Mr. GILBERT. Enlighten me on why there is any necessity then in the agreement for $50,000,000 valuation at all. Why should we commit ourselves to any valuation? What is the necessity of it in the merged agreement?

us.

There

Colonel LADUE. I think the necessity of it arises from the requirement by the stockholders of the street-railway properties-the two transit companies-to know where they stand if they exchange their stock that they now have for new stock in the new company. has got to be some basis-at least that is the way it is presented to So far as the Public Utilities Commission is concerned, there is no necessity that I see for a valuation at this time. We have got to have a valuation at some time. But I did not take it that the interests of the Public Utilities Commission or, rather, the duties of the Public Utilities Commission would require that valuation be made now. But this merger agreement is a merger agreement that is not prepared or drafted by the Public Utilities Commission. It is an agreement entered into by the stockholders of these companies, that is, by the owners of the companies, on the terms on which they are willing to put their properties together.

Mr. GILBERT. I understand that.

Colonel LADUE. And they thought that was necessary.

Mr. GILBERT. You approved that?

Colonel LADUE. We approved that.

Mr. GILBERT. I agree with Mr. Reid that we have no authority to write any agreements. But I doubt the wisdom of committing ourselves to a valuation of $50,000,000, if I am correct, that as an investment property is not worth half that amount.

Mr. MCLEOD. Mr. Gilbert, if you will let me ask a question of you?

Mr. GILBERT. Yes; I will be glad to.

Mr. MCLEOD. In event the street railway companies were not giving satisfactory service, and also in case the people of the district or any municipality, as an example, were satisfied that satisfactory service was not being given, and they have decided to attempt to have the municipality purchase, they then would, as I understand, decline to renew the franchise the question I was asking you is, How would they then arrive at the figure of valuation? Would they consider the invested value or the actual value?

Mr. GILBERT. I doubt if I am well enough informed to answer those questions. My confused questions show that there is confusion in my own mind, which I am trying to clear up as much as I can. I have a confusion as to why a rate-making basis is necessary in a merger. I started out with the idea that it was all important, and I am drifting to the position it has no place in the hearing at all. That is sufficient to show how confused I am in my own mind.

Colonel LADUE. I think the Public Utilities Commission would be perfectly willing to leave it out, but the railroad companies will not. Mr. GILBERT. Does not that rather imply that they are committing us to a rather dangerous thing? A merger value is more sale value than a rate-making value, in my opinion, and we are committing ourselves to a rate-making basis when we are really having a sale for certain purposes-just a sale to a new company.

The CHAIRMAN. The chair would state that he would like to have an executive meeting. Therefore, the public hearing is closed now and we will have an executive session.

Mr. NOONAN. Mr. Chairman, may I have just a word?

The CHAIRMAN. The committee will be glad to hear you to morrow morning.

Mr. NOONAN. Thank you very much.

(Thereupon, at 11.50 o'clock a. m., the committee proceeded to the consideration of executive business, and at the conclusion thereof adjourned to meet to-morrow, Tuesday, May 1, 1928, at 10.30 o'clock a. m.)

HOUSE OF REPRESENTATIVES, COMMITTEE ON THE DISTRICT OF COLUMBIA, Tuesday, May 1, 1928.

The committee met at 10.30 o'clock a. m., Hon. Frederick N. Zihlman (chairman) presiding.

The CHAIRMAN. The committee will be in order. If there is no objection, Mr. Roberts will be permitted to make a brief statement to the committee.

STATEMENT OF WILLIAM A. ROBERTS-Continued

Mr. ROBERTS. May it please the chairman and the committee, there is reference in the report to certain correspondence in connection with members of the federation who are also members of the Citizens' Advisory Council, and there also was offered for the record a copy of a minority report prepared within the council myself which the committee in its wisdom at an executive session yesterday ordered stricken from the record. In order that the matter in that report may not be misconstrued, I would like to state that it was originated in a moment of impatience and was unduly strong.

Although I do not believe that there are any intentional or unintentional misstatements of fact in it, it has been read as if it conveyed my idea that the gentlemen who were named were guilty of things culpable and improper. That was not my intention at the time and the language was unfortunate.

It was intended to be a mere statement of facts in the beginning, and the greater part of the resolution to which no weight was attached, unfortunately, was merely an exposition of my position. I wanted to state that I am thoroughly satisfied that it will not be in the committee's record, and that while I stand back of any statements of fact, I am glad that the language contained in that minority report is not to be given further attention.

I thank you.

The CHAIRMAN. We will hear Mr. Noonan.

STATEMENT OF JOHN J. NOONAN, WASHINGTON, D. C.

(The witness was duly sworn by the chairman.)

The CHAIRMAN. Mr. Noonan, you are one of the stockholders of the Washington Railway & Electric Co.?

Mr. NOONAN. I believe the largest minority stockholder.

The CHAIRMAN. Do you speak for yourself or for other stockholders also?

Mr. NOONAN. I feel that I am speaking for all of them.

I have letters coming in, telephone messages, etc.; we are very much shocked at the conditions.

The CHAIRMAN. Has there been any meeting of the parties whom you represent?

Mr. NOONAN. Some of them are outside the city. I received a message from Boston and another one from somewhere in New England which I do not recall, and a couple of telephone messages, and also I have heard from one man especially who has 500 shares, Mr. McCabe.

The CHAIRMAN. How many shares have you?

Mr. NOONAN. I have fifteen hundred.

The CHAIRMAN. You may proceed now and make your statement. Mr. NOONAN. I would like to say, Mr. Chairman and gentlemen, that I have never made a speech in my life. I have never had the time to learn how to do it. This is the first time I ever appeared before a committee, and if I make any errors, I want you to feel that they are unintentional, and I hope that you will be as lenient as you can with me.

Mr. GIBSON. We are not as bad as we might be.

Mr. NOONAN. I, of course, do not know the procedure. I do not know what I am allowed to do or what I am supposed not to do.

I bought my first stock 20 years ago, 30 shares, when I first went into a small business in this city, and I have kept on accumulating it ever since.

I had known of other cities where street-car lines had been wrecked and manipulated. I had seen that done. I felt that the District, being under the watchful eyes of the President and the Congress, would not have that happen to it, and I had full confidence here. Mr. BOWMAN. What did you pay for your stock then?

Mr. NOONAN. I paid for the first, 36; I paid 50 and, I believe, 70. One-third of the time I received dividends and two-thirds of the time none. The majority of the time I received 5 per cent.

Mr. BOWMAN. What is the stock worth now?

Mr. NOONAN. I believe it is worth $1,000 a share, from what I understand. I understand that there are $12,000,000 to $15,000,000 deposited in the banks throughout the city.

Two or three years ago the New York Times came out with the statement that the earnings were 36 per cent. I saw a telegram a few days ago in which Dillon & Reed quoted the earnings at 60 per cent. I believe, myself, that the earnings under this new agreement if it goes through, will be 90 per cent on the $6,500,000 of common stock. But with the holding company, I believe it is worth nothing, as is mentioned in Mr. Humphrey's book and as the North American and the Power Trust have been handling holding companies. If you wish, I will tell you what first aroused me. in the Times which first got me wise to the thing.

It was an article

I will say further that I believe I own more stock than all the Washington directors combined; that is, the men in Washington. I believe there are 12 directors; I am not positively sure. I understand they have all sold out, except for a few preferred shares which enables

them to be directors. I think that I have more than they have. I can not say positively as to that.

Would you care if I read this article which first drew my attention to the dangerous condition of affairs here? It is an article of Sunday, March 18, in the Herald.

Mr. HALL. Give us the name of the author of it.

Mr. NOONAN. Bryan Morse.

Mr. HALL. Do you know him?

Mr. NOONAN. No, sir; I do not. It is a special article written by him.

Mr. HALL. You do not know whether he knows anything about it or not?

Mr. NOONAN. He quotes Mr. Humphreys. This article directed my attention to the dangers of the situation and put me in a panic, and I have been in one ever since.

Mr. GIBSON. Who is Mr. Humphreys?

Mr. NOONAN. The chairman of the Federal Trade Commission who is at present making an investigation of the Power Trust. This commission is doing that now. You can see that in the daily papers. I believe that is taking place in this city now.

He has published two books, one of them on utilities.

Mr. GIBSON. Proceed. I just asked Mr. Hall whether he has read any of the testimony before the Federal Trade Commission. Mr. NOONAN. I am quoting from the article:

Some of the objectionable features summarized are:

The holding company escapes State regulations, first, because it does not operate any properties, and second because its financial operations are interstate in character and beyond State control. Profits may be concealed and paid to the holding company in the form of fees for services or for the payment of profits at the expense of necessary reserves to cover necessary reserves and replacements of property.

The complicated, pyramided holding company structure, created without regulation, raises the question whether such structures really are necessary when the same degree of control might be accomplished by straight merger, with less possibility

There are one or two lines obliterated which I can not read.

Other objectional features are the domination of control by a small fraction of the actual cash investment. In charging fees for services the holding company is virtually in the position of unrestricted contracting with itself, without let or hindrance. Under such control the unregulated purchase of common stock control of operating companies at prices far in excess of the capitalized present earning power or probably future earning power of the operating companies for years to come, is trading on such thin equity that the purchaser of securities of the top layers is in reality investing his money in "control of control" rather than in a security backed by physical assets. Holding company organizations show both profits and losses grouped together.

There are one or two other lines to the article which are obliterated. I am going to ask permission to submit a brief to the committee. later, and I will give each member of the committee a copy of it at the end of the hearing.

Gentlemen, I am in a panic. I do not want to mention any names. These people are my frields and they have been loyal to me and they are tied up in such a way that they can not afford to be mentioned, but I went down the following day and saw a gentleman. He advised me to try to sell.

I called up a broker, Chapman, and he asked me what I wanted for the stock. I told him from what I had understood that it was worth $1,000 a share.

He said that he thought it was worth that, but that he would try to get $750. He called back and wanted to make an engagement with me.

Well, my lawyer was out of the city. Hearing that Mr. Wilson was a ruthless man, I was afraid to meet him confidentially-that is, Mr. McAdoo and he.

A few days later he asked me to meet Mr. McAdoo and Mr. Wilson, and one of the best newspaper men friends that I had in the city told me that Mr. McAdoo had accused another man in the South of being a blackmailer in a recent affair that he had had, but he did pay the claim, so I could not afford to meet Mr. McAdoo.

I went to New York and saw these daily ads in the paper about it being worth $500. I thought that possibly I could sell the stock. I found that there was no sale except what the North American put out through Dillon & Reid. I understand that they are the people that are handling it for them.

I went down to Moody. I would like to go back, if you don't mind, and digress just a little.

Two years ago last October I went up-I had been dealing a little in stocks and I had bought some North American, 500 shares, which I had on margin. I intended to buy more.

I was getting glowing accounts of the millions of kilowatts increase, and everything of that kind, and I was sold on the proposition.

I inquired from Mr. Spaid, of Hibbs & Co., as to a good investment service, and he referred me to Moody.

I went to see Moody and asked for the man in charge of utilities. They have three floors, 35 Nassau Street. I was referred finally to the man in charge of public utilities, and the statement that he made to me was shocking. I would be afraid to make it to the committee. I was advised not to do it. I do not want to lay myself open to a libel suit. He took the hide off of them.

I had been sold on the proposition, but I listened to him for probably 20 minutes before he got it through my head. Finally I said, "Well, I thought that the North American was the strongest company in the world." He said that it was the third largest.

I said, "Man, I intended to buy a thousand or two thousand shares more on margin, but you have saved me a fortune and I want to thank you with all my heart."

I came back and put in a stop loss order on my 500 shares, and I believe I finally sold it at 77.

So, after reading this article and trying to sell it here and being unable to, I went to New York to see what I could do. I found that I could not sell the stock, so I went down to Moody again. I got a different man this time.

I asked him where the other man was. I mentioned him by name. They said that he was around, but he was not there just at the time, but that he was still with them.

I then asked him about the North American.

vicious as the other man, not as hard on them.

This man was not as

I told him that I had some friends who were interested. I did know a widow woman in the Agricultural Department and another

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