The Wilmington morning star., 1940-01-31
WASH|NG1O ON
DAYBOOK
By PRESTON O W

WASHINGTON, jan. SU.-IuIuIeQS OF LuOu-
sands of stock and security holders of the
Associated Gas and Electric system may be
glad of reinsurance that they are not faced by
another insult debacle nor anything approach
ing it.
Officials Of the securities and exchange COM
mission are convinced that the recent act of
the company in going into bankruptcy will
permit a hard.shelled receiver to comb clusters
Of surplus officials out of the corporate hair
and reroute the savings to the security holders.
First off, there are about 200 subsidiary OPP
Grating companies whose affairs are not badly
tangled. The $400, 900, 900 of bonds outstanding
against these subsidiaries were described as
insurance company assets" a term implying
they are gilt-edged Mismanagement Of some
of these operating companies has. been alleged.
That will be the job Of a receiver to straighten
out. Reports to the SEC indicate some of them
have suffered from being "bled' by the top
holding companies. But state utility commits
sions have stepped into the picture in many
instances to check this before it could get too
far out Of hand.
An Unmade Mistake
1t is in the upper stories of the holding
company system where the receiver, when ap-
pointed, will have his job cut out. He will have
to cope with a system which was designed by
H. c. Hopson, long recognized as one of the
smartest operators in the utility field, to Sc
cure control Of the empire for himself.
Hopson and ]. I. Mango, whose performances
have confused and perplexed more than one
congressional committee, started their system
in 1922 with assets estimated from SEC rec.
ords to be 5 $1,000, 900, of which they owned out
right only a very small portion. By 1899 they
had built Associated Gas and Electric into a
$3.50. 900, 900 holding company system with OPP
Grating companies bound to it all the way from
the Philippines to Maine.
If Hopson had been less smart, it is con.
| poiyoh1o fbof ho apopiro Would how cr,,rob1o6
under the depression just as did insults. But
a mistake made by insult was not repeated by
Hopson. insult had raised money by borrowing
bank money and pledging the securities Of his
Operating companies. When the depression hit
and insults tower began to totter, the banks
stepped in and pulled the props out from un-
der it by foreclosing on the operating compa.
MES. That left no source of revenue to support
the superstructure. The thousands of stockhold.
ers whose money had been invested in the
superstructure were left with little but fond
memories.
Hopson's course was different. He kept his
operating companies free Of bank loans ex-
cepting about $40, 90, 900, a trifing sum for
such a huge system. Instead, he pooled the
controlling stocks Of the operating companies
by an intricate network of holding companies.
A corporate mechanism as complicated as a
terminal switchboard cbanneled all the control
into two mainline holding companies. These
l IWo lASll 1oouOo oA0 - ISS"oat
not to the banks. They were floated among
an estimated 300, 900 investors.
Spending Rechecked
These investors were in two classes. Some
held $3.50, 900, 900 of debentures. These are Sc
c~urities not so binding as bonds but having
priority over stocks. In addition, about $780,.
600, 900 in stocks were issued.
The debentures were devised 10 that as long
as interest payments were continued, the in
v%estors could not step in and take control OF
the system away from Hopson.
Among the various charges directed against
Hopson by congress and other official bodies
is one that he pipes so many earnings into
the pockets of friends. relatives and his own
law and engineering firms that only enough
was left to keep the debenture, holders off
his neck. ~
SEC claims to have closed many of those
drains. The receivership court, in its discre'
ton, may cut off any that may remain.
Better times, fewer drains, and sterner ad'
ministration, the SEC believes. will bring earn
ings that will put new life into the Outstanding
debentures and stocks. Bank loans may be
paid off first, debenture payments next, and
payments to stock investors third. Perhaps
even ahead of all, earnings will be used to Inn
prove any weakened operating companies.
What's left. if any, may 60 to Hopson and
Mango interests. Their own securities come
last.