Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-12-28
Authorized Dividends Con-
trary to Statute, Latest Re-
ownership Suit Declares.
LEGISLATOR ONLY USED
AS BAIT, SAYS CHARGE
Delaware Complaint Regarded as
Attempt to Throw Smith Com
pany Into Bankruptcy.
Special Dispatch to The Star.

WILMINGTON, Dcl., December %
Charges that Representative Frederick
N. zihlman of Maryland, and Daniel
r. Crissinger, former chairman of the
Federal Reserve Board, as directors,
authorized unlawful payment of divi-
bends by the F.. H. Smith Co. were
made yesterday in bill for a receiver
for the company filed in the Court of
Chancery here by a group of stock
holders
Filed in the name of Morris A.
Stewart, the bill is in effect a weapon
intended to throw the company into
involuntary bankruptcy. In addition to
the company, Zihlman and CriSSinger
the defendants are G. Bryan Pitts,
chairman of the board, and Samuel j.
Henry, president. Though the Offices
of thu company are in Washington and
New York. the petition was filed here
because the firm operates under Della
ware charter.
The compliments charge that the
officials of the Smith Co. had pro-
NOTED the sale of approximately $50
100000 worth of securities, "a great
majority Of which are still outstand-
ing, unliquidated and unpaid" The
bill alleged that dividends were paid
contrary to the statute with the income
from the sale of bonds instead of from
actual earnings of the property in
volved. The payment of these divi-
dends was authorized by Zihlman,
CrlsSinger. Pitts and Henry, it said.
1t was contended that prior to Sep
TENDER, 1927, Pitts and Henry were the
active heads Of the Smith company and
were selling bonds of doubtful security,
The petition added that they sought to
employ and did employ the defendant,
Daniel r. Crissinger, a former chair
man Of the Federal Reserve Board of
the United States, and the defendant,
Frederick H. Zihlman, a member of
Congress from the sixth district of
Maryland and then chairman of the
House of Representatives committee on
the District of Columbia, and did cor
ruptly intending and designing. reck-
leSsly, wrongfully and wastefully agree
to pay large sums of money to said
employees for the use of their names and
regulations and not for their actual
services on behalf of said defendant
corporation: to Use said names for ad-
vertising purposes on an unsuspecting
public"
Zihlman Called Unnecessary.
Crissinger, the bill charged, was paid
$4,000 a year; Zihlman was given a
large amount of common stock in the
company with the understanding that
he would be able to convert it into cash.
1t was added. It was argued that the
services of CriSsinger and Zihlman were
known to be unnecessary in conducting
legitimate business.
The bill charged that the company,
through high-pressure sales methods,
disposed of bonds "eQual to and in ex-
cess OF twice the value" of the property
involved. The buildings covered were
located in Washington, Philadelphia,
Pittsburgh, Buffalo and New York.
Much of the proceeds of the sale of
these securities are alleged to have been
devoted to the payment of secret and
fraudulent profits and commissions"
Postal Violations Charged.
The petition charged the company
had defied postal regulations by dis
tributing false statements through the
mails. 1t was specifically alleged in
this connection that literature of the
company represented it had been in
business more than so years without
a loss to an investor when as a matter
OF fact the States of Ohio, Pennsyl-
Vania, Indiana and Minnesota had de-
MED the company the privilege of SELL
ing securities within their boundaries.
Pitts and Henry, the bill alleges, re-
ceived as much as 800, 900 a year each
in salaries alone. AS a result of these
and other expenditures. the company
was claimed to be insolvent. The bill
demanded an accounting of the firms
funds and the issuance of an iniunc-
ton to prevent the transfer Of title to
any of its property. No action was ex-
pected to be taken in the case until
next week
The stockholders are represented by a
group of New York and Washington
lawyers headed by Senator Daniel o.
Hastings.