Evening star. [volume] (Washington, D.C.) 1854-1972, 1880-03-30
Freedmen,s Bank Investigation.
REPORT OF THE SENATE CoMMIrrEE-cAUsES OF
THE BANKS FAILURE, ETC.

chairman) appointed nearly year ago, to In
quire into the affairs Of the Freedmen'S Bank
for the purpose Of ascertaining the causes OF
its failure under the management provided In
the original charter, and also to ascertain the
condition OF the institution as administered by
the commissioners appointed in 1914, with the
view to reduce the present cost of management
and to secure speedy and final adjustment
the affairs OF the bank. agreed unanimously
upon report, which will be submitted to the
Senate to-day.
After recounting briefly the circumstances
under which the Freedmen's Bank was organ,
lied, and reviewing its early history, the com.
mittee analyzes the provisions of the original
charter, and shows how the amendment OF it
in 1870, authorizing an increase in the per cent
age of its funds to be invested in notes and
mortgages, furnished the opportunity for ais;
honest men to speculate with its funds and
finally bring 1t into bankruptcy. "If," says the
committee, 1.-The trustees who conducted this
bank had been men of great discretion, great
the enterprise under their control, there Is no
reason why either loss to the depostors should
have followed, or disaster to the institution
should have come" The trouble with the bank
began with misconstruction OF the charter Of
the institution by the trustees before 1870. The
charter allowed one-third of the deposits to be
used as an available fund, but tWo-thirds Is
required to be invested ia United States bonds
This available fund was intended to be kept
for the payment of depos1tors on demand, and
10 uleeI Glle CURRENT EXPENSES Vi Tue Dduk. Inc
trustees instead, used one third Of the funds for
the transaction OF general banking buSi
ness-'to discount paper. to do business that
can never be safely done, except under com
pactly organized institutions, in which the
moneyed interests of the trustees will guarantee
discretion and care, and which, for success even
then, demands the best and most experienced
talents in its officers" Again, the original
trustees, by their regulations, conferred upol a
finance committee Of five, in which majority
three controlled, powers which, under the
.,I,nrf I,n
than seven trustees; and even the secretary
was allowed to loan large sums OF money, and
change important investments. The require
ment of the charter that the officers Of the bank
should give bonds for their fidelity was ignored
or loosely executed. The charter forbade the
officers from borrowing money from the bank
prohibition that was directly or Indirectly dis
regarded.
These are few OF the original causes Of the
banks disaster. But in 1870 tie amendment OF
the charter gave an opportunity for still more
time two-thirds OF the funds had TO be invested
in United States bonds, leaving only one-third
to be manipulated by the officers and trustees.
After 1870 one-half Of the deposits became 4
fund with which these who controlled the insti-
tuition speculated. either directly or indirectly.
But" the committee says, "wlth all these dis
ment OF the bank. had it been held to the purposes
OF its creation, would have averted the disasters
that came upon it." mo bank it continues,
whatever its charter, would have advisedly
entered into the Seneca sandstone, the Kenne-
dy, Fleming, Boyle, Lyons, Vandenburgh and
the Abbott company loans, with any expecta-
tion of protecting the stockholders and deposit
OrS OF the company from loss" If adequate
penal provisions had heen Incorporated In the
original charter to punish inf1delity many OF
those who practically controlled the operations
OF the institution would have been subject to
criminal prosecution.
The committee then recount the operations,
In connection with the Freedmen's Bank, of the
Seneca Stone Company, j. c. Kennedy, Vanden-
bllrph- Evan LYONS R I FLEMING and Imam
Boyle, by which the money OF the institution
was loaned on insufficient security, and, it Is
believed, in accordance with corrupt agreements
between the officers of the bank and the bor-
ToWerS. The total amount OF loans OF this char
acter was about half million dollars, and about
two-thfrdS of which will prove total loss.
Under the present management, since the bank
was closed, dividends amounting to 80 per cent
OF the liabilities have been declared and there
is good reason to expect that 90 per cent more
will be paid. The entire LOGS to depositors viii
therefore be something over 81 100000.
The report is very severe upon the manage
ment OF the bank and all who had anything to
90 with the control and disposition of its funds.
1t declares that the officers of the bank and
members OF the finance committee. in Violation
OF an express provision of the charter discounted
their own paper. ostensibly for others, and that
officers OF the bank became security for borrow
ers. The committee conclude that there is grave
suspicion that the officers and finance commit
tee were interested in these transactions which
robbed the depositors." In the report such
are quite frequently applied to the bank man
agement, and it. Is charged that not only was
the charter violated, but every principle of busl-
ness and integrity was done violence to and the
concern shipWrecked. The men mentioned in
the report as most prominent in the .squestiona-
BILE transactions" which the committee found out
Balloch, Tuttle and Richards, ali members of
the board of trustees, and majority of them
members OF some one of the administrative
committees" The report sets forth that Eaton
and StickleV were the 1PtuaripS Of thp
and that 'they exercised more power than the
trustees In disposing of bank funds and inter-
ests- ess- Alyord, who was president from 1865 to
1873, and Eaton, who was actuary, and Hunt
tngton, who was on the finance committee, are
dead, and the committee say that In their testi-
mony the living men who were In the banks
upon the plea Of 'forgetfulness,' "good
Intentions" etc.; but falling in this, they
eenIdeavored to throw the entire responsi-
crooked transactions upon their dead associates.
The living ex-managers are not solvent, and
while nothing could be recovered from them BY
civil suit, the committee believe affairs will
assume shape that will call for both civil and
criminal prosecutions against them, and the
committee will report bill to provide for such
prosecutions. The report gives history OF the
a. hs Sen and that
tlon John L. kdwell, Cooke. Huntington and
Hayden, relative of Cookies, as the principal
movers movers IN these transactions, and says that
second mortgage bonds of the Sandstone COM
pany were Issued as basis for loans from the
FHedman's bank; that they were worthless
and it charges that through this "corrup-
uon disaster came to the bank" In
1870 $3l 900 was obtained sfom the bank
as loan, for which $40, 900 in these second
mortgage bonds were deposited The same
year the bank purchased $4,000 Of the first
mortgage bonds, paying therefore $4,000 In
cash. Soon after when the bank examiner was
coming round Eaton, the actuary and three
members OF the finance committee
Tuttle and OBSERVATION-DISCLOSURES these bonds
TO h1lbourn and Evans, taking their note for
S50,COO subsequently the note was surrendered
to kiibourn and Evans and the worthless bonds
left upon the hands OF the bank. George W.
Stickney, the acuuary, is prominently men
toned as one OF the parties responsible for the
ruin OF the concern, and the report alleges that
he, as actuary. through connivance with
the trustees and finance committee, exercised
more arDtrary power over its affairs than any
OF the officers; that through this "connivance'
lars OF the banks money, though he never gave
any bond, and In his testimony said none was
ever required of him. The committee say 1t is
TOO great a tax upon credulity to pretend that
sane ana honest men ever managed banks
analrs with such recklessneSs and profligacy
Inc report, summed up, is charge that the
DanK was ruined through bad MANAGEMENT and
corruption, and In more than one place the
belief Is expressed that the managers of the
institution were interested In the schemes thai
ruined 1t. '-''>'
The expenses of winding up the affairs Of the
bank have been In the last four years 1885. .994.
u, OF which more than $50 900 has been paid as
salaries to the commissioners, so 900 to agents.
ND m ntA -rrV