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 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,

(Signed) GOLDMAN, SACHS & Co.

LEHMAN BROS. 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

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 subseribe 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 concernand 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.

Mr. PECORA. I have a copy of them before me.

Mr. ALTSCHUL. And they indicate the reasoning just about I think as I have outlined it to you, the reasoning behind that action.

Now, with regard to the lend-or-sell letters, which I take it was part of your question

Mr. PECORA. Yes.

Mr. ALTSCHUL. Before leaving the other question, may I say that this is the only case in my experience in which this action has been taken, so I do not think we could describe it under any question of a general policy, other than a sort of a general disposition to try and see that the stockholders were protected in this situation where there was anything that we could do to help them.

In other words, the lend or sell letters; that is a fairly usual precaution that we take. When the distribution sheets indicate to us that there is a very heavy concentration of holdings, but still not a concentration so heavy that it would act as a bar to the listing altogether, then we are in the habit of asking the large stockholders to give us these lend or sell letters which will allow us to call upon them to lend or sell the stock on the floor at our request in the event that a situation develops in the market to make that necessary. Those lend or sell letters we get very often. We have hundreds of them on file. They are all there merely as a protection against untoward developments, and in my recollection we have never had occasion to use them. I mean they are taken just as a precaution, but it is a precaution which we have never had occasion to use.

Mr. PECORA. Well, as a precaution against what?

Mr. ALTSCHUL. That is a precaution against an untoward development in the way of a corner in the stock.

The CHAIRMAN. Was this application granted ?
Mr. ALTSCHUL. The application was granted, sir; yes.

Mr. PECORA. And one of the thoughts underlying this condition that was virtually imposed as a condition to the granting of the listing application was that there would be stock available to meet ordinary market requirements in a manner that would keep a close

Mr. ALTSCHUL. Yes; I think that is substantially correct. Well, I don't think there is anything—the discussion in the minutes, which I take it you are going to incorporate in the record, sir, will give all the circumstances in back of that. I think your statement is substantially correct. I would not take exception to it in any way.

Mr. Pecora. I have what purports to be a photostatic copy of the minutes of the meeting of the committee on stock list held on February 6, 1933, at which action was taken on this application to list the class A and class B shares of the Kelsey-Hayes Wheel Co. Will you identify that as being true and correct copy of such minutes ?

Mr. ALTSCHUL. I so do, sir.

Mr. PECORA. I will offer that in evidence, but on account of its voluminous character I ask that it be not spread in full on the minutes.

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

(Minutes of meeting of Feb. 6, 1933, of committee on stock list was designated “Committee Exhibit No. 82, Feb. 22, 1934", filed among the records of the committee, but not incorporated in this record in full.)

Mr. PECORA. This was virtually calling upon the sponsors of the stock to make stock available for permanent requirements if the necessity should arise?

Mr. ALTSCHUL. Calling upon the sponsors, and as we understand, the reorganization managers.

Mr. PECORA. I notice that there is no statement embodied in the listing application in the final form of it with regard to this condition for the creation of this joint trading account that has been referred to here. Is there any reason why that was not made public?

Mr. ALTSCHUL. I did not participate in the discussions, but if I had participated I would have urged that it not be made public, and I suppose the same reasons would have guided me that guided the committee.

Mr. PECORA. What was that?

Mr. ALTSCHUL. Because the matter was one of relative unimportance. It was merely a request to keep a normal, natural market in there during the time of the transition period from the old—I don't remember whether it was bankruptcy-but anyway, the old reorganized company and the new company, and to give publicity to the fact that two important banking firms were under agreement which provided for doing certain things might have had a connotation in the minds of the public that was quite unwarranted. It might have provided the incentive—it might have provided the basis for conclusion that would have had no justification. It would have given the transaction an importance that it did not have in our minds. I will put it differently: I think it would have had an importance in the minds of the public that it certainly did not have in ours, and I felt that it more dangerous to disclose-that it might be dangerous to disclose it, and there would be no harm in the arrangement as it was concluded without publicity.

Mr. PECORA. Except whatever activity the stock had in the market through the operation of this joint trading account would be misleading the public, in that the public would thereby be able to assume that this was public trading?

Mr. ALTSCHUL. We would never have assumed that this trading account, so-called, would have led to any added activity in the market that would not have taken place anyway. We would have assumed that such activity as originated on the part of a buyer or a seller would have found a counterpart that would have given a fair execution of his order.

The CHAIRMAN. That is all, Mr. Altschul. We will now take a recess until 10:30 tomorrow morning.

(Accordingly, at 4:32 p.m., an adjournment was taken until 10:30 a.m. on the following morning.)

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