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. PECORA. 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:



New York Stock Exchange, Room 608,

New York, August 4, 1933.

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






A copy

in which Lehman Brothers and ourselves each have a 50% interest. 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.

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,

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.

Mr. PECORA. Is this the letter to which you refer, copy of which i now show you?

Mr. BOWERS (after examining document). Yes, sir; I would think that perhaps that was it.

Mr. PECORA. I offer that in evidence.

Mr. BOWERS. And would you have that read also in the minutes? The CHAIRMAN. Let it be admitted.

(Letter dated Feb. 7, 1933, from Goldman, Sachs & Co., and Lehman Bros. to committee on stock list, New York Stock Exchange, was designated" Committee Exhibit No. 81, February 22, 1934", and appears in the record immediately following, where read by Mr. Pecora.)

Mr. PECORA. The letter just received in evidence as committee exhibit no. 81, on the letterhead of Goldman, Sachs & Co., reads as follows (reading):

NEW YORK, February 7, 1933.


New York City.

(Attention of Mr. Hoxsey.) DEAR SIR: In connection with the application of Kelsey-Hayes Wheel Company for the listing of shares of its Class A and the Class B stock on the New York Stock Exchange, we shall, in accordance with your request, upon the listing of these shares, put in bids and offers for these shares and endeavor to maintain an orderly market therefor for a reasonable length of time thereafter. We shall do this unless extraordinary general market conditions develop.

With reference to so-called "lend or sell" letters-the words "lend or sell " being in quotation marks-from among the largest stockholders of the company, we have communicated with the five largest and in each case have been told that they will be glad to give such a letter. We are engaged in getting these letters and shall promptly advise you when received.

Very truly yours,

[blocks in formation]

Now, is there anything else you want to call to the attention of the committee with regard to this matter, Mr. Bowers?

Mr. BOWERS. The lend or sell letters were at the request of the listing committee, in order that there be no likelihood of a corner developing in the stock; that is, a demand for the stock which the current supply might not fill, and the price be run up.

Mr. PECORA. That is, the floating supply was rather small?

Mr. BOWERS. Yes, sir. You see, it had been lodged-people who had wished to sell, Mr. Pecora, had sold during the difficulties of the company, and we were fearful that those who held stock would hold to it and there might be a demand and the stock would run up sharply and then be subject to sharp fluctuation downward, and therefore we agreed that we would always supply stock so that there would not be any corner.

Mr. PECORA. This joint account was undertaken by your firm and Lehman Bros. at the request of the stock exchange and as a condition to the granting of the listing application?

Mr. BOWERS. Yes, sir.

Mr. PECORA. Is there anything more?

Mr. BOWERS. One word more: That in connection with the 6 months' operations of that account the total purchases and the sales by the joint account in the class A stock were, I think, about 1,500

shares, both purchases and sales, and in the B stock a total of 2,000 shares at average prices of $4 and $5 a share and for a period of 6 months.

Mr. PECORA. That was a very inactive account.

Mr. BOWERS. In other words, it was, as per the stock exchange, simply kept orderly. Plenty of time there were other bids, Mr. Pecora, or other offers. They were perfectly close enough, and we had nothing to do with that.

Mr. PECORA. In other words, the purpose of this joint trading account as you understood it was to keep the market close on the stock?

Mr. BOWERS. Just reasonably so; yes, sir. So that a buyer would not be penalized by having to pay a higher price, or a seller would not be penalized by having to sell at too low a price.

The CHAIRMAN. What became of the whole transaction after you finished up?

Mr. BOWERS. Why, when we were through we had a balance of 900 shares that we had sold more than we had purchased in one class of stock, and 450 of that was supplied by Lehman Bros. and 450 by ourselves, and in the other class of stock, the class B stock, I think it was, the margin was 1,000 shares, and 500 were supplied by Lehman Bros. and 500 by ourselves. The accounts terminated, and the market then just took care of itself in an orderly fashion.

The CHAIRMAN. You finally got rid of your entire holdings?

Mr. BOWERS. Oh; no, sir. All that we sold, Senator, as a result of this operation over 6 months' time was 900 shares of one class of stock, that is Lehman Bros. and ourselves, and 1,000 shares of the other class of stock. The average prices of those two were about $4 or $5 a share in 6 months' time. In other words, there was very little activity, and it simply took care of itself.

The CHAIRMAN. We are much obliged to you and you are excused. Mr. PECORA. I would just like to interrogate Mr. Altschul a little further.


Mr. PECORA. Mr. Altschul, you heard the testimony of the preceding witness, Mr. Bowers, with regard to the formation of this joint trading account in the stock of the Kelsey-Hayes Wheel Co.? Mr. ALTSCHUL. I have, sir.

Mr. PECORA. And you heard him testify that that joint account was formed at the request of the stock list committee of the New York Stock Exchange?

Mr. ALTSCHUL. Yes, sir.

Mr. PECORA. And was virtually laid down as a condition to the granting of the application for the listing of the shares after the reorganization of this company that was made in February of last year?

Mr. ALTSCHUL. That is my understanding; yes, sir.

Mr. PECORA. Will you explain to the committee the policy of the stock list committee that prompted them to lay down that condition in this case?

Mr. ALTSCHUL. Mr. Pecora, I would like first to state that I was not at this meeting. I was away at the time. But as you told me this was coming out, I have informed myself as best I could with regard to the circumstances.

This was, as far as I know, my experience with the committee on stock list, a unique case. I don't think we could say that there was any policy covered by the particular transactions having to do with the joint account.

So far as the lend or sell letters are concerned, that is a matter of policy I would be glad to explain.

Mr. PECORA. Yes.

Mr. ALTSCHUL. The circumstances of this particular case bearing now on the joint account were these: The stock of the Kelsey-Hayes Wheel Co. was listed on the floor. The company had gotten into difficulties and was in the process of being reorganized.

In connection with the reorganization it was apparent from the figures before us that there was a very large concentration of holdings, because a very preponderating amount of the A stock went to the banking creditors-I have made a few notes on the reorganization-the banking creditors and to the holders of some mortgage bonds and some debentures.

About 220,000 shares, I think, out of about 290,000 in the course of the reorganization went to the security holders or creditors of those classes.

In connection with the B stock, out of 290,000 shares, 75,000 shares went to the old commo-stock holders, and they had rights to subscribe under the plan of reorganization for an additional amount of 149,000 shares, more or less, and in the event that 149,000 shares were not taken by the stockholders on their subscription, there would again have been in the hands of underwriters a very large concentration of holdings.

There were 4,500 stockholders in this situation, and while the distribution was obviously one that would not have gotten by the committee as eligible for listing in the first instance, when the stock was distributed to the stockholders of the listed company by virtue of a reorganization we are very reluctant to see them further penalized after they have been through a reorganization by losing the market for their stock. So we wanted, if possible, to put the new securities that came on out of the old in the list, in the interest of these 4,500 stockholders. The distribution situation gave him concern— and I have discussed this with my associate who handled it to find out just what was in his mind-apparently faced with that distribution situation, he decided that it would be wise to see that there was some orderly kind of a bid offer in there for the stock, so that the market should not be as exposed as it otherwise would have been. Mr. PECORA. That is; exposed to a corner?

Mr. ALTSCHUL. No; not to a corner. This would be exposed to the fact that there were large concentrated blocks that might come into the market and there would be no place for a small stockholder to turn with his holdings. We wanted a regular, orderly market within a narrow range.

Just to digress for one moment, the minutes of the meeting contain a very full discussion of this question. I think you have them.

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