STOCK EXCHANGE PRACTICES WEDNESDAY, APRIL 18, 1934 UNITED STATES SENATE, COMMITTEE ON BANKING AND CURRENCY, Washington, D.C. The committee met at 10:30 a.m., following adjournment on Thursday, April 5, 1934, in room 301 of the Senate Office Building, Senator Duncan U. Fletcher (chairman) presiding. Present: Senators Fletcher (chairman), Glass, Wagner, Barkley, Bulkley, Gore, Byrnes, Bankhead, Adams, Goldsborough, Townsend, Walcott, Couzens, Steiwer, and Kean. Present also: Ferdinand Pecora, counsel to the committee; Julius Silver and David Saperstein, associate counsel to the committee; and Frank J. Meehan, chief statistician to the committee. The CHAIRMAN. The committee will come to order, please. Before proceeding with our executive session I will say that Mr. Pecora is ready to make some report in connection with the aviation stocks. He will now make a statement about that and we will let the material go into the record to be printed. Mr. PECORA. In regard to the trading in certain aviation companies' stocks on the New York Stock Exchange, December 1, 1933, to February 9, 1934, we have reviewed the exchange's reports of transactions in the nine aircraft stocks covered by the Senate committee's resolution, to ascertain, primarily, whether or not there was extensive "short" selling of those stocks prior to formal announcement of cancelation of the air-mail contracts. The reports submitted to us by the exchange would be of assistance in enabling us to ascertain whether any sales were made by persons who may have had advance information that the contracts would be canceled, only in so far as the reports show individuals, et cetera, who sold large blocks of shares. Interrogation of the sellers of the stocks would be necessary to ascertain, for the record, just why they sold stock during this period. The stocks under review were: Aviation Corporation, Inc. (Delaware), common stock. Curtiss-Wright Corporation, class A stock. Curtiss-Wright Corporation, common stock. Douglas Aircraft Co., Inc., capital stock. National Aviation Corporation, capital stock. North American Aviation, Inc., capital stock. United Aircraft & Transport Corporation, common stock. Wright Aeronautical Corporation, capital stock. "Odd-lot" transactions-that is, purchases and sales of less than 100 shares were not required to be reported; however, the unit of trading in Wright Aeronautical being only 10 shares, trades of that number of shares or more were reported. Our analysis of price changes in these stocks showed that, with the exception of Wright Aeronautical, the market value of each of them increased somewhat during December, that all of them showed relatively large price increases in January and that from February 1 to 9, inclusive, substantial declines in their market prices occurred, culminating in relatively sharp "breaks" on Saturday, February 10. The latter date was the day after announcement of cancelation of the air mail contracts, made after the close of trading on the New York Stock Exchange February 9. Schedules showing the price fluctuations and sales of these stocks during the period under review, and especially during February, are appended to this report. "Short" sales, as reported to us by the exchange, accounted for only a very small proportion of the total sales and apparently were not a major factor in the declines which occurred in the market prices of these stocks. On the contrary, there was extensive liquidation of "long" holdings during the latter part of January and the first 10 days in February. During this period, numerous articles in the press regarding disclosures by Senator Black's committee indicated the possibility of revision of the air-mail contracts with resultant loss to the "aircraft" companies and those indications may have accelerated the selling of "long" stock. Furthermore these stocks had been "marked up" in December and January and were therefore vulnerable to unfavorable news concerning the respective companies. Under such conditions, liquidation of large blocks of "long" stock would tend to cause lower prices. Among the sellers of large blocks of the stocks during the latter part of January and to February 9 were: Curtiss-Wright Corporation, common stock. Sperry Corporation sold 36,000 shares of "long" stock December 7 to February 1, of which 20,000 shares were sold January 30, 2,000 January 31, and 2,000 February 1. T. A. Morgan, care of Sperry Corporation, sold 3,000 shares of "long" stock on January 30 and February 1. National Air Transport, Inc., sold 11,900 shares of "long" stock February 9-the date the air-mail contracts were canceled. United Aircraft & Transport Corporation, common stock. One J. H. Townsend sold 16,100 shares of "long" stock in December for Frederick B. Rentschler, vice chairman of board of directors of United Aircraft, and Rentschler, under his own name, sold 20,300 shares on December 27. The specialists for the respective stocks were the largest traders during the period under review, but, except in the case of Wright Aeronautical, in which the specialist sold 1,500 shares, or 23 percent of the total sales of 6,440 shares, the sales by specialists did not exceed 17 percent of the total trading. And I now submit for the record a tabulation for each of the aviation company stocks, showing the number of shares purchased, the number sold, and the total sales, as well as the percentages of specialists' sales to total sales. (The tabulation referred to is as follows:) New York Stock Exchange prices of Aviation Corporation, Inc. (Delaware) [Common stock outstanding, Dec. 31, 1933, 2,777,753 shares] CLOSING QUOTATIONS, FIRST AND LAST DAYS OF DECEMBER 1933 AND JANUARY AND FEBRUARY 1934 HIGH AND LOW PRICES IN DECEMBER, JANUARY, AND FEBRUARY 1 TO 9, 10, AND 13 TO 28 New York Stock Exchange prices of Bendix Aviation Corporation [The common stock, $5 par value, outstanding Dec. 31, 1933, 2,097,663 shares] CLOSING QUOTATIONS FIRST AND LAST DAYS OF DECEMBER 1933 AND JANUARY AND FEBRUARY 1934 HIGH AND LOW PRICES IN DECEMBER, JANUARY, AND FEBRUARY 1 TO 9, 10, AND |