New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1873-12-01
MISMANAGED TRUSTS.
THE UNION TRUST COMPANY.

REAL AND ASSIGNED CAUSES OF THE FAILURE
TIE SECRETARY INITIATING THE UNLAWFUL ACTS
OF MEssRs. CLARK AND ,sCHELL
70 the Editor Of The Tribune.
SIR: At the time of the failure of the Union Trust
Company various reasons assigned for it, shall
endeavor to ascertain if they were sufficient. aud,
If not what the real causes were. In this nvestga-
ton shall refer to the inventory Of the property
filed in the clerks Office by the receiver Mr. Wesley,
and to subsequent statement by him. published
Nov. 2.
1t was said that the failure was caused by the
fuSa of Gen. Hillhouse, the Assistant Treasurer of
the United States, 10 purchase $l000O00 Of United
States bonds early in the morning of the
day on which it failed. The inventory
shows that the Company owned only 100000
Of United States bonds, and that these
were deposited with the Bank Department at Al
bany beyond the control of the Company; that they
held as collateral only S1Is.SO United States bonds
and therefore they did not have any OF these bonds
which they could sell Ii also said that the
Secretary neglected to give the three days notice
REQUIRED on all call loans, aud that if these notices
had been given the Company would have
collected sufficient to have carried them
through. II is TO be presumed that the
receiver performed his duty and gave the notices
as soon as he was appointed but though weeks have
ELAPSED he has collected ouly SSS5OO. Other causes
than these must be found for the failure The act of
interpretations limits within a very narrow compass
the securities in which the capital could be invested,
but enarrcs the class of securities in which the
deposits nav be invested, and allows them to be lent
on collateral security. By this wise arraDcement it
was expected that ample fund would be secured
in the capital TO provide against contingencies SINH
lar TO those TO which the Company was exposed IN
September The capital was 20 be invested in bonds
and mortgages on real estate in United States and
VI ~ IL nd in Of NJ flp
State, 500 900 Of which 60 he deposited with
the Banking Department at Albany. Instead of
having S1OOOO0J the amount of its capital, thus
securely invested, ii had but $4,000 of permanent
investments, and of this only 100000, the deposit
at Albany was in securities authorized by the
charter. All the others were illegally made.
According to the inventory there was due to the
Company at i failure, Sept 90 call loans S6,SO9,
600 with collateral securities of the nominal value
of more than S9OOOOoO it also held in cash S9i1 600
The general character of these loans shown by the
fact that ON Nov 8 46 days after the assignment,
the receiver held only S57G913 cash. showing that he
had collected only $4,000, or less than five per cent
An examination Of the securities held as collateral
to these loans viii show that the receiver acted
wisely in not pressing sales, and viii render any
further inquiry for the of the failure uDneces
sary. Its condition must have been known to some
of the Trustees and depostors, and the withdrawal
their friends were sufficient to excite dstrust and
lead TO run which even in ordinary times it could
not have met. The failure was caused by poor in
yestments and call loans on securities little known
ON the Exchange many of them having
no market value. and most of which they
were prohibited from taking by the charter
For example, there were $4,000 Teho and Neosha
Railroad bonds, SjS5, 900 Union Pacific stock $3.50
900 stock and bonds of the Missouri Kansas and Pa
cifc Railroad and S3 600 first and second mortgage
bonds Of the Pacific Hotel Company of Chicago.
When we learn that the executive manager of the
Union Trust Company also the leading director
in the companies whose stock and bonds formed
about two-thrds Of the entire amount of invest
ments and collaterals held by the Company We
know the reasons why such investments and loans
were made. Mr.. Horace +. CLARK was supposed to
be man Of large wealth, and was Of great financial
ability. BY his standing and weight of character,
Joined to strong viii, he exercised potent infu-
ence in companies where he was director. He was
the son-in-law Of Mr. Vanderbilt, and the head of a
strong clique which had been very successful IN its
operations. Nearly S2OOO.OOO of the money of the
Trust Company were leut to the Lake Shore and
Michigan Southern Railroad Company, of which Mr.
Clark was President and Mr.. Schell another of the
Executive Committee of the Union Trust Company
was director The securities for this loan so
INADEQUATE and improper that Mr.. Vanderbilt was
compelled to withdraw portion and add others Of
greater value after the failure. With this loan the
Railroad Company paid its August dividend, and 1t
was the immediate cause of the failure of the Union
Trust Company a portion of the loan being the
dividend on the stock of Messrs. Clark and Schen
went directly into their pockets.
The expediency of a trust company locking mp ITS
funds in such manner may well be doubted; but
we are not left to doubt for the charter foTbds them,
aud says, No loan shall be made directly or In
directly TO any trustee officer" Loans were also
made on bonds of companies in which other trustees
were interested. The necessity and wisdom OF TINS
restriction is shown in the results that have followed
its violation in this case Mr. Clark having small
amount of stock in the Union Trust Company, was
able by his personal influence to the loan of
millions to companies in which he had a large
pecupiarv interest In every one of these
loans the provision Of the charter above re-
ferred TO was violated. By another section the
Company could not hold stock in any private
Incorporated company beyond $4,000. This provis-
ion was also violated in many cases. By these
means the capital Of the stockholders and the de-
posits of its creditors locked up in securities
which could neither be sold nor used to borrow
money upon and when the hour Of trial came, tail
ure was the inevitable result. But the evil did not
stop here The Secretary of the Company followed
the example of his superiors, and seeing them daily
transgreSsing the law. he in violation of his duties,
obtained funds and securities of the Company, for
which they now hold claims for unsecured drafts"
have thus shown that the management of the
Union Trust Company controlled III the interest
of one or two of the members of the Executive Com
mittee who betrayed the trusts committed 10
them by their fellow Trustees, by the depositors
and by the State that the failure was caused by a
- Al. ont