August 6, 1940: Commission issued amended order for hearing and set hearing for September 11, 1940." August 8, 1940: Opinion and order of the Commission in the Walston case. August-October, 1940: Almost daily conferences and negotiations between representatives of Transamerica and representatives of the Commission with regard to the preparation of stipulations to facts in respect of items concerning the bank. February 11, 25; October 9, 14, 21, 24; December 2, 1940: Transamerica hearing continued to permit conferences and negotiations to proceed. October 18, 1940: Officials and counsel for Transamerica and representatives of the Commission attended a meeting of the Commission at which the representatives of Transamerica submitted certain proposals concerning the trial of the proceeding and concerning the amended order for hearing of August 6, 1940. These proposals were rejected by the Commission. The Commission granted the request of the counsel for the Commission to postpone the hearing then set for October 24, 1940, for 4 or 5 weeks, on the ground that the time consumed in the conferences had prevented the making of adequate preparation for the presentation of the Commission's case. Although certain representatives of Transamerica objected to such continuance and insisted that the trial be resumed on the date set, Washington counsel for Transamerica thereafter made repeated requests that the date set be further postponed. November 22, 1940: The Commission issued an amended order and supplemental amended order to supersede the amended order of August 6, 1940, and fixed December 9, 1940, as the date for the resumption of the hearing. December 9, 1940: Hearing reconvened in San Francisco. Counsel for Transamerica filed motion and objections which were argued before the trial examiner. Counsel for the Commission introduced evidence and the hearing went over to the next day. 8 December 10, 1940: The hearing proceeded with the taking of testimony. December 11, 1940: The hearing proceeded with the taking of testimony. The Commission called L. M. Giannini, John Grant, and W. L. Andrews. Upon advice of counsel the witnesses refused to answer questions of counsel for the Commission. The Commission also issued subpena duces tecum for the production of books and records of Transamerica Corporation and affiliated companies. Production of the books and records subpenaed by the Commission was also refused. Over objection of counsel for Transamerica the hearing was adjourned to December 16, 1940, to give time or the preparation for the serving of additional subpena duces tecum. December 13, 1940: Decree of United States court in the Timetrust case enjoining all defendants substantially as prayed in the Commission's complaint. December 16, 1940: The hearing proceeded with the taking of testimony. Upon advice of counsel for Transamerica, L. M. Giannini, president of the bank, refused to answer questions of counsel for the Commission. Thereupon, over the objections of counsel for Transamerica, the hearing was indefinitely adjourned at the request of counsel for the Commission in order to "seek a different forum." December 16, 1940-November 5, 1941: Representatives of the parties engaged in the preparation of briefs, reply briefs, affidavits, and counteraffidavits relating to motions and objections filed by Transamerica on December 9, 1940, and with regard to the request of Transamerica for the issuance of subpenas to take the depositions of various persons who had made affidavits in support of contentions of counsel for the Commission with respect to the issues raised by the various motions and objections. These matters were considered by the Commission, and by order of November 5, 1941, the motions and objections of Transamerica were denied and overruled. The request for the issuance of subpenas was also denied." December 16, 1940–March 10, 1941: Conferences and negotiations between representatives of Transamerica and representatives of the Commission for the purpose of working out agreements and stipulations relating to the proceeding. March 10, 1941: Memorandum of procedure executed by Chester T. Lane, general counsel for the Commission, and L. M. Giannini, representative of Trans "The_amended order was served upon Transamerica and a copy was furnished to the bank. It was never published, however, and by order of the Commission has ever since been withheld from publication. 8 See Securities Exchange Act release No. 2718, attached to this statement. See Securities Exchange Act release No. 3063, containing the opinion and order of the Commission issued November 5, 1941, which is attached to this statement. america, to eliminate from the proceeding certain items directly relating to the bank. March 10-September 1941: Conferences and negotiations between representatives of Transamerica and representatives of the Commission with regard to the interpretation of and compliance with the provisions of the memorandum of procedure and with regard to stipulations to the facts material to the issues raised by the Commission's order. September 1941: Pursuant to agreement, Transamerica filed amendments to its registration statement. 10 September 29, 1941: Commission issued order amending the supplemental amended order of November 22, 1940, by striking therefrom certain subparagraphs which directly dealt with issues relating to the bank and which had been eliminated by the filing of the amendments." November 5, 1941: Commission issued order and opinion denying motions and overruling objections filed by Transamerica. The order further directed that the hearing should be reconvened on January 12, 1942, in San Francisco. January 7, 1942: Bank filed amended and supplemental complaint and injunction and declaratory relief against William O. Douglas et al. in the proceeding in the former proceeding in the District Court of the United States for the District of Columbia. This proceeding had been kept open to allow the bank to seek further relief, if necessary, by the mandate of the Court of Appeals handed down on May 8, 1939. January 12, 1942: Transamerica proceedings continued indefinitely subject to call on 10 days' notice from the trial examiner in view of pending bank complaint.11 February 16, 1942: Oral argument on legal sufficiency of bank's complaint heard by district court. EXHIBIT A For immediate release Friday, November 25, 1938. SECURITIES AND EXCHANGE COMMISSION WASHINGTON Securities Exchange Act of 1934-Release No. 1950. UNITED STATES OF AMERICA-BEFORE THE SECURITIES AND EXCHANGE COMMISSION At a regular session of the Securities and Exchange Commission, held at its offices in the city of Washington, D. C., on the 22nd day of November A. D. 1938 In the matter of proceeding under section 19 (a) (2) of the Securities Exchange Act of 1934, as amended, to determine whether the registration of Transamerica Corporation capital stock, $2 par value, should be suspended or withdrawn Order for hearing and designating officer to take testimony. File No. 1-2964 It appearing to the Commission that Transamerica Corporation is the issuer of Capital Stock, $2 par value, and that said Transamerica Corporation registered 11,590,784 shares of such stock on the New York Stock Exchange, the Los Angeles Stock Exchange, and, by amendment, on the San Francisco Stock Exchange, all national securities exchanges, by filing on or about August 7, 1937, an application on Form 24 signed for the Corporation by John M. Grant, President, with the said exchanges and with the Commission pursuant to Section 12 (b) of the Securities Exchange Act of 1934, as amended, and pursuant to Rule JB1 (now Rule X-12B-1) as amended, promulgated by the Commission thereunder, which application became effective September 10, 1937; and The Commission having reasonable grounds to believe that Transamerica Corporation has failed to comply with the provisions of Section 12 (b) of the Securities Exchange Act of 1934, as amended, the rules, regulations, Form 24 and 10 See Securities Exchange Act release No. 3022 attached to this statement. the Instructions thereto, promulgated by the Commission thereunder, in that the application for registration on Form 24 and the amendments thereto filed by said Corporation 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, all as hereinafter more particularly set forth; The false and misleading statements which the Commission has reasonable grounds to believe exist in the application on Form 24 and the admendments ⚫ thereto being more particularly as follows: 1. Item 4 (b) and Item 11, Col. G, call for certain information with respect to all parents of the registrant. The Instructions to Form 24 define the term "parent" to include a person in control of the registrant and the term "control" is defined to mean "the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise." The Commission has reasonable grounds to believe that in 1934 general proxies, to remain in full force and effect, unless revoked, for a term of seven years, were delegated to a Committee composed of A. P. Giannini, John M. Grant, and L. M. Giannini, that such proxies were voted at the annual meeting of stockholders on March 29, 1934, and were in effect at the date of the application on Form 24, and that at such date these proxies conferred upon A. P. Giannini, John M. Grant, and L. M. Giannini the power to direct the management and policies of the registrant. It therefore appears to the Commission that the failure in Item 4 (b) and Item 11, Col. 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. II. Item 28 and Item 29 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 that on January 20, 1930, the sum of $1,400,000 was placed on the books of Bankitaly Company 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: It appears to the Commission that the failure to disclose these facts in Items 28 and 29 renders registrant's response to these items materially misleading. III. With respect to the "Balance Sheet" of Transamerica Corporation as of December 31, 1936 A. In Schedule VI the figure $1,171,714.56 is set forth as a charge to "Paid-In Surplus" in 1936 under the caption "Charge resulting from cancellations and redistribution of capital stock." The Commission has reasonable grounds to believe that of this amount $1,124,724.78 represents commissions and other monies 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, addi tional 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, $891,202.17; in 1936, $1,124,724.78. 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 commission's and other monies paid to Associated American Distributors, Inc., in the amount of $1,124,724.78 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 VI materially misleading. IV. With respect to the "Profit and Loss Statement" of Transamerica Corporation A. Schedule VI sets forth as charges to "Paid-In Surplus" under the caption "Charge resulting from cancellations and redistribution of capital stock" the figures $495,152.72 in 1934, $891,202.17 in 1935, and $1,171,714.56 in 1936. The Commission has reasonable grounds to believe that of these figures $336,857 in 1934, $891,202.17 in 1935, and $1,124,724.78 in 1936 represent commissions and other monies paid by Transamerica Corporation to Associated American Distributors, Inc. (then a wholly owned subsidiary of Inter-Continental Corporation which was itself a wholly owned subsidiary of Transamerica Corporation) in connection with the activities described above in paragraph III-A. In the light of the facts and for the reasons set forth above in paragraph III-A, it appears to the Commission that registrant's treatment of these items renders the profit-and-loss statements for 1934, 1935, and 1936 materially misleading. V. With respect to the "Balance Sheet" of Inter-America Corporation as of December 31, 1936 A. Under the caption "Reserves-For liability and possible loss under outstanding contract of guaranty", and in Schedule V relating to additions and charges to 'Reserves', there is set forth the figure $9,302,281.82. The accompanying Note states that this amount relates to a contract of guaranty given to Bank of America N. T. and S. A. in connection with certain assets of the Bank. The Commission has reasonable grounds to believe that certain facts having a material bearing on this matter are as follows: In 1931, in the course of an examination of Bank of America N. T. & S. A., the national bank examiners classified certain assets of the Bank in the face amount of approximately $35,214,000 as losses and doubtful accounts of such unsatisfactory character as to require their elimination from the Bank's balance sheet. Under three contracts dated June 26, 1931, December 31, 1931, and Februray 13, 1932, Bank of America N. T. & S. A. and Corporation of America' (both of which were at that time 99.65% owned by Transamerica Bank Holding Company, itself a wholly-owned subsidiary of Transamerica Corporation), entered into agreements which provided that Bank of America N. T. & S. A. "agree to sell, transfer and set over and does hereby sell, transfer and set over to the Corporation, and the Corporation agrees to purchase and does hereby purchase from the Bank" all such assets. As consideration for these assets, Corporation of America agreed to pay the face amount of $35,214,000. To secure performance Corporation of America's pledged with the Bank the assets purchased together with additional collateral. Corporation of America failed to give effect on its books to the assets acquired by these contracts of purchase and sale or to reflect any direct liability thereunder, but apparently treated the obligation arising under the contracts as a guaranty by setting up a reserve from capital surplus in an amount approximately equal to the aggregate purchase price under the contracts. In 1933, the three contracts were transferred to Transamerica Bank Holding Company, and Transamerica Bank Holding Company by a resolution of its Board of Directors, dated August 30, 1933, agreed to "assume all of the obligations of Corporation of America under those three certain contracts between said Corporation of America and Bank of America N. T. & S. A." In connection with this transfer, Corporation of America eliminated the reserve set up to cover its obligation under the contracts, then aggregating approximately $34,994,376.57, and a reserve in the same amount appeared on the books of Transamerica Bank Holding Company. At a "Special Stockholders Meeting" on 74947-42-pt. 5- -14 April 20, 1935, the name of Transamerica Bank Holding Company was changed to Inter-America Corporation. From time to time Bank of America N. T. & S. A. reduced the item set up on its books to reflect the obligation of Inter-America Corporation under the three contracts by a write-up of unrelated assets and by various other means as set forth below under paragraph VII to XI, and XV to XVII, both inclusive. In the light of the facts set forth, it appears to the Commission that the items "Reserves-For liability and possible loss under outstanding contract of guaranty" together with the accompanying Note, Schedule V, and the "Balance Sheet" are materially misleading: 1. In treating the contracts described and the obligation of Inter-America Corporation thereunder as a guaranty rather than as a purchase and sale which should have been recorded by setting up the assets purchased with a corresponding direct liability for the purchase price and, in view of the character of the assets, a reserve for the losses which would be borne by Inter-America Corporation; 2. In that the amount set up as "Reserves" for this obligation does not reflect the true amount of the liability due nor the possible losses under the contracts; 3. In the use of the term "recoveries" in Schedule V as charges to the "Reserve" originally set up to cover Inter-America's obligation under the three contracts, in that the term "recoveries" fails to indicate and falsifies the true nature of the reduction of Inter-America's obligation by conveying the impression of actual cash recoveries on assets written down, whereas in fact the "recoveries" were accomplished by the write-up by Bank of America N. T. & S. A. of unrelated assets as set forth below in paragraphs VII to XI and XV to XVII, both inclusive. VI. With respect to the "Balance Sheet" of Transamerica General Corporation as of December 31, 1936 A. Under the caption "Investments in Securities of Affiliates" and in Schedule II there is set forth the figure $8,982,180.20 as the carrying value of the investment in the capital stock of Banca d'America e d'Italia. The Commission has reasonable grounds to believe that certain restrictions imposed by the Italian Government upon the transfer of any profits or other funds from Italy to any other country materially affects this investment. It therefore appears to the Commission that it is materially misleading to set forth the figure $8,982,180.20 as the carrying value of the investment in the capital stock of Banca d'America e d'Italia without indicating the effect that the restrictions referred to above may have upon the investment. VII. With respect to the "Combined Report of Condition" of Bank of America N. T. & S. A., First National Bank in Reno, Bank of America (California) as of December 31, 1936 A. The item "Loans and discounts" under "Assets" and in Schedule E is stated to be $539,899,100.65. This figure includes, among other things, loans in the amount of $304,674,551.73 on "farm lands" and "other real estate." The Commission has reasonable grounds to believe that the item of $539,899,100.65 includes estimated losses and doubtful accounts aggregating in excess of $8,000,000 and slow accounts in excess of $125,000,000 held by Bank of America N. T. & S. A. Registrant has failed to disclose these losses, doubtful items and slow accounts in the "Report of Condition," either in Schedule E or elsewhere in the registration statement, has failed to provide any reserve for such losses and doubtful accounts, and, in the supplementary data furnished in accordance with paragraph I (5) of the Instructions as to Financial Statements in the Instruction Book for Form 24, has affirmatively stated that there are no losses on loans and discounts not provided for. B. "United States Government obligations, direct and/or fully guaranteed" and "Other bonds, stocks and securities" are set forth under "Assets" and in Schedule F and Schedule G at $478,019,771.38 and $175,078,108.60, respectively. The Commission has reasonable grounds to believe that these items include United States Government and Municipal securities held by Bank of America N. T. & S. A. which were written up in 1935 and 1936 to the extent of approximately $14,000,000 and which at the date of the "Report of Condition" included an unrealized appreciation of approximately $9,000,000. The registrant has failed to disclose this fact in either Schedule F, Schedule G, the supplementary data furnished in accordance with paragraph I (5) of the Instruction Book for Form 24, or elsewhere in the registration statement. The only provision for a reserve, captioned "Reserve for contingencies," is set at $2,049,928.01. The Commission has reason to believe that $1,971,058.48 of this figure is applicable to Bank of America N. T. & S. A., and that of this $1,971,058.48, |