Evening star., 1933-06-28
KAHN PAID NO TAX
. ON INCOME 3 YEARS
Pecora Says Other Partners
Payments in 80, 81 and
'32 Were Small.
Continued From First Page.)

into the services performed by Norman
II. Davis in return for fees amounting
to S35, 900 in connection with the sale
of the bonds
That took place in 1925, when Davis
had no connection with the Govern
ment He recently became Americas
Ambassador at large in Europe.
Pecora suddenly turned to the Chilean
loans near the close of yesterdays ex-
animation of Kahn
Kahn testified Davis was paid fees
totaling $4,000 in 1925. when he was
a private citizen, in connection with a
$40. 100000 bond issue for the Mort
gage Bank of Chile. and a subsequent
issue The services performed by Davis
were not disclosed
Buttenwieser took the stand as the
hearing opened today to give details OF
his firms participation in selling the
Chilean bonds to the American public.
Later, 1t was disclosed, the investiga-
tors will place in the record names Of
individuals who profited frop sharing in
the fiotation OF securities managed by
the private banking house Of Kuhn
Loef & Co.
Pecora said some individuals were in
vited to participate IN these issues, shar-
ing in the profits they yielded. without
i
withrut investing cash.
Explains Chilean Loan.
Questioned first about the original
$40 900 900 Chilean loan in 1925, But
Chilean finance ministry dated Decem
Der 2. 1882 saying IAN enormous de-
cline" in exports and the fall in COM
modify prices made 1t impossible for
the borrowing bank to resume pay
ments
What study did you make of the
financial condition of the mortgage
bank prior to underwriting the flrst
$40 900, 900 loans?" Pecora asked.
I'VE made a careful study" Butten-
weiser replied.
1T showed that during 70-year rec
ord of performance, the maximum
losses in any 10-year period was $40 900.
THE securities in their home market
sold better than the government secur-
tiles. and in addition we insisted on
guarantee Of the government of Chile
indorsed on the bonds"
Buttenwieser read a letter saying the
Chilean Bank made only first mortgage
loans ION conservative basis
The aggregate appraised value Of the
to the bank, the witness added, was
four times the value of the loan.
We placed the greatest reliance on
the governments guarantee he said.
Asked whether the guarantee or the
security was the principal factor"
prompting the loan. the witness said:
1T is impossible to differentiate be-
tween the two"
Studied Trade Statistics.
Questioned closely by Pecora, But
tenweiser said before underwriting the
bonds his firm studied Chile's trade
statistics and Indebtedness.
He said the figures showed Chile had
q substantially favorable trade bal
ance" every year but three from 1900
to 1924
Il don't see how any one in 1925
could see the world cataclysm that
came later" Buttenwieser added. Nat
urally the fall of prices affected the
trade balances of Chile"
Pecora pointed out the chief ex-
ports of Chile were nitrates and copper
He asked If Kuhn, Loeb had studied
the nitrate situation.
we relied on the export business
Of Chile, part of which was nitrate"
the witness replied.
No Specific Study.
I'VE made no specific study Of the
nitrate situation"
Pecora said Kahn had testified the
American investing public relied on the
reputation OF an issuing house. and
added he was trying to find out how
much of study the firm had made
Asked by Chailman Fletcher If the
firm had made any study Of the po-
lit::val situation in Chile, Buttenwieser
replied its legal advisor in the country
had advised that the government guar
antee was valid
Fletcher asked II a revolution was
not impending at the time of the first
loan.
1T was a liberal movement rather
than a revolution" Buttenwieser said.
A memorandum from Kuhn, Loeb
files then was read by Pecora saying
q military council which had seized
control of Chile In September. 1924,
was overthrown in January, 1925, by
another council which arranged for an
election the following July of delegates
to draw up a new constitution.
Loan Would Be Recognized.
before the election. Pecora asked if
there was any way of determining the
loan would be recognized by the new
government.
Buttenweiser said Kuhn, Loeb's Chi
lean counsel advised the firm that un-
der principles of international law such
a loan would be recognized by the sub
sequent government.
He added the loan was recognized
and principal and interest payments
were made until the default Of six years
later.
Doesn't 1t appear" Pecora asked,
that you advised like the lawyer ad-
ViSed the man in Jail, that the govern
ment could not put him there, but he
said Here I am in jail"
Il do not see the analogy" Butten-
Weiser said.
Never Questioned Bonds.
AS Pecora pursued the questioning,
repeated over and over
that no one had ever questioned the
validity of the bonds.
Didn't you give some consideration
to the practical ability to meet the OBJ
legation apart from the legal validity?"
Pecora asked.
we got the best advice We could on
the legal side and the best advice we
could on the economy side Butten-
yieser replied.
Did you know whether the budget
was balanced?"
Il don't think it was. I don't know
any reason why the public should not
buy bonds because the government has
not balanced its budget
We should not stop buying our own
Government bonds just because Of a
deficit"
Buttenwieser then admitted the
Chilean unbalanced budget was not
mentioned in prospectuses for the
bonds. but insisted the trade figures
were more important.