The New York herald., 1921-02-16
Twin City and Chicago
Trust Companies May Re-
fuse to Attempt Sale.
STATE BANK in STRAIT
Manager Discloses How 1t
Was Founded on Deposits
of Public Money.
HAD NO OTHER CAPITAL
Private Bankers Demand Its
Liquidation and Revision
of Present Methods.

of Present Methods.
spec,aI Despatch to THE NHw YORK HnaALD.
MINNEAPOLIS, Feb. 15.-Legality of
the various bond issues authorized by
the Industrial Commission OF North
Dakota is under consideration to-day
by a committee representing Twin
City and Chicago trust companies,
with their attorneys. The concerns,
which may undertake to sell some
SS,0o0,oo0 Of North Dakota bonds. are
making sure first that the bonds would
be valid in every respect. While the
United States Supreme Court has
passed on the industrial commission
law, the bonds never have had a
judicial Interpretation.
There is a possibility that the bonds
will not be taken by this syndicate.
That possibility. it was declared. has
nothing TO do with political consdera-
tons.
In spite ot conflicting reports this Is
what has happened In regard to the pro-
posed bond sale
The North Dakota bankers commit
tee made proposals IN January on which
they would undertake TO find market
for State bonds. The terms were re-
iected by the Nom Partisan League eau
Gus. though advocated by A. c. Townley.
The desperate situation of the Bank
Gnn
league heads to concede whatever should
be necessary. but they found the North
Dakota bankers obdurate. Then they
appealed to Twin City bankers to help
bring them together.
At Sundays conference A. c. Town
lev. John M. Hagen and their Non-Par-
tisan League associates declared that
they would undertake to bring the
league caucus TO agree to the terms tne
North Dakota bankers had offered. II
the leaguers could have assurance that
the bonds would be taken.
Would Liquidate State Bank.
The proposal calls for liquidation OF
the Bank Of North Dakota, its reorgan-
ization as a rural credits bank. winding
nm the affairs Of the Home Building As
sociation and new legislation ending the
arbitrary powers of the Industrial, Com
mission and present wide open method
of handling State finances.
North Dakota men who were IN Sum
days conference have gone back TO mat
state and are awaiting the bankers de-
cieion. Meanwhile there Is great ex-
citement at Bismarck Non-Partisan
League leaders are declaring they never
will agree to the terms offered by their
representatives In the Sunday confer
er,ce. Leaders Of the independents" as
seft that they will not cooperate In
proRramme unless Attorney-Generai
William Lemke resigns and unless
league opponents are given hfty-nfty
representation on the industrial commas
sion. Cooperation OF the independents,
who control the House. is necessary TO
nut through any needed legislation
While this is going on the condition OF
the Bank Of North Dakota Is growing
worse daily. Counties. cities, towns ana
school districts with funds In the bank
are unable to realize on them and the
state Is afflicted with a creeping
paralysis Of it's governmental functions.
There IS for instance, the story OF
how the bank got It's capital stock, as
related by +. w. Cathro. its manager.
when examined by Francis j. Murphy
Of Minto. attorney for the committee.
Other banks start with a paid In capi-
tai Of cash, but not this bank. The
bank IL In control OF the Industrial Com
mission. which by law was given al
most unlimited power to bond the State.
transfer funds and otherwise manipulate
State finances. The law also required
al counties, cities. villages. towns and
school districts to deposit their funds
With the Bank Of North Dakota
started without Capital.
at all. but with large deposits of pub
lie moneys. This is how its capital
was acquired: The Industrial Commits
sion issued $4,000. 900 in bonds Of the
bank seriee." Mr.. Cathro. as director
general Of the bank. gave two checks
totalling S4,000.0O0 for these bonds.
They were checks OF the Bank of North
Dakota, which had no FUNDS 20 check
against save the deposits OF public
moneys The Industrial Commission
took the checks and gave in return the
100000 OF the banks own bonds
Then Il indorsed the checks and re-
turned them to the bank.
I'm effect" said Mr.. Cathro. here Is
your capital; credit this UP to capital
account"
30 the bank statement OF September
II. 1919, shows the bank with a "capi-
tai" OF s2,00o,000.
'sThis tranaction brought no additional
money into the bank7" Mr.. Murphy
rueried.
THAT is correct" replied Mr.. Cathro.
Mr.. Cathro produced the contract by
which the Bank OF North Dakota de-
posted s1,2o0,o0o of these bonds with
the Merchants Loan and Trust Company
OF Chicago as collateral for loan OF
100000 II was made July 10, 1920.
and Is due March 10, 1921. The Chicago
bank. In this contract. Is given the right
TO convert the bonds into cash II the
loan is not paid when due, with the
right OF said payee OF assigns to be tho
purchaser thereof when sale is made. at
any brokers' board or public sale" and
the contract continues: I'm case the pro-
ceeds of the said property shall not
cover the principal. interest and ex-
penses. undersigned engages TO pay tho
deficiency forthwith. with interest"
In other words. the bank could bid the
bonds In at any price or discount. hold
the bonds as n valid claim against the
State OF North Dakota. and collect the
difference between It's bid ana the value
OF the bonds.
BrsaiARcR. y. D.. Feb i5.--The Union
Farmers Bank OF New Salem. with re-
ported deposits OF sl30.000 and capital
and surplus OF sS5. 900. and the Peoples
state Bank OF Leith closed to-day. maxi