New-York tribune., 1909-05-05
FAVORS HEINZE FIRM
REFEREE FILES REPORT.
Recommends That Bankruptcy Pro
ceedingS Be Dismissed.

Heinze & Co. bankers and brokers, of No. AZ
Broadway. be dismissed In his report filed in the
clerks Office of the United States District Court he
finds that there is failure of proof to show that
Otto Heinze G. Co. were insolvent on October IA,
October 16 and October p, 1907 and that both the
firm and the members of the firm were insolvent
He further finds that the of bankruptcy alleged
in the petition filed by three creditors on October
q. 1907, have not been proved
The petitioning creditors were W. II. Robotham
Frank A. Barnaby and Leo Wise. and the Balance
Gable Crane Company intervened as a creditor
The acts of bankruptcy alleged transfers Of
property to the Mercantile National Bank and TO
Nelke, Phillips & Co, while insolvent Referee
Smith said that the only questions to consider were
the alleged acts OF bankruptcy and whether the
alleged bankrupts were nsolvent at the time the
alleged bankruptcy acts committed and at the
time the petition filed.
The special master finds that there is direct
proof pf any intent the part of Otto Heinze &
Co to prefer the bank. that there is no overt act
that there is proof that the bank asked the
firm for any additional security, and that the
petition failed to show that Otto Heinze & Co.
the delivery of the securities to the bank on
October l6 did with intention to prefer it
the other creditors of the firm There IS also
proof the referee says. Of any intent to prefer
Nelke, Phillips & co. by the payment Of 5000 on
October Il. they having been creditors october
y to the extent Of $4,000.
The explanation made of the Mercantile National
Bank transaction to the referee in bankruptcy was
that the collateral for the 100000 loan for which
between 100000 and 100000, which were in the
hands Of certain brokers' and which Otto Heinze &
Co would get into their own possession on payment
OF the money thus borrowed The loan was grant
Cd. but about that time large check came in for
certihCatiOn and Il was found that Overoan had
been made Thereupon +. Augustus Henze. then
president OF the bank personally made another loan
20 himself, good collateral and lent the proceeds
to Otto Henze & Co. CanceIIing the other loan.
Otto Heinze & Co, informed Of this and
-yr3 ,- Ia slpff fha rfqZ-
had promised. TO the bank which applied them
another loan OF the firm. which owing to the sharp
decline IN United Copper stock. not fully
cured. Counsel for the firm have opposed the ad-
judication in bankruptcy Of the firm this trans
action upon grounds: First that the element OF
lacking IN the alleged preferential trans
fer and second that the hrm solvent at the
time baslnE the valuation of its assets upon cur
rent quotations Of the securities.
The report will go TO one Of the judges OF
the United States District Court for approval or
rejection. otto Heinze & Co. in statement made
yesterday. say that more than cne-haIf the in
debtedness. which amounted about $4.5O0O0O
when the petition filed. has been paid off by
the sale of collateral and that they believe that
enough will in time he realized under the read
justment plan, through the Western Development
Company. to pay every creditor 100 cents on the
dollar
As an example Of the losses sustained by the /
members of the Heinze firm through the closing /
out Of their collateral by the banks at the time
Of the United Copper corners collapse il said /
yesterday that securities pledged by Otto Heinze !
which had him s. 5000O sold for $4,000
Max II. Schultze. Of otto Heinze & Co. had up /
100 shares of Mercantile National Bank stock then /
selling $50. and 2o shares Of Empire Trust Com
pany stock. selling at 800, collateral for loan
Of $4,000. and these holdings were Iiquidated for
Sl7000. The members of the firm inclined to |
surmise that of the banks may have sold TO /
themselves the securities held collateral. and /
one of them remarked yesterday: Perhaps that /
fc n tbap bay hea aBI 70 nay GIlCh
big dividends right after panic year"
Lindsay Russell. the receiver. has in his posses
sion about $1,000 In cash and summer home near /
Butte Mont, belonging to Arthur F. Heinze chooses /
in action and claims amounting to SjOGOo0 /
$4,000
The schedules of Otto Heinze & Co. filed yes
terday with the referees report. contain much OF /
interest relating to the causes of the failure. The
lapse OF the corner in United Copper stock |
Cured, the opening incident Of the panic. Otto !
Heinze & Co. owned about sxty-one thousand !
shares of the common stock of that company and |
Less than five hundred shares, however were act /
ually in the firms possession. all the rest having !
been hypothecated. the plan having been to hy- /
pothecate stock when bought and purchase addi- |
tOnal stock with the proceeds OF the loan. IL was
the purpose of the pool to put the to 500 and
if the corner had been successful profit esti-
mated $1O.OOOCOO would have been made on an |
expenditures of about Sl.5O0O00.
Charles W. Morse. a familiar with the |
Heinze firms affairs said yesterday. defeated
this project. In 1906, he continued Morse ex-
changed shares OF companies with which he was |
identified. principally American Ice and Consoli- |
dated Steamship. for about 1850 shares of United
Copper stock belonging to the Heinzes. an agree
ment being made that neither party the trans
action should sell the stock which had been turned
by the other. Six months later. when |
United Copper began advance, was noticed |
that some of Morse's certificates coming in, |
and finally. IT IS said Otto Hehze & Co. learned !
that Morse had been dlsposing of part his stock
and instructng his brokers to exchange his GER |
tihcates for other certificates in the open market
which be used in making delivery. In |
spite of this II is said some of the Morse GER /
tihcates from time to time found their way into |
the Henze Office
on October Is there a short interest I'm United |
Copper amounting 10000 shares with much |
smaller floating supply. exclusive OF the Morse !
for delivery. When the call came Morses brokers |
told him that they could no longer exchange his /
certificates for others there no others |
available Otto Henze & Co. having cornered the |
market Then Morse according to the story in |
structed them sell his remaining stock which |
was done the fresh supply operating to break the |
price which October IA had been bid up to go |
and on October 16 touched 10. The Heinze firm re- /
fused to regard the Morse stock a good delivery
as II had been sold without the consent of both /
parties to the agreement, and took a similar posi-
ton respecting the twenty-four hundred shares |
bought for their account by Gross & Kleeberg ON |
the preceding day. alleging that that house had
ceeded its instructions. which had been to buy |
twelve hundred shares. With the collapse OF the |
corner came the suspension of Otto Heinze & Co |
and Gross & Kleeberg The latter firm was rein |
stated on the New York Stock Exchange some time !
ago