a profit to themselves; isn't that so?

Mr. DAY. Yes.

Mr. PECORA. And the operations would be both on the buying and selling side in order to stimulate the market and create an additional activity in the market by means of which the distribution at a profit was effected?

Mr. Day. Yes, sir.
Mr. PECORA. I think that is all I have to ask.

Mr. Day. The same as they put the dummies in the bus to get other people to ride.

The CHAIRMAN. You may be excused, Mr. Day.
Mr. PECORA. Is Mr. Bowers here?

TESTIMONY OF HENRY S. BOWERS, PARTNER IN GOLDMAN,

SACHS & CO., NEW YORK CITY

The CHAIRMAN. Mr. Bowers, come forward and be sworn, please.

You do solemnly swear that the testimony you are about to give in the matters under investigation by this committee will be the truth, the whole truth, and nothing but the truth. So help you God.

Mr. BOWERS. I do. Mr. PECORA. Mr. Bowers, what is your full name and address, please?

Mr. Bowers. Henry S. Bowers, 30 Pine Street, New York. Mr. Pecora. Are you connected with the firm of Goldman, Sachs & Co.?

Mr. BOWERS. Yes, sir.
Mr. PECORA. How long have you been connected with that firm ?
Mr. BOWERS. Thirty-four years.
Mr. PECORA. In what capacity are you now connected with them!
Mr. BOWERS. First as an employee and since 1915 as a partner.
Mr. PECORA. And what is the business of Goldman, Sachs & Co.?
Mr. BOWERS. Banking, general.

Mr. PECORA. I show you what purports to be a photostatic copy of a letter addressed to the secretary of the Committee on Business Conduct of the New York Stock Exchange under date of August 4, 1933, signed “Goldman, Sachs & Co." Will you look at it and tell me if you recognize it to be a true and correct copy of a letter sent by Goldman, Sachs & Co. to the secretary of the Committee on Business Conduct of the New York Stock Exchange on the date which that copy bears?

Mr. BOWERS (after examining document). Yes, sir.
Mr. PECORA. Did you cause that letter to be sent, Mr. Bowers?
Mr. BOWERS. No. One of my partners.

Mr. PECORA. Are you familiar with the circumstances under which it was sent?

Mr. BOWERS. Yes, sir.

Mr. PECORA. And are you familiar with the transaction or matter to which the letter refers?

Mr. BOWERS. Yes, sir.
Mr. PECORA. I offer that letter in evidence.
The CHAIRMAN. Let it be admitted.

(Letter dated Aug. 4, 1933, from Goldman, Sachs & Co. to secretary, committee on business conduct, New York Stock Exchange, was thereupon designated “ Committee Exhibit No. 79, Feb. 22, 1934 ", and the same appears in the record in full immediately following, where read by Mr. Pecora.)

Mr. PECORĂ. The letter received in evidence is exhibit no. 79 of this date and written on the letterhead of Goldman, Sachs & Co., and reads as follows:

(CONFIDENTIAL]

KELSEY HAYES WHEEL COMPANY,

New York, August 4, 1933. SECRETARY, COMMITTE ON BUSINESS CONDUCT, New York Stock Exchange, Room 608,

11 Wall Street, New York, New York. DEAR SIR: Referring to your circular C5222, there was existing at the close of business on August 2, 1933, an account, managed by us, known as

KELSEY HAYES WHEEL COMPANY

CLASS A STOCK

AND
CLASS B STOCK
JOINT TRADING ACCOUNT

in which Lehman Brothers and ourselves each have a 50% interest. A copy of the agreement covering such Account, which expires August 5, 1933, is enclosed herein.

Such Account is short 900 shares of Kelsey Hayes Wheel Company Class "A" Stock and 1,000 shares of Class “B” Stock, the aforesaid short positions being offset by long positions in Firm Account.

Such Joint Trading Account was organized for the purpose of creating a fair market in such stock, at the request of the New York Stock Exchange. Very truly yours,

(Signed) GOLDMAN, SACHS & Co. (Enclosure.)

Now, Mr. Bowers, will you tell the committee the details concerning the organization of the joint trading account referred to in this letter?

Mr. BOWERS. Following the reorganization of the Kelsey-Hayes Wheel Co., which was about completed in February in 1933, there came into existence this class A and class B stock of the reorganized company. The holders of the old Kelsey-Hayes Wheel Co. preferred and common shares, which were listed on the stock exchange, were to receive in the reorganization, among others, certain amounts of the new A and B stock, and in the ordinary course of business application was made to the stock exchange to list these shares.

Mr. Pecora. Just a moment at that point: Is this the application that was made to list those shares, or is that a copy of it (handing paper to Mr. Bowers] ?

Mr. BOWERS (after examining document). I presume it is; yes, sir.

Mr. PECORA. I offer it in evidence, but ask that it be not spread in full in the minutes, because of its size.

The CHAIRMAN. Let it be admitted, under those conditions.

(Application of Kelsey-Hayes Wheel Co., dated Feb. 1, 1933, to committee on stock list, New York Stock Exchange, was designated “ Committee Exhibit No. 80, February 22, 1934 ", is filed among the records of the committee, but is not copied in this record.)

Mr. BOWERS. In connection with this application to list, the listing committee of the stock exchange, with whom we were to take the matter up, said to us that prior to listing they wished to be assured that there would be an ordinary, orderly market in the new shares. There had been no sales to the public of these new shares. They, therefore, were uncertain as to just their status, and they wished Lehman Bros. and ourselves, as reorganization managers, to undertake to see that the market in the shares was orderly for a reasonable period of time-let us say for 4 to 6 months.

Their request, as detaile dto us, was that we should keep a bid for the stock in the market for a few hundred shares and an offer for the stock in the market for a few hundred shares at a reasonable spread, their fear being that the stock might be $2 bid and $8 or $10 offered, and they did not wish these old stockholders of the Kelsey-Hayes Wheel Co. to be penalized either in buying or selling the stock of the reorganized company by the existence of a wide spread such as I have mentioned.

We therefore told the listing committee, Lehman Bros. and ourselves, that we would endeavor to maintain an orderly market, and by that that we would see that if other bids were not in the market or other offers were not in the market at a reasonable spread, we would undertake to put the bids in or offers in, as the case might require, at a reasonable spread, and we so did for a period of upward of 6 months—little over 6 months.

Mr. PECORA. And that is the joint trading account referred to in this letter addressed to the secretary of the business conduct committee, which has been marked in evidence as exhibit no. 79?

Mr. BOWERS. Yes, sir.

The CHAIRMAN. Were there any others participating in that arrangement ?

Mr. BOWERS. No, Senator. Merely Lehman Brothers and ourselves, who were the reorganization managers of the old company. It was a part of our job as completing the reorganization.

Mr. PECORA. Are there any other facts you want to bring to the notice of the committee with regard to this matter, Mr. Bowers?

Mr. BOWERS. I would like to say, Mr. Pecora, that there was an earlier letter written at the inception of the account to the stock exchange embodying our undertaking, and I think you have a photostat copy of that letter.

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