away, and

savings away,

you will find that they were induced to buy these bonds

It is a serious thing in the history of our country, and it devolves upon all of us not especially this committee, because we have done more than we anticipated we ever would do—it devolves upon each and every one of us, if we have made a mistake in this law, or if we can pass a law that will bring relief, to do so.

In the city of New York there are two of these committees. One of them is known as the Roosevelt Committee, and one of them is the Pounds Committee. The names go a long way in the financial market. These committees went out and obtained, each one of them, at least a hundred different pieces of property that they are now managing and liquidating, or reorganizing; sometimes selling. The committees do not have a dollar's worth of interest in them, so far as any money invested is concerned. They do not own these bonds. But they went out and got these people to sign a contract and turn over to them absolute ownership and possession of these properties. And now what are they doing? Since we passed section 77B they are going into the courts, in wholesale lots, and asking the courts to reorganize these properties and allow them their fees.

Of course, it is in the reorganization where they get theirs. And it is also where the little fellow gets his—in the neck.

I have practiced actively for 38 years. I have not had the good fortune to get tied up with big concerns like these, or I might have been able to retire, like some of them, in a very short time.

Courts are human. Courts need protection. That is what we are trying to give to the courts.

The gentleman who presides here might be a Federal judge trying one of these cases. He lives in a big city. He does not hear the word-of-mouth information, like we do in the smaller localities, concerning the value of a property, the management of it, what is going on in the community. He can only depend on what is presented to him.

The men who are supposed to represent this little fellow are on these protective committees. They do not have his interest at heart at all. The members of these committees have their own interest at heart; and in these reorganizations, the men who are appointed to administer them are the committee's friends.

How often have you applied for a receiver in a court, and the court, knowing you as a lawyer of high standing and reputation in your community, said to you, “Whom do you suggest as receiver?" And if you do not suggest someone, he generally picks someone whom he knows, in whom he has confidence.

And these fees that are paid are not necessarily always in proportion to what a man does. It is like an attorney's fee. It is paid to a great extent according to the responsibility, according to the amount involved.

These reorganizations are going on today. And they are reorganizing, in most instances, so that this committee still has control of them. They recognize them in lots of instances where the man who owned the fee is placed back in possession and given 51 percent or 75 percent, or an agreement that what he makes as profit shall go to the bondholders, scattered over a period of 10 years; in other words, it is 10 years before they can even come into a court and do

anything about the matter. And who is it that controls it? It is these protective committees.

Why, on these long 10- and 20-year contracts, after these reorganizations, these committees lease these hotels and buildings out over a period of years, and make a great deal of profit. And who is appearing all this time for the common, ordinary run of bondholder? Practically no one. If someone does appear, it is someone who happens to have a few little bondholders, or some fellow who goes out and picks up some bonds, so that he can come in and get his fee, and the court looks upon him with disdain as a chiseler who is trying to get into court in order to obtain a fee, because of the amount involved.

These people, gentlemen, hire the brains of the country as their lawyers, and a committee representing the Congress of the United States have to go into a court to present our side, through good lawyers who have volunteered to help us, or perhaps some mediocre lawyers whom we can go out and hire for two or three hundred dollars a month. Even at that, in these reorganizations, we have saved hundreds and hundreds of thousands of dollars. But we cannot keep up that work. In many instances our investigator and his auditors—not lawyers- have gone into court and appeared and shown the fallacy of such a reorganization and have knocked it out. They have shown the fraud in it, and they can show it in almost any case.

Of course, I realize that there are some instances where the provisions of 77B do not apply, where there is honest administration, where there are committees that have the interest of the right people at heart. But they would not be hurt under this proposed act. All we want under this bill is to have somebody clothed with some authority to appear in court and show the court what is going on. We want somebody who knows something about this matter, who is informed on it, who can become informed on it, and who can present the true facts to the court.

When we first came into existence, the courts of the country were allowing the most unreasonable fees in the world. And they were doing it honestly. I am one of those who believes that the courts are honest. But they are human. They are susceptible to influence. They do not want to sit around and work for a week trying to dig up something themselves. That is not their duty. They decide these matters upon the facts as they are presented to them.

Why, in one case in New York City, $4,000,000 was allowed to attorneys, trustees, receivers, committeemen.

Mr. SABATH. That amount was demanded, but not allowed.
Mr. FULLER. A great portion of it was allowed.
Mr. SABATH. It was reduced.
Mr. FULLER. How much was it reduced
Mr. SABATH. We forced a reduction of about 70 percent.

Mr. FULLER. It is true that we forced a large reduction there. I do not know the exact figure. But I do recall, even after that, in that same instance, they applied for additional fees of $750,000. It was then that we appeared-this committee appeared-and had that cut more than in two. Those are things that are occurring all the time.

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Under the terms of this bill, this Conservator is an advisor to the court. There can be no reorganization that he does not approve of. What interest would he have in it? He would not be financially interested. He would be connected with no political group. He would probably come out of the same class that we get these bank examiners, experts like that, such as we have in the Comptroller's office, who know the values of these things.

The properties that are being reorganized now, if properly managed, in all probability, will pay out if they have someone to look after them and 'look after the interest of the bondholders.

Mr. CHANDLER. You leave this matter to the President, under the terms of the bill.

Mr. FULLER. Yes. Mr. CHANDLER. What do you think about the advisability of definitely fixing some Conservator?

Mr. FULLER. Personally, I think it is a good idea to fix it. If it were left to me—and this is just my private opinion-I would put it in the Treasury. That is where I would put it. I think they are the best-informed people of any branch in the Government along that line. That is the line along which they operate. They pass upon the assets of these banks. They know the value of these securities. They more or less know the values of real estate, of these big buildings.

Nobody ever complained that a bank examiner was doing something in an examination of a bank for the benefit of some other fellow, in the interest of some other bank—something like that. They make mistakes, of course. But that is where I think it ought to be. But we have left that open.

Some thought that it would be well to set up a new agency. I think that might be a good idea, but I rather doubt that it would appeal to this committee or to the Congress. We have enough of these bureaus, in my opinion.

As I say, we are not wedded to this. But I am telling you gentlemen, in the interest of humanity, in the interest of fairness and honesty, something ought to be done to see that this Conservator is selected, so that he might appear in these matters.

We have saved these people to such an extent that we cannot describe it to you. On an average, these bonds were selling around 5 cents on the dollar when we got started. You hardly hear of one of them selling for less than 50. But when we die legislatively and they continue on, there is no one there to remonstrate; the bondholders are scattered all over the country, with nobody to appear for them but some selfish interest—the protective committee. They will rob them, and eventually they and their crowd will become the owners of these properties. They know what the property can make legitimately, what its real value is. But they will not let the other fellow know it. That is human nature. They will go out and pick up these bonds that are outstanding, and they will own these properties.

Gentlemen, I could talk on this subject for a week, but I do not wish to take up the committee's time.

Mr. DUFFEY of New York. Before you leave the subject of the Conservator, is he the agency of the court ?

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Mr. FULLER. Yes. He is appointed, not by the court but by someone—whoever is going to select him. Let us say it is the Treasury Department. You ask whether he is an agency of the court? Well, he would be a friendly arm of the court, of course.

Mr. MICHENER. He is a sort of friend to the court and the people, as designated by the President.

Mr. FULLER. Yes. Of course, the court does not have to listen to him. He cannot compel the court to do anything. All he is is a friendly adviser.

I was thinking, as I sat here a little while ago, about his fees. I do not know whether this bill provides where his fees shall come from, or not.

Mr. SABATH. It does.
Mr. FULLER. Where do they come from?

Mr. SABATH. There will be a small charge against the property, out of which the costs will be defrayed.

Mr. FULLER. In other language, the office of Conservator can be made pretty nearly self-sustaining. It would not be any expense to the Government, to speak of, if any at all, by reason of the allowances that the courts would make them in these cases.

Mr. MICHENER. If there are over 5,000 cases pending, and the Conservator enters his appearance in each case and receives a fee from every case, he would be receiving quite a large sum of money.

Mr. FULLER. One Conservator cannot receive a salary of more than $7,500 a year.

Mr. MICHENER. The rest of his fees would go where?
Mr. SABATH. It would go into the Treasury.

Mr. FULLER. It would go into a fund from which they pay these conservators.

Mr. MICHENER. Of course, unless there were some such provision as that, that would be a very lucrative position.

Mr. SABATH. Those fees go into the Treasury.

Mr. FULLER. This bill prohibits his drawing more than $7,500 a year.

Mr. MICHENER. How many are there to be?
Mr. FULLER. I do not know.

Mr. MICHENER. My notion of it was that there would be one conservator. · Mr. FULLER. On page 14 of the bill, line 18, the language is as follows:

Such fees shall be in lieu of all other fees to which the conservator would otherwise be entitled by law, shall be deposited into the Treasury of the United States and credited to miscellaneous receipts.

Of course, I would expect that this would not be a profit-making business for the Government. I would expect, of course, that the department that had these matters in charge, say the Treasury Department, would only ask for such fees as would keep these men going

You refer to 5,000 of these cases pending. Why, there is no such thought as figuring on 5,000 conservators. There would not be but a few men.

We would know of the cases and as they come up, if they do not appear right, we have somebody to appear. We do not have to appear in all these cases. If they wanted to reorganize, they would submit their plan to the conservator or to the Treasury Department, wherever it went, and they would look it over and would reject it or they would make recommendations on it, and they would see if they could not get together.

Gentlemen, I concede that anyone has a right to appear before this committee and resist this bill. It may be that it is not a good bill. I have oftentimes thought that I had a case won and to my amazement and surprise I lost it and found out that I should have lost it.

If these gentlemen can give us some food for thought, if this committee can make any suggestions as to why this bill should not be passed or why it should be amended, or that some of it should be eliminated, we are only too glad to hear what it is.

I have now taken more time than I expected to take. I would like to reserve the opportunity, possibly later, to answer any argument that is made by the opposition.

Mr. CHANDLER. Thank you, Mr. Fuller.

Mr. SABATH. Gentlemen, without wasting time, I am going to ask you to hear Mr. Dirksen, another member of our committee, who has worked diligently all these long months with the committee. I ask that he be given an opportunity to be heard now.

Mr. CHANDLER. We shall be glad to hear from him at this time.



Mr. DIRKSEN. Mr. Chairman and members of the subcommittee:

I shall not take a great deal of time. I think, however, that it is absolutely necessary that we strip this thing of all non-essentials and superfluities so as to establish the factual case in your mind as the foundation and the background for this bill.

I believe that that can best be done by stating first of all, briefly, that in 1915, when some very ingenious person invested the trust deed all this trouble began. The trust deed, as such, of course, is an instrument for good and it can be an instrument for bad.

The men who builds a $100,000 hotel and puts a $60,000 mortgage or trust deed on it and sells $60,000 worth of bonds to the public against that deed, where the value of the hotel and the value of the ground are not inflated, is, after all, conferring a considerable service, because he is creating a market for money, for one thing; he is diffusing wealth, for another; and he is creating employment.

But if the same gentleman seeks to build a hotel where the aggregate would fairly be established at $100,000, but, instead, inflates the value fictitiously and artificially so that ultimately he sells $100,000 worth of bonds against property that in reality is worth only $100,000, then you have got 100-percent coverage, and the income from that property has to be far more than it would normally be in order to pay out the interest and retire the principal of an amortized bond issue.

That is where all this deviltry came in. So long as they were using the trust deed in a legitimate manner, everything was all right. The investors, the holders of the bonds, had an equity; the man who built the property, whether it was a hotel or an apartment house, or a commercial structure, had something of an equity.

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