Evening star., 1933-10-12
TRADING ACCOUNT
CREATED To KEEP
BOND PRICES UP
Established in FIotation of
$5O,OOO,0OO Brazilian Is
sue, Inquiry Told.
USUAL PRACTICE IN u. S.,
DILLON ASSOCIATE SAYS
Purposes Declared Protection of
Public and to Help Under
writers Sell Shares.
BY the Associated Press.

By the Associated Press
Robert o. Hayward, member of Dill
lon, Read & Co., told Senate investiga-
tors today 60-day trading account was
established by bankers in floating $780,
100000 of Brazilian bonds in 1921. This
was done. he said, to hold the price up.
Hayward said creation of the trading
account was in accordance with the
usual practice in this country.
Asked by Ferdinand Pecora, COM
mittee counsel, the purposes Of such an
account, he replied:
They are tWo-fold; to protect the
price so that the public subscribing will
not be at disadvantage through fall
ing prices and to enable the UNDER
writer's to dispose of the issue
Hayward gave details yesterday Of
Dillon, Read & Co.'S part in loaning
S12000,000 to Rio de Janeiro in 1921.
Dillon Interested In Firm.
A large part of that fund. he testified.
went to the Leonard Kennedy Construc-
ton Co., in which Clarence Dillon,
senior member of Dillon, Read & Co.
and his family had As per cent inter-
est
Total profits to the bankers from this
issue were more than S1,000,00O and
American investors. who paid SS1 for
the bonds. can now get only SIG per
500 of par value.
Investigators disclosed today they
had new evidence of benefits to the
Kennedy construction firm.
One of the loans which the investi-
gators planned to inquire into was
s25 100000 issue to Brazil in 1922,
partly for electrifcation of the Central
Railroad of Brazil.
A previous Senate investigating COM
mittee disclosed that eight years after
the loan was made the electrlhcatlon
work had not been started
In the previous inquiry, Dillon testi-
fed his firms gross profits from this
issue, which is now in default, were
1921 900.
Another South American loan han
died by Dillon, Read & Co., which was
f1oated for Bolivia and used partly in
preparation for possible war with Para
quay, also was under scrutiny.
Preparing QUESTIONABLE.
Before the hearing started today Pc
cora said he and the New York Stock
Exchange were near agreement on .
form for the QUESTIONABLE to be an
swered by the market members.
The counsel served notice, however,
that tomorrow was the deadline and II
an agreement was not finally reached
by that time the committee would have
members of the exchange, and force
them to bring their books for cross-ex-
animation.
Pecora questioned Hayward first
about two Brazilian issues in 1921, each
amounting to S25 100000.
Gross profits TO the firm from the
first, on May 16. were S467,125, accord
ing to evidence at previous Senate in
quiry
On the second, later in the year, the
firms gross profits were S879,843.
In connection with underwriting the
first issue, Hayward said Dillon, Read
& Co. was given an option on the Sec
ond.
Second Contract Backdated.
The contract for the first was signed
June 2, but dated May 81. The second,
signed September IA, was dated May %.
1t was necessary to back date the sec
ond contract. Hayward said, because the
two groups of bonds were actually q
single issue.
Development of the story was slow.
as members of the committee inter-
rupted Pecora's questioning to discuss
related issues with the witness.
Dillon, Read g. Co., Hayward said,
paid $50 for the first issue and it was
sold to the public for S97.50.
This netted the bankers associated in
the deal total gross profit of 1875, ,000
The second issue was bought by Dill
Ion. Read & Co. at the same price and
sold for S98.50 This gave the bankers
total gross of S2,125.OOO
Pecora did not question Hayward
about the State Departments connec-
tion with the loans. The previous Sen
ate inquiry developed that all foreign
bond issues were submitted to the de-
partment for approval.
The departments action did not take
into consideration the security of the
loan. but only its effect on international
relations.
Trading Account Outlined.
Questioned by Pecora about crea-
tion of the trading account to support
the market during marketing of the
bonds. Hayward insisted it was bene-
fetal for the buyer as well as the
banker.
1T prevents the buyer from seeing
the price drop" he said
But only for the period of go days
Hayward said only S31 100000 of the
S50000,000 total still was outstanding
and in default.
Hayward told the committee Dillon,
Read & Co.'S profits from the first
issue were $366,000, about 100000 less
than the total filed in the previous in
quiry.
In addition, Hayward said, the
Eastern Trust Co., owned by Dillon,
Read & Co., had profit of Sl43,OOO.
Pecora asked if the trust company
was organized to divide Dillon, Reads
profits for tax purposes, but the witness
said he shouldn't think so.''
On the second issue, Hayward testi-
field Dillon, Read & Co. made $685. 900
direct and s325.0O0 through the trust.
Rapidly totaling the figures, Pecora
said the firms total from the S5O.OOO-
600 was S1,411, 600.
The committee counsel said his in
quiry showed total profits to all par
Elephants in sale of the bonds were
$2,787,0 900.
PacOra affoyoptoJ fo eIou, &I,ak r,,11o~.