Evening star., 1948-07-20
Good Faith Of Otis
In Kaiser Stock Deal
Challenged by SEC
BY the Associoted Press

The Securities and Exchange Com
mission yesterday challenged the
good faith" of the Cleveland bank
ing firm of Otis g. Co, Lawyers for
the bankers retorted that the SEC
had "assissinated" the Otis reputa-
ticn.
The charges and counter charges
fiew back and fourth in the renewed
legal tussle over the collapse of a
contract to sell 100000 shares of
Kaiser-Frazer stock.
On February Otis & Co. of Cleve-
land and the First California Co. Of
San Francisco cancelled a contract
to sell a $4,000, 900 stock issue for
the motor company. The SEC has
been publicly investigating the can
collation. since April IL.
Justice Morris Presides.
Yesterday legal fireworks occurred
in District Court before Justice
James w. Morris.
On June Is the court ordered two
Cleveland lawyers, Marvin c. Harri-
son and Allan Hull, to show why
they should not be compelled to tell
the SEC about work they had done
for Cyrus Eaton, majority stock
holder of the Otis firm, in connec-
ton with the Kaiser-Frazer stock
Offering.
The lawyers had refused OF testify
on the ground that it would violate
the lawyer r-client relationship.
The lawyers, who were not pres
ent, were represented by Thurman
Arnold, former Government lawyer
and counsel for Mr. Eaton.
Lawsuit Called Collusive.
In its June 25 petition the SEC
said that evidence in the stock case
established "prima facie showing"
that Mr.. Eaton had talked with the
two lawyers "in connection with the
preparation of fraud involving the
filing of collusive lawsuit"
A suit was filed against KAISER
Frazer in Detroit on the morning of
February 9, the day the stock deal
was to have been closed. 1t alleged
that the issuance of additional stock
would impair the motor company's
finances. The suit was the reason
given by the bankers for pulling out
of the deal
In his oral argument Louis Loss,
SEC counsel, told the court that the
Otis firm had not entered the stock
selling contract in good faith.
Cancellation Termed Fraud"
The cancellation of the stock sale,
he said, sis a fraud which damaged
Kaiser-Frazer Corp. and deprived it
of the fruits of the contract"
Otis was guilty of an act to de-
fraud in that it did not
enter the contract in good faith,"
Mr.. Loss said.
Earlier Mr.. Arnold offered to give
the court "all the answers that
would be given by the lawyers if
they should be compelled to testify"
He asked the court to hold them in
confidence
Justice Morris answered, "If they
are disclosed they are NO longer
privileged" Mr.. Arnold said he did
not want the impression to get out
that we have something to hide"
Arnold Files Answer.
A memorandum filed by Mr. Ar
mold on behalf of Mr.. Eaton, Mr.
Harrison and Mr.. Hull said, I'm the
course of the SEC investigation
it became apparent that the repu-
tation of Otis & Co. was to be as
sassinated without the remotest
semblance of a fair trial"
The memorandum also said no
prima facia showing of fraud can
be made where the defendants do
not have the opportunity of cross
examination.
Mr.. Loss told the court the in
vestigation has allowed all witnesses
a chance to be represented by coun-
sci. He also explained that all coun-
sci have had the opportunity to
submit questions.
If the hearings result in more
formal proceedings, he said, all
parties will be given the opportuni-
ty for cross examination.
Mr.. Arnold will present his oral
aroJlmont today