Evening star., 1938-03-07
FRAUD IS CHARGED
|NMONTG0MERY
CERTIFICATE SALE
New Accusations Heard in
Proceedings for
Dissolution.
BUYER SEEKS RETURN
OF CONTRACTS, CASH
Justice Bailey Studies Plea Wrong
Procedure Is Used by
Directors.

CnarReS OF 1rduQ were 1nJecLeQ To-
day into proceedings begun February
2 by directors of the Montgomery
Building g. Loan Association for dis
solution Of the institution. and the
dissolution petition was taken under
advisement by Justice Jennings Bailey
of District Court, after the propriety
Of the legal procedure invoked by the
directors had been challenged.
In an intervening petition, Edwin :.
Heath, 1841 Sixteenth street NV, and
238 other holders Of so-called "foun-
dation surplus certificates" charged
that the certificates had been sold
under representations which were
untrue, false, misleading and fraud
ulent," that they were entitled
to have their contracts Of purchase
rescinded and their money returned.
There are 1900 certificate holders
and the face value Of the certificates
Is $320,500, it was stated.
These certificate owners fear, It was
said, that no provision will be made
for their reimbursement in the plan
submitted by the Montgomery directors
for sale of the associations assets at
face value to the Perpetual Building
Association.
Wrong Procedure Charged.
Justice Bailey indicated the question
presented by the foundation surplus
certificate holders would be considered
at later stage in the proceedings,
and gave principal attention today to
q contention that wrong legal pro-
cedure was invoked to dissolve the
corporation.
Attorney Lawrence Koenigsberger,
who said he represented several GER
tificate holders. argued that the Dis
trict code provides that building and
loan associations may be hquidated on
petition Of holders Of two-thirds of
the stock, and that this effort should
have been employed rather than Pc
tition of the directors to the court.
The directors contended through
their attorney, Hugh Obear, that
either procedure was permitted and
maintained they were properly before
the court. Mr.. Koenigsberger denied
the court had jurisdiction to act on
the petition.
Under the present method. should
the directors be upheld by the court,
the case will be referred to the
auditor, who will determine whether
| the facts warrant dissolution. When
the auditor reports to the court a
final decision will be made as to
whether the corporation will be dis
solved, and then the matter will be re-
ferred back to the auditor to decide
questions arising concerning the dis
tribution Of assets.
To Make New Claims.
Mr.. Koenigsberger said he will con-
tend at later date that the asso-
citation is insolvent and "has proceeded
in violation of law"
In their original petition the di-
rectors listed assets at s567 7,355.o7 and
liabilities at 1868 ,06344.
Attorney Joseph N. Halper. repre-
senting other foundation certificate
holders, did not oppose dissolution.
Mr.. Heath, who was represented by
Attorney Fred Myers, took a similar
position, being interested principally
as to distribution.
Col. Julius I. Peyser, who repre-
sented some 20 certificate holders,
agreed, however, with Mr.. Koenigs-
berger, that the dissolution proceed
ings were begun under the wrong
statute, and also said he thought the
law never intended that one Of the
officers Of the building association
should be appointed its receiver.
This remark was in reference to
the appointment on the same day the
dissolution petition was filed Of Joseph
r. Little, Montgomery president, as
temporary receiver.
According to the bylaws Of the
association, foundation surplus Ger
tiflcates were issued to persons on
payment Of membership fees which
entitled them to purchase class c
stock. These certificates entitled the
holders, 1t was explained, to share
in the surplus when surplus should
equal the face value Of all outstand-
ing certificates.
Heath's Contentious.
Mr.. Heath stated, however. that he
purchased $500 worth of certificates
on the representation that they would
yield per cent interest; that he could
withdraw his money at any time and
that the money would be invested in
real estate in the District and nearby
Maryland. These representations, he
said, were false. Instead OF being
invested in real estate, his $500 was
used to pay the salesman approxi-
mately $3.50 for commissions and in.
cidental expenses and the remaining
$50 to defray general administrative
and promotional expenses.
The petition stated the Montgomery
officers and directors organized an lin
tensive and high-powered sales cam
paign" to sell the certificates, and in
serted advertisements in daily news-
papers. Mr.. Heath told the court the
foundation surplus certificates were
so artfully and deceptively drawn as to
mislead and did mislead the investors
to think that they had actually pur-
chased stock in the association" and
that the passbooks issued to certificate
holders stated the investors were own.
ers of the stock.
"The o1mcers and directors Of the
Montgomery Building g. Loan Asso-
ciation," he continued. Conceived, in
stigated, aided, abetted, authorized,
and ratified the sale Of foundation
surplus certificates, and that notwith-
standing numerous complaints that
their agents were selling certificates by
false and fraudulent Misrepresentation,
continued to accept the money received
therefrom; and =" y"
Workers Under 16 Protected.
Factory workerS unded 1s In North.