Imágenes de páginas
PDF
EPUB

Mr. TWOMBLY. I might say at this point, however, that the proceedings was instituted three and a half, almost 311⁄2 years ago, so while this preliminary injunction move recently may have had some effect, it did not have effect until 312 years had intervened.

Mr. CROSSER. I understand that you want not only to prevent comment on the charges that may be filed, but you want also to be sure that the charges will not be published until after the hearings?

Mr. TWOMBLY. After the hearings unless-we provide in the law here that there shall be a private hearing unless the person charged asked for a public hearing.

Mr. CROSSER. So that there would be no publicity even to the filing of the charges?

Mr. TWOMBLY. That is right. No evidential facts would be in the charges.

Mr. CROSSER. I understand that.

Mr. TWOMBLY. There would be publicity as to the filing of the charges?

Mr. CROSSER. That is what I mean.

Mr. TWOMBLY. But no evidentiary facts would be included. In other words, it would not be stated that the Commission has reason to believe, or that the members of the staff have reason to believe, or have advised it.

Mr. MCGRANERY. Now, excuse me. Your amendment says that "no publicity shall be given by the Commission to any private hearing, investigation, examination, proceeding or order, other than the publication in the Federal Register of notices of hearings."

There would be no notice of charges?

Mr. TWOMBLY. No; the charges would not be included. No evidentiary facts would be included.

The CHAIRMAN. There would be notice of the character of the charges, would there not?

Mr. MCGRANERY. No; just notice of the hearings.

The CHAIRMAN. Hearings on what?

Mr. MCGRANERY. It does not say; just notice of hearing.

The CHAIRMAN. Notice of hearings would have to contain information as to what the hearings were to be upon, would they not? Mr. TWOMBLY. Not necessarily.

Mr. MCGRANERY. Not under this amendment, Mr. Chairman.

Mr. CROSSER. How would you designate the notice; how would you designate in the notice what it was all about?

Mr. TWOMBLY. It should be stated that an investigation of certain matters was being instituted and that the hearing was to carry on that investigation.

Mr. CROSSER. In doing that, would it not be necessary to describe them to some extent?

Mr. TWOMBLY. No; except I suppose that the notice, so far as to accused individuals are concerned, would contain the charges.

Mr. WADSWORTH. Of course, the notice would be addressed to the individuals?

Mr. TWOMBLY. That is right, so far as the individuals are concerned, that is true.

Mr. WADSWORTH. Informing them as to the nature of the inquiry? Mr. TWOMBLY. That is right.

Mr. McGRANERY. You bind up the Commission pretty tightly here. You do not even give them that right.

Mr. HALLECK. Who is the adversary in a proceeding like this?
Mr. TWOMBLY. So far as I know, there is none.

Mr. HALLECK. In other words, it is the Commission making the charge against the corporation or its officers.

Mr. TWOMBLY. Against the corporation or its officers.

Mr. HALLECK. And the stockholders are not necessarily a party? Mr. TWOMBLY. That is right. As a matter of fact, they are not in this particular instance, except insofar as they are interested in what happens to their investment.

Mr. McGRANERY. They are interested, then?

Mr. TWOMBLY. You bet they are interested.

Now this [indicating on chart] shows their very first market loss overnight. You will notice on the right hand side of your chart. It is a daily chart. And, you will see away up in the left hand upper corner is the market up to November 25, and then if you will drop again away down below, you can see where the market was on November 26. The marks in the big part of the chart represent the weekly trends.

Now, this loss of over $23,000,000, incidentally overnight, was in excess of the amount of the undistributed profits the accuracy of which was questioned, as you will see if you look above on that page. It says undistributed profits of something like $22,000,000 and the loss to the investors overnight was a little over $23,000,000.

(The extracts from the New York Herald Tribune of November 6, 1941, and the New York Times of November 26, 1938, are as follows:)

TRANSAMERICA MOTIONS DENIED IN SECURITIES AND EXCHANGE COMMISSION RULING RECONVENING OF HEARING ON JANUARY 12 ORDERED IN ACTION ON SUSPENSION OF STOCK

[Special to the Herald Tribune]

WASHINGTON, November 6.-The Securities and Exchange Commission denied today all motions made by Transamerica Corporation in proceedings to determine whether or not the capital stock of Transamerica should be suspended or withdrawn, and ordered a reconvening of the hearing on January 12, 1942, at San Francisco.

The proceedings, which originally began in November 1938, enter the third year of litigation between the Securities and Exchange Commission and the Transamerica Corporation, largest stockholder in Bank of America National Trust and Savings Association.

Transamerica filed the following motions:

(1) Motion to dismiss for lack of prosecution.

(2) Objections to jurisdiction and motion to dismiss.

(3) Special appearance and motion to strike out portions of order, to dismiss proceedings under section 19 (A) (2) of the Securities Exchange Act of 1934 and reform proceedings under section 21 (A) of the law.

(4) Objection to the trial examiner; and demand for auditor's report. Transamerica based its contention to dismiss the proceedings on the charge that there was lack of diligence by the Securities and Exchange Commission staff in bringing the matter on for speedy determination. "To the contrary," was the Securities and Exchange Commission answer to these charges, pointing out that "the record shows that the Commission and its staff have expended considerable time in attempting in good faith to cooperate with respondent in order to simplify and expedite this proceeding."

With regard to the second motion and the claims of Transamerica that the Securities and Exchange Commission had failed to comply with the statutory provisions of section 19 (A) (2), the Securities and Exchange Commission says: "Respondent is apparently laboring under a misapprehension as to the nature of

74947-42-pt. 5——12

these proceedings. The amended and supplemental amended orders for hearing do not call for an investigation."

"The facts related to us by the staff of the Commission which prompted the issuance of our orders were the product of a staff investigation," the Securities and Exchange Commission adds. "After reviewing these facts the Commission decided that there were sufficient questions raised by them concerning respondent's compliance with the act and the rules and regulations thereunder to warrant hearings in determine their truth."

In answer to the third motion to re-form the hearing under section 21 (A) of the Securities Exchange Act of 1934, the Commission asserted that an examination of the statute reveals that the section 19 (A) (2) proceeding "is entirely proper at this state."

"We find no provision in the statute which obligates us to point out to a registrant in what way its registration statement fails to comply with the act and the rules and regulations thereunder, before a proceeding under section 19 (A) (2) to determine these matters can be instituted," it is stated. "Despite the absence of any specific statutory duty, we have taken it upon ourselves as a matter of practice to inform registrants of patent deficiencies in statements filed with us, and to point out those items which raise questions concerning compliance with the act and rules and regulations thereunder."

[From the New York Times, November 26, 1938]

SECURITIES EXCHANGE COMMISSION CALLS HEARING ON TRANSAMERICA-ACTS TO DETERMINE WHETHER STOCK OF GIANNINI UNIT SHOULD BE SUSPENDED OR WITHDRAWN-FALSE FIGURES CHARGED-REGISTRATION APPLICATION HELD NOT TO REFLECT CORRECT, TRUE CONDITION OF CORPORATION

[Special to the New York Times]

WASHINGTON, November 25.-The Securities and Exchange Commission today called a hearing for January 16 to determine whether the $2 par value capital stock of the Transamerica Corporation, west coast investment and holding company, should be suspended for not to exceed 12 months or withdrawn from registration on the New York, Los Angeles, and San Francisco stock exchanges. The application for registration was filed on August 7, 1937, covering 11,590,784 shares, and became effective on September 10. The Commission in its order for hearing said it had reason to believe that the application and the amendment thereto "contain false and misleading statements of material facts, including financial statements of said corporation and its subsidiaries, which do not correctly reflect the true financial condition of the corporation and its subsidiaries." Among other things, the Commission said it had reasonable grounds to believe that in 1934 general proxies, to remain in full force and effect, unless revoked, for a term of 7 years, were delegated to a committee composed of A. P. Giannini, John M. Grant, and L. M. Giannini, and were in effect at the date of the application and conferred upon the three named power to direct the management and policies of the registrant.

"It, therefore," the Securities Exchange Commission said, "appears to the Commission that the failure in item 4 (b) and item 11, column G, to disclose the committee composed of A. P. Giannini, John M. Grant, and L. M. Giannini as a parent of the registrant constitutes an omission of a material fact."

POINTS RAISED BY SECURITIES EXCHANGE COMMISSION

The Commission's order, covering 21 tpyewritten pages, gave in detail points raised by the Securities Exchange Commission in regard to a number of answers to items in the registration statement and those contained in an annual report since filed.

In part, the order dealt with the "combined report of condition" of Bank of America National Trust & Savings Association, First National Bank in Reno, and Bank of America (California).

In the concluding paragraphs of its order the Commission said:

"It appears to the Commission that the general policy of the Transamerica Corporation and its subsidiaries with respect to the manner of creation and treatment of 'certain reserves' and the adequacy thereof is improper in the following respects:

"A. In the elimination of 'reserves' on the books of certain companies and the creation of fictitious 'reserves' in similar or substantially similar amounts on the books of other companies in the Transamerica group for the purpose of utilizing such 'reserves' to absorb losses with consequent distortion of the true financial condition of the separate corporate entities and of the entire group as a whole; in particular, with respect to the 'reserves' set up on the 'balance sheets' of Transamerica general corporation as of December 11, 1936, and December 31, 1937, 'for real-estate losses and contingencies of controlled affiliates,' in the amounts of $6,861,814 in 1936, and $1,700,050 in 1937, and $5,034,583 in 1936, and $1,168,002 in 1937 for Capital Co. and California Lands, Inc., respectively.

CALLS RESERVES INADEQUATE

"B. In that the amount of the reserves provided on the books of the various companies in the Transamerica group is naturally inadequate; in particular the 'combined report of condition' of Bank America N. T. & S. A., First National Bank in Reno, and Bank of America (California) as of December 31, 1936, shows 'loans and discounts' in the amount of $539,899,100, which includes, among other things, loans in the amount of $304,674,551 on 'farm lands' and 'other real estate,' The only reserve in this 'combined report of condition' is designated as 'reserve for contingencies' and is set forth at $2,049,928, of which approximately $1,460,000 is a reserve for self-insurance, leaving a balance of $589,928. In its 'balance sheet' as of December 31, 1936, Capital Co. carried 'real estate held for resale' at $51,379,652.11, which amount represented 'land, buildings, and improvements,' and as of the same date, California Lands, Inc., carried 'real estate and equipment held for resale' at $31,357,098.76, which amount included 'land, buildings, and improvements' at $31,335,825.76, with no reserve on the books of either company applicable to such assets.

"As of the same date Occidental Life Insurance Co. (a wholly owned sub sidiary of Transamerica General Corporation, itself a wholly owned subsidiary of Transamerica Corporation), showed on its books 'mortgage loans on real estate' and 'balance due on property sold under contract' in the amounts of $8,175,516 and $3,856,986, respectively, with no reserves applicable thereto. These various items of loans, discounts, and investments in real estate aggregate $634,668,354, against which there is an aggregate reserve of but $589,928.

IMPROPER CHARGE SEEN

"In that because of the nature of the 'reserves' referred to above under A, it was improper to charge losses and expenses against such 'reserves.'

"D. In the treatment of losses and expenses which were not present at the date of a readjustment of accounts but resulted from events occurring subsequent thereto as charges to certain reserves created at the time of such readjustment.

"It further appears to the Commission that registrant, in its application for registration on form 24 and in its annual report for 1937 on form 24-k, has failed to file financial statements for itself and its subsidiaries certified in accordance with the requirements of paragraph II of the Instructions as to financial statements in the instruction books for form 24 and form 24-k, respectively."

The Commission's order said that items 28 and 29 in the registration statement call for information with respect to the remuneration paid by the registrant and its subsidiaries to certain of its officers, directors, and employees. "The Commission has reasonable grounds to believe," the order added, "that n January 20, 1930, the sum of $1,400,000 was placed on the books of Bankitaly Jo. of America (then a subsidiary of Transamerica Corporation) to the credit of A. P. Giannini; that of this $1,400,000 all but $792,000 had been paid to A. P. Giannini by September 1931, at which time counsel for the then existing management of Transamerica Corporation advised that further payment would be illegal; that thereafter subsequent to the change in management in 1932 A. P. Giannini withdrew from the balance of $792,000 the following sums: 1932, $134,826; 1933, $132,896; 1934, $100,596; 1935, $251,952; 1936, $65,914.

"It appears to the committee that the failure to disclose these facts in items 28 and 29 renders registrant's response to these items materially misleading."

BELIEVES FIGURE MISLEADING

The Commission said that with respect to the combined report of condition of Bank of America N. T. & S. A., First National Bank in Reno, and Bank of America (California) as of December 31, 1936, "undivided profits-net" was set forth as $22,503,612.

"The Commission has reasonable grounds," the order added, "to believe that this figure is false and misleading—

"1. In that it includes approximately $9,000,000 of unrealized appreciation resulting from the $14,000,000 write-up in 1935 and 1936 of United States and municipal securities held by Bank of America N. T. & S. A. ;

"2. In failing to include a reserve for losses and doubtful accounts, losses on real estate, depreciation of bank premises, furniture, and fixtures of Bank of America N. T. & S. A., and losses on securities and other assets in excess of $13,000,000;

"3. In that the total of (1) and (2) would wipe out that portion of the 'undivided profit-net' which may be attributed to Bank of America N. T. & S. A. and would require a reduction of the 'surplus' account of Bank of America N. T. & S. A."

With respect to the balance sheet of Transamerica Corporation as of December 31, 1936, the Commission had this to say:

"A. In schedule VI the figure $1,171,714 is set forth as a charge to 'paid-in surplus' in 1936 under the caption 'charge resulting from cancellations and redistribution of capital stock.'

SOLICITING OF ORDERS

"The Commission has reasonable grounds to believe that of this amount $1,124,724 represents commissions and other moneys paid by Transamerica Corporation to Associated American Distributors, Inc. (at that time a wholly owned subsidiary of Inter-Continental Corporation, which was itself a wholly owned subsidiary of Transamerica Corporation) in connection with the following activities:

"From 1934 to April 1937, Associated American Distributors, Inc., engaged in the business of soliciting orders to purchase Transamerica Corporation stock on the various stock exchanges on which such stock was listed. It does not appear that in any case Associated American Distributors, Inc., solicited orders for the purchase of capital stock held by Transamerica Corporation. The solicitations were effected by means of contracts entered into by Associated American Distributors, Inc., with independent dealers and through a large number of salesmen employed directly by Associated American Distributors, Inc.

"Associated American Distributors, Inc., paid commissions to the dealers and to its salesmen for the orders obtained and, to encourage retention of the stock so purchased, additional commissions were paid in proportion to the duration of 'placements' to support these activities, Transamerica Corporation paid the following amounts to Associated American Distributors, Inc.: In 1934, $336,857; in 1935, $891,202; in 1936, $1,124,724. These payments were treated by Associated American Distributors, Inc., as current earnings and were set up on its books as income in the years received.

"In the light of the facts set forth above, it appears to the Commission that the commissions and other moneys paid to Associated American Distributors, Inc., in the amount of $1,124,724 in 1936 represent a current expense properly chargeable to profit and loss and that registrant's treatment of this item as a charge to 'paid-in surplus' and its failure to reflect this item as a current expense with a consequent reduction in 'earned surplus' renders the 'balance sheet' and schedule virtually misleading."

The Commission designated Henry Fitts as trial examiner to take evidence in the proceedings.

Mr. TWOMBLY. Much has been said at these hearings of what speculation and manipulation have done to the poor investor. Let us add one more witch to the group about the cauldron-improper, unproven publicity. Can any one estimate what such publicity by the S. E. C. has done to the innocent investor-how much flesh it has boiled off . his bones? There was a time when witch hunting was in favor in Salem, Mass. Usually then the victim was to all intents and pur

« AnteriorContinuar »