Evening star., 1933-01-12
RREUGER'S FAME
m
/ M|SLED EXCHANGE
Altschul Asks Law for lnde-
pendent Audits OF Stock
Companies.
Continued From First Pase.)

tSOnBanueQ from EhSJ Ed&CJ
Michigan. asked the purpose of the sub
stitution clause.
"Kreuger & Toll were doing business
In every part of the world" the econ
omist explained, "and it might have
been necessary for them to put other
bonds in this portfolio.
"French bonds were withdrawn early
IN 1890" he said, land en- equal par
value of Yugoslavia bonds were suost-
tuted.
garded as secure, while YugoSlaVlan
bonds were regarded as distinctly IN
ferior."
Couzens asked il there was no "legis-
lative remedy" for such practices.
"At the moment, ! don't think there
!. is," Winkler replied.
Wouldn't it help to put the inter-
national bankers and accountants IN
jail who permit these things to go on?"
Couzens asked.
Cites Foreign Laws.
Winkler replied that Congress might
copy some of the better laws Of foreign
countries, suggesting the British CON-
pany act, which makes companies liable
for Misrepresentation In prospectus
on securities.
Questioned again.b by Marrinan, Win
kler testified that If the collateral back
of the Kreuger bonds had not been sub
stituted they would be worth about
$24, 100000 instead of about $7,000,0o0
do you believe e-Higginson g. Co.
(Which marketed the bonds in this
country did their full duty to their
customers in this case?" Couzens asked.
After lengthy pause, Winkler said
81 do not think So"
"Why?" the witness was asked.
"It Is the duty OF those who dis
tribute bonds to the public TO see tnat
when substitutions are made the sub
stituted collateral is as sound as that
taken away" Winkler replied.
''They should have made it their
business to get the information on the
substitution"
Winkler testified If the substitution
had not been made the income from the
collateral today would be 81 ,68l 900 in
stead of $628,350 now netted, or equal
to s35 to the bond.
The bonds were sold at 5 per cent,
which would net $50 a year interest.
"If all the provisions of the agree
ment had been carried out" Winkler
said. "tne investors would have had
all the protection they could possibly
obtain because the applicant agreed to
furnish the exchange the annual earn
ings, any action taken affecting the
interest, or to notify the exchange OF
any changes in collateral"
Whose job was 1t TO see that this
was done?"
'.The company" Winkler replied, add
ing that the application was signed
"Krueger & Toll, by Donald Durant,
director"
Thirty substitutions in the collateral
back of the bonds were made prior to
Kreugers death. each time of inferior
securities, Winkler testified.
Marrinan asked If the collateral and
assets back of Kreuger securities were
not being gathered In Sweden while
America holds the liabilities.
"Kreuger and Toll securities, or
rather insecurities, were sold in the
American market, whereas the collat-
eral was deposited in Sweden" Winkler
replied.
He testified that a circular issued by
Lee Higginson & Co. in January, 1882,
would clearly violate the British COM
peny act to which he had referred.
1T is a shrewdly and dishonesty
drawn statement" Senator Couzens re-
marked
The circular contended that Kreuger
and Toll American certificates ARE cur
rently nder-priced."
Altschul followed Winkler. After
being sworn, he described his occupa-
ton as that of an international banker.
AItschul testified the listing of securi-
ties on the exchange gave no guarantee
Of their intrinsic value.
I'VE have to have evidence they have
earning power" he added. I'm this
case we were mistaken"
Describes Groups Functions.
ANY unusual features in the agree
nents of an applicant are noted by an
examiner and referred to the COM
mittee, Altschul said, describing the
functions of his stock list group.
.sWas this usual routine of examina-
ton followed in the Kreuger csse?"
Marrinan asked.
eyes"
"Was any special attention given to
the collateral substitution clause?"
"Yes, we were told Kreuger was ac-
customed to make great loans 10 gov
ernments. It was pointed out there
was no market value on these securi-
ties and therefore par value was used
ut was generally believed that the
audit of Kreuger 81 Toll stood so high
that security was not needed and that
its capacity for financing governments
should not be hampered."
Altschul pointed out the agreement
required that the Stock Exchange be
notified of changes of collateral.
did the agreement place respon-
sibility for reporting changes on
Kreuger & Toll or Lee Higginson?"
Altschul was asked.
'sKreuger g. Toll. This is the first
experience we have had on this mag
nificent scale of violation of an agree
ment and we are now working on a
proposal to have American trustees
notify us of subStitutions.
when did the Stock Exchange re-
ceive notification OF substitution in this
collateral?"
After the suicide of Kreuger," the
witness said.
Trace Events Before Suicide.
At Yesterdays session, the last two
weeks Of the Swedish match kings life
were vividly recited, and the committee
was told American buyers had lost S20,-
600 900 on a single issue of Kreuger d
Toll bonds on which collateral had been
substituted.
Step by step, events leading to the
crash of Kreugers financial empire
were related by witnesses. AT one point
the committee was told that heavy Tor
eign holdings of Kreuger & Toll were
sold in America before word OF Kreu-
gers suicide in Paris last March was
given to the public.
One witness, Ronald L. Redmond,
counsel for the stock exchange, said ms
firm received $4,000 for drafting the
agreement permitting substitution OF
collateral on the bonds. He agreed the
arrangement was different from any he
had written in the past, but defended
it against committee criticism.
you can't make rules to guard
against dishonesty in high places. he
said.
Chairman Norbeck asserted the Stock
Exchange had approved the agreement
under which the substitution was made.
From A. D. Birning of the New York
accounting firm OF Ernst g. Ernst came
the most vivid story of the final weeks
Of Kreuger's life. He detailed his grow
ann c11snininn of Rnnnninl La ritinc