Evening star., 1934-08-06
BANKERS SCORED
INSALE OF BONDS
"ScandaIous" and "Shock'
lnu," Senate Group Says
of Methods.

NJ shs Associated Press
Methods used By American invest
ment bankers In selling billions Of dol
Lara Of securities nov almost worthless
were described today by q Senate
committee as "scandalous' shocking
and ut times "violatiye OF the most
elementary principles Of business
ethics"
One big faw. the committee found
a. a result of It's stock market and
banking investigation. was that bank
srs Frequently did not have decent
regard for the investors interests.
A third instaIiment in the Banking
Commuters report win be made public
next week. II and the previous chap
ters will be used as a basis for further
legislation when Congress meets in
January.
Practices Are Cited.
The committee cited past practices
of J. p. Morgan e. Co, Kuhn. Loeb &
Co.: the National City Co, affiliate OF
the National City Bank OF New York;
Dillon. Read a. Co. and other big In
vestment organizations, in distributing
domestic securities totaling $55,ooo,-
600 900 and foreign bonds exceeding
$1,000, ,000. 900 since the World War
II said the investment banker did
nothing TO curb the speculative fervor
which swept over the investors IN his
fieId from 1926 TO 1922 "pegged
prices" 10 insure sale Of bonds known
10 be unstable, and sold securities to
preferred lists" 10 extend his "infiu-
ence and control over individuals IN
high places"
Referring TO the already published
@preferred lists of j. p. Morgan d Co.
and Kuhn, Loeb a. Co, which included
Government officials and some Of the
leaders Of both Democratic and Re-
pablican parties, the committee said:
"Ihe bankers deny, perhaps TOO
vehemently,' that they expect any
direct considerations from the persons
included in the preferred lists.
Common Interest Created.
"The granting of these preferential
participations Gin issues at prices
lower than those at which securities
were offered on the open markeD on
the one hand and their acceptance on
the other created q community OF In
terest and similarity Of viewpoint be-
tween donor and donee which augured
well for their mutual welfare and III
for that Of the public.
Implicit In the bestowal OF favors
on this magnificent scale is pervasive
assumption Of power and privilege.
Implicit In the acceptance Of such
favors Is q recognition Of that power
and privilege. The preferred lists,
with all their grave implications, cast
a shadow over the entire financial
scene"
The committee said that in floating
issues, the investment bankers used
high pressure" methods and fragrant
Misrepresentation and concealments
in prospectuses on which the invest
ing public relied for information.
II particularly assailed the sale Of
Peruvian bonds by the National City
Co. and Of Brazilian bonds by Dillon,
Read a. Co., after their employees had
furnished adverse information as to
the finances of those countries.
Brazilian Bonds In Default.
"out Of s1s6 ,ooo. 900 Brazilian bonds
sold by Dillon, Read 6E Co. to the
American public" the report re-
counted, "there were outstanding at
the time of the hearing, october IL.
1898, net total Of sll4,00O,0o0 which
are in default"
The investigators added that ST.
222.448,l00 OF securities OF foreign
corporations were outstanding as of
March /, 1894, with $l,394 ,395, 800,
or approximately 4S per cent, in de-
s'The activities Of investment bank
ers resulted In passing on TO the pub
lie not only the huge indebtedness Of
foreign industry, now substantially in
default, but also the indebtedness of
fcreign governments" the report said.
TT has been estimated that as of
March /, 1884. $4.s70, ,7S9, 100 of for
eign-government securities were out
standing. of which $1,536, oar, 800 were
In default In principal amount. - ."
The committee said millions of Sc
curities now in default were ''un-
loaded" by the National City Bank of
New York on other companies despite
warnings by Thomas w. Lamont, a
member Of the j. p. Morgan q Co..
and their own officials. The Lamont
warning was described as having been
delivered to the Pan-American Con-
ference in 1927.
Information Checked Poorly.
'Far from exercising discrimination
In relation to these issues, the bankers
failed to check adequately the infor-
nation furnished by foreign officials;
ignored bad-debt records and bad
moral risks; disregarded political dis
turbanceS and upheavals; failed to ex-
anime, or examined only perfunctorily,
economic conditions in foreign coun-
tries; and generally INDUCED
in practices of doubtful propriety in
the promotion of foreign loans and
in the sale Of foreign securities TO the
American public" the committee con-
tinued.
The investment banker should be
disinterested intermediary be-
tween the issuing corporation and the
investing public, the report said, ad-
ding, however, that as the American