Evening star., 1933-06-01

| Itlat IIlc nhIket price "aSn eaAcn 4A1eo
account"
Pecora returned to this point again
and again, and in different words the
Morgan partner gave the same answer.
"a financial statement of United
after this initial transaction would
| have shown profit of $4,000, 900 as q
result of setting up these securities at
price of $50,000,000?" the counsel
| inquired
mo" Whitney replied He produced
q statement of the company's financial
condition to the stock exchange in May,
1929, to show that the market value Of
the stocks was not added to the $50,-
000, 1000. The statement was OF the
firms condition at the end of April
%, 1929.
These prices show the book value,
prices at which the stocks were taken
in" Whitney said.
How were the options set up on the
United books?" asked Pecora.
"Non-Ledger Liability"
Whitney asked Keyes to answer for
him, and Keyes said the option war
rants were carried as a "non-ledger
liability"
"was there any advantage from that
set-up?"
II don't know of any disadvantage"
Keyes said
Pecora introduced a letter from
George Roberts, dated January 80,
1929 asking Keyes how the options
were carried on the books.
Roberts was the first president Of
the United Then he read a memo
randum dated January 81, answering
Roberts.
This said the preference stock was
carried at $50 share, the common at
SIS and "the balance of the consldera-
ton received for the common stock and
the consideration received for the op-
ton warrants shall be credited to sur
plus"
1t added:
at will be noticed that no dollar
values appear in the account. When
and as option warrants are exercised,
an entry will be made debit1ng cash at
SGT so per share and this debit will also
include memorandum debit entry TO
the option account for such warrants
as are exercised. Credit would be made
for the common shares issued at SIS
per share and the balance credited
to paid-in surplus.
"The advantage of the bookkeeping
following the lines aforesaid is the TACT
that the entire proceeds are credited
to either capital or to paid-1n surplus
and the paid-in surplus amount Is thor
oughly identified at all times.
Should it be necessary in the future
to make distribution to stockholders
and of paid-in surplus, such paid-in
surplus may be determined as return
of capital to the stockholders and not
as a taxable dividend.
IT also believe the method adopted
correctly reflects the true position Of
runr y1t of tir1p "
No Pecunary Return.
would there be any pecuriary return
for the method of keeping books that
you refer to?" Glass asked.
None, Senator" Keyes replied.
"In your written reply you called
attention to certain advantages" Pecora
reminded.
Keyes added that the 81 which Nor
gan paid for the option warrants was
not taxable.
ANY receipts from the issuance Of
securities is carried as capital, not in
come,' Keyes said.
why was the common stock ac-
uuired for $25 share set up at the out
set at SIS and the balance credited to
surplus?" Pecora asked.
Keyes said that was permitted by law
and that it would have made no differ
ence so far as income taxes were con-
cerned.
Keyes, manager for Morgan for 16
wears, gave his answers in crisp, pre-
else voice without hesitation.
"If I may be allowed to ask another
question" Glass said with look at
Pecora, may I inquire what was PAID
by Morgan & Co. under the capital
issues provision Of the internal revenue
act"
'I don't know" Keyes said. I'D
"The investment bankers Of the |
country" Glass said, "have begged Con- |
gress to repeal this law"
'Yes."
"Do YOU know that the Government
has collected SLOTS, 100000 from this
provision?" the Virginian inquired.
He added without waiting for a re-
ply that If 'the Government Is to COL
lect this immense amount Of money be-
cause of the tax, do you feel the tax
payer has the right to write of losses |
If his holdings depreciate in value?"
Keyes nodded.
Glass said he was interested In deter !
mining whether in the seven years OF
the capital issues provision OF the Sc
curities act j. P. Morgan has made or
lost by reason OF it.
would it be advantageous or dis
advantageous to repeal it" he wanted
to know. -
"I think it would be advantageous
to repeal it," Keyes said. THE drop
in values on the exchange has been
so great as to wipe out the base Tor
otherwise taxable income"
At this point, after the suggestion
of John W. Davis, Morgan counsel,
Keyes gave the total income tax paid
by Morgan partners from 1917 to 1929
inclusive as $51 538,074.75. Keyes said
1929 was the largest year.
do you have the total taxable in
come for those years?" Pecora asked.
mo, SIR" Keyes replied.
S2O,OO0,OOO Paper Profits.
Testimony before today has shown
that buyers on the three lists so far
laid before the committee could have
realized profits of $20,0o0,000 on the
basis of market prices prevailing soon
after they acquired their stock.
How many did sell has not been
shown. but Whitney told the committee
Yesterday these clients had been invited
to buy the stocks in order to spread the
risk of underwriting the issues, pre-
sumably with the idea they would hold
them.
This statement drew the warmest
cross examination to which he had yet
been subjected The crowd of spectators
Uttered as Counsel Pecora recalled that
Whitney had made no such explana-
ton previously, and the Morgan partner
replied that was because II wasn't wise
enough to appreciate the impression
that would be created in some quarters
by these lists"
when did you first become aware Of
the impression?" Pecora asked.
when read the newspapers" Whit
ney smiled back.
I'm view of your emphasis on the
business aspect of these transactions"
then asked Senator Costigan, Why did
you write one of those invited to sub