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INVESTIGATION OF RAILROAD FINANCING

WEDNESDAY, MARCH 20, 1935

UNITED STATES SENATE,

COMMITTEE ON INTERSTATE COMMERCE,
Washington, D. C.

The committee met, pursuant to call, at 10 a. m. in room 414, Senate Office Building, Senator Burton K. Wheeler presiding.

Present: Senators Wheeler (chairman), Wagner, Dieterich, Brown, Bone, Donahey, Minton, Moore, Truman, White, and Shipstead.

The CHAIRMAN. The committee will please come to order. We are taking up this morning Senate Resolution 71 asking for a senatorial investigation into the financing of the railroads, by this committee, and asking for an appropriation of $10,000.

When the resolution was first taken up in this committee it was suggested, or at least some of the members of the committee felt, it was appropriate we should hear some preliminary statements as to the necessity for such an investigation. While that is a rather unusual procedure in cases of this kind, I was willing to accede to the wishes of some of the members of the committee in that regard. And I have asked Professor Beard if he would not come here and make a statement with reference to the subject. Then I propose, tomorrow perhaps, to hear someone else, and then I expect to call upon some of the members of the Interstate Commerce Commission, and possibly Chairman Jones of the Reconstruction Finance Corporation. The resolution will be made a part of the record.

(S. Res. 71 will here be printed in full in the record.)

[S. Res. 71, 74th Cong., 1st sess.]

RESOLUTION

Whereas the investing public and the Government itself have already invested billions of dollars in the railroads and railways and their affiliated and subsidiary companies and services and may be solicited to make large additional similar investments in the near future; and

Whereas recent and pending legislation has made and proposes to make huge amounts of Government funds specifically available to aid in the construction, equipment, maintenance, financing, refinancing, oeorganization, and rehabilitation of railroads and railways and their affiliated and subsidiary companies and services; and

Whereas the safety of all private, institutional, and Government investments and loans, past and future, above referred to, as well as the availability on fair and equitable terms of sufficient credit to enable the railroads and railways and such affiliates and subsidiaries adequately to serve the public requires both (a) thorough knowledge by the public of methods and practices employed in connection with railroads and railways and such subsidiaries, and in connection with their construction, equipment, maintenance, management, control, organization, creation, acquisition, consolidation, merger, credit. financing, distributions to securities holders, refinancing, readjustments, reorganizations, receivership, bankruptcy, liquidation, rehabilitation, and matters related thereto, and

(b) adequate legal protection, by congressional legislation or otherwise, based upon such knowledge: Now, therefore, be it

Resolved, That the Committee on Interstate Commerce, or any duly authorized subcommittee thereof, is authorized and directed to make, and to report to the Senate the results of a thorough and complete investigation of the financing, refinancing, reorganizations and readjustments, consolidations, mergers, acquisitions and dispositions, receiverships and bankruptcies, credit arrangements and activities, securities operations and activities, dividend or other financial policies, corporate management and control, voting trusts, trusts under indentures and similar instruments and other agency and depositary arrangements, management, service, equipment and supply contracts and arrangements, intercorporate relationships and transactions, and matters and practices related to any of the foregoing or related to the protection of Government funds, investors, or railroad credit-in respect of interstate railroads, railroad holding companies, railroad affiliates, and railroad subsidiaries any corporation or person which is or has been affiliated with any of the foregoing, banking, legal, engineering, accounting, and other professional corporations, persons, or groups occupying a fiduciary or contractual position or relation with any of the foregoing, and any member of the family of any such person, and any officer, agent, or director of any such corporation or group.

For the purpose of this resolution the committee, or any duly authorized subcommittee thereof, is authorized to hold such hearings, to sit and act at such times and places, either in the District of Columbia or elsewhere, during the sessions, recesses, and adjourned periods of the Senate in the Seventy-fourth Congress, to employ such experts, and clerical, stenographic, and other assistants, to require by subpena or otherwise the attendance of such witnesses and the production and impounding of such books, papers, and documents, to administer such oaths, and to take such testimony and to make such expenditures as it deems advisable. The cost of stenographic services to report such hearings shall not be in excess of 25 cents per hundred words. The expenses of the committee, which shall not exceed $10,000, shall be paid from the contingent fund of the Senate upon vouchers approved by the chairman.

The CHAIRMAN. Professor Beard, will you go ahead and make your statement to the committee?

Senator WHITE. Mr. Chairman, will you have the witness tell us who he is and who he represents?

The CHAIRMAN. Just tell the committee for the record who you are and what your business is.

STATEMENT OF CHARLES A. BEARD, NEW MILFORD, conn.

Mr. BEARD. I am Charles A. Beard. I live in New Milford, Conn. I was long professor of American history and government in Columbia University. I am now retired. I devote myself to the study of American history and looking after a couple of dairy farms in Connecticut. While I am speaking here nominally as a representative of an independent bondholders' committee of the Missouri Pacific Railroad

Senator WHITE (interposing). Independent bondholders' committee of the Missouri Pacific Railroad, do you say?

Mr. BEARD. Yes, sir. I am speaking not only for our own committee but for a great number of teachers, lawyers, doctors, dentists, farmers, banks in small towns, that have communicated with us and asked us to secure an open investigation of the affairs of this railroad in which they have invested their money.

Senator WHITE. Might I interrupt again right there, Mr. Chairman?

The CHAIRMAN. Certainly.

Senator WHITE. Tell us what this bondholders' committee is.

Mr. BEARD. It is a committee of holders of Missouri Pacific Railroad bonds. It was formed for the purpose of getting inside informa

tion on the organization and financing of the Missouri Pacific Railroad, in which we have invested our money.

Senator WHITE. Is there litigation pending in which this bondholders' committee is interested?

Mr. MAXWELL BRANDWEN. Might I reply to that?

Senator WHITE. I just want to get what this bondholders' committee is.

STATEMENT OF MAXWELL BRANDWEN, NEW YORK; COUNSEL FOR INDEPENDENT COMMITTEE OF BONDHOLDERS OF THE MISSOURI PACIFIC RAILROAD.

Mr. BRANDWEN. No; with respect to lots of matters in which the committee is interested, practically all the matters, I might say, there is no litigation pending at all. The purpose of the committee is to obtain information, detailed data, which up to the present time has not been made available through any agency whatsoever.

Senator WHITE. What amount of bonds does this bondholders' committee represent, and what bonds are they?

Mr. BRANDWEN. Well, they are bonds of various issues. The bondholders whom the committee is speaking for runs into a great number. One of the difficulties with respect to this situation is that bondholders have not been permitted to communicate with one another because the spirit and intention of the statute which was adopted by the Senate in 1933 has not been carried out in this case. That is to say, up to the present time, although 2 years have gone by since the Missouri Pacific Railroad went into bankruptcy, no list of bondholders has been made available to any agency whatsoever, except to certain banking groups that have monopolistic control of the list.

Senator WHITE. Now, may I ask who this gentleman is?

Mr. BRANDWEN. My name is Maxwell Brandwen, 30 Broad Street, New York. I am counsel for this bondholders' committee.

Senator SHIPSTEAD. You are counsel for what committee? Mr. BRANDWEN. The independent committee of bondholders for the owners of bonds of the Missouri Pacific Railroad.

Senator WHITE. You have not yet told me what amount of bonds your committee represents.

Mr. BRANDWEN. No; and I cannot answer that question because we have not made any calculation of it. But we can speak for hundreds of people who have asked us to speak for them. It is a small group. Senator WHITE. Well, you cannot make any statement as to the amount of bonds?

Mr. BRANDWEN. There will be hundreds of thousands of dollars of bonds in amount. It will be in that figure, several hundred thousand dollars.

Senator WHITE. Out of a total bond issue of what amount?

Mr. BRANDWEN. Out of a total of $376,000,000.

The CHAIRMAN. All right, Professor Beard, you may proceed with your statement.

Senator MINTON. Before Professor Beard takes up his statement let me ask the gentleman a question: When was this committee set up?

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