Evening star., 1937-01-13
WITNESS ADMITS
GUARANTY ERROR
Underwrote $4,000, 900
Issue, Didn't Check Status
of One Firm.
BY the Associated Press.

Joseph r. Swan, former president
OF the Guaranty Co., New York in
vestment firm, told Senate investiga-
tors today "it Is clear we made a mis-
take" in underwriting a $4,000, 900
real estate note issue for the late Van
Sweringen brothers of Cleveland.
Chairman Wheeler of the Senate
Railroad Finance Investigating Com
mittee had charged the public lost
$15,758,004 of the $30,o00,000 it in
vested In the notes.
Swan testified he had never seen a
balance sheet of the Cleveland
Terminal Building Co., one Of the Van
Sweringen firms involved in the real
estate development.
Wheeler Is Caustic.
I'm surprised that a smart bank
ing firm like Guaranty didn't even
look at the balance sheets before SELL
ing that note ISSUE" Wheeler said.
Even a hick lawyer from the sage
brush, like me, would know better
than that"
Asserting at is clear We made a
mistake" in deciding to underwrite the
note issue, Swan said: But we do
think we did it after careful, diligent
investigation and using our best judg-
ment."
The company's officers had repeat
edly advised with Harold Stanley, a
partner in Morgan Stanley & Co., he
added.
He blamed the decline in value Of
the notes on "the greatest financial
collapse in history" adding: I'VE
didn't foresee what was going to hap
pen."
Proposals Twice Rejected.
The notes were issued in 1880, Swan
testified, after his company had twice
rejected proposals for financing the
Van Sweringen real estate enterprises
prior to the 1929 market crash.
kilograms placed in evidence
showed Stanley said the Van Swerin-
gems were terribly sore at Guaranty"
because it had refused to finance their
real estate operations earlier.
Wheeler asserted that when finally
underwritten. the notes were backed
partially with 100000 shares of Ale
ghany Corp. stock. which was never
worth anything and never paid q
dividend"
This stock later was replaced with
$l5,O00,OO0 of Government bonds,
Swan testified
Thomas w. Lamont, ]. P. Morgan
head of the New York Stock Exchange,
and William C. Potter, board chair
man Of Guaranty Trust Co., also were
to be summoned to describe their roles
in financing the 23,000-mile transpor-
tation network Of the Van Sweringens.
Two other Morgan partners
George Whitney and Arthur M
Anderson-testified last month that
their firm and associated backing
interests held heavy investments in
the Van Sweringen enterprises early
in the depression.
A $7,350000 loan from the Morgan,
syndicate to the Missouri Pacific
Railroad-Western wing of the giant
system-was repaid. they said out Of
$23, ,000, 900 borrowed from the Re-
construction Finance Corp.
Chairman Wheeler of the Investi-
eating Committee said many weeks
Of hearings might be needed to COM
plete the study of IS representative
railway system. A request for aboli-
ton of railroad holding companies
will result, he predicted.
Cost 100000 Now.
The investigation already has cost
$1,000 900. Wheeler said he would ask
for more funds to continue the work
Two other Senate committees
Banking and Finance-were vested
with almost unlimited authority TO
investigate matters relating to bank
ing, finance, or Government revenue
Chairman Byrnes of the Audit Com
mittee. which approved the resolutions,
said there was no significance in the
broad wording.
Members of the two committees said
they knew of no plans for immediate
utilization of the authority.