New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1911-10-12
BLOW TO LOAN METHODS
Special Master Reports Against
Bank in FiSke & Co. Case.
SHOULD PAY BACK $780, 600
Says Transfer of Securities After
Firms Failure Was Against
Bankruptcy Laws.

The practice ~ many banks in the wan
Street district 70 grant daily loans ~
stock Exchange firms. often running INTO
hundreds Of thousands, without any fur-
ther security than an implied understand
ing that stocks and bonds purchased WIN
the borrowed money were held in trust tor
the bank until the loan was cancelled az
the close Of the business dav. may be seri-
ousy disturbed by the report OF CharIes
?. Brown fled Yesterday in the United
States District Court
Mr. Brown was appointed special master
In the litigation between the trustees for
the creditors Of J NJ Fiske & Co. and the
Mechanics and Metals National Bank. over
securities valued At S22s745 which the
bank secured from the brokers after the
failure OF the firm had been announced on
the floor Of the Stock Exchange The bank
asserted that the securities were nothing
else save collateral for the daily loan
granted 70 J NJ Fiske & CO., while the
trustees demanded their return on the
ground that they belonged 70 the bankrupt
estate and that the turning over 81 them
70 the bank constituted a preferential pay
ment
The main facts Of the case, as alleged by
the trustees. were never disputed BY the
officials OF the bank. When J. NJ F1ske &
CO. failed on January 70. 1910, as result
Of the collapse Of the Hooking pools. and
their failure was announced on the ticker
Frank O. Roe, vice president OF the Ne
chanics and Metals National Bank, went
10 their Office and obtained al the securi-
ties there were 70 cover the daily loan
that was granted 70 the brokers on the
following simple request sent that morn
ing
Please loan Us TODAY $500 ooo. credit
ing this amount 70 our account. and obuge
81 VI FIsKE & CO.
The defence Of the rank was that the
loan constituted a daily transaction that
was well understood IN Wall Street ana
involved nearly hundred million dollars
each day The loan was made, they SAID
on the customary understanding tnat lt
was granted 70 enable the brokers' 70 make
deliveries Of stock purchased on the pre-
vious dav. and that the money thus on
taired was 70 he Immediately deposited
while anv securities that were purchased
and held pending delivery were held m
trust for the bank 70 cover the daily loan
This contention OF the bank was op-
posed BY the trustees on the ground that
the practice amounted 70 nothing less than
an evasion Of the law against over-certlh-
cation. and that mere customary agree
ment Of that kind could not be binding IN
view OF the provisions ~ the BANKRUPTCY
law. Mr.. Brown in his report did not go
into the question of whether the custom
spnroached over-certificauon or not. but
ne reported that. in his opinion. the trans
fer OF securities violated the bankruptcy
law Mr.. Brown said.
IN my opinion the transfer Of the secu-
rites in question by the firm 70 the de-
PENDANT on January 10. 1910 and the de-
livery 10 II OF the deposit Of S54,048 con-
stituted preference as defined by Section
50 OF the bankrupt act That transfer IS
voidable by the compliments, and they are
entitled 70 a decree that the defendant re-
nav 70 them the sum n S229 40. with in
terest'
II the ruling IF the special master should
he confirmed by the courts g complete
change in the method OF granting daily
loans would become essential. as the
banks would be exposed 70 large losses
through sudden failures in Wall Street.
The litigation OF the Mechanics and
Metals Bank and that Of the trustees for
The creditors OF Lathrop, Haskins Il Co.
against the National CITY Bank, growing
out Of the Hooking bubble, for an amount
estimated az $4,000, has been watched
with keen interest By the big banks. and
II is understood that they agreed 70 put Up
al funds necessary 10 carry the case 70
the Supreme Court for hnal decision
The case of the National City Bank IS
still IN the hands OF Mr. Brown as special
master. and he said yesterday that he
expected 10 report on II in a short time
AS IL did not differ materially from the
other case. a similar opinion IS expected.