Evening star., 1952-02-14
RFC Officials Smart
Under Finding Made
In Loan 10 B & O
By Robert *. Welsh

III lUdn I'D b & u
By Robert K. Woish
Reconstruction Finance Corp.
officials were satisfied today that
fraud did not enter into an $50
million loan to the Baltimore &
Ohio Railroad. but they smarted
under q finding that the agency
could 'shave received more favor
able treatment. if it had insisted" I"
Joseph j. Smith, tr.. a special
counsel to the Federal Reserve
Board and q member of the WASH
ington law firm of Hogan and
Harrison, submitted that finding,
after an eight-month study at
the request Of w. Stuart Syming-
ton. RFC administrator.
Mr.. Smiths 92-page report re-
Jected charges by Senator Tobey,
Republican, Of New Hampshire,
that the 1914 loan adjustment by
by the B. & o. with RFC ap-
proval involved fraud and collu-
sion." The report declared that
such charges were utterly
groundless and grossly unfair"
Security Holders Benefited.
The report noted, however,
that the 'B. & O.. and all it's
security holders. including the
RFC. benefited substantially
from the debt adjustment.
"The RFC." Mr.. Smith stated,
"would probably have received
more favorable treatment, if it
had SO, insisted. If the RF'C was
in error in failing to demand a
more favorable adjustment, how
ever, its error, at most, was an
error of Judgment. It was not
due to fraud or collusion.
''In my opinion, there is moth
ing that the RFC properly can do
or should do to upset the adjust
ments plan. and there is no basis
for any proceeding of any kind
against any Of the individuals
concerned. I, therefore. recon-
mend that the matter be closed" :"
Mr.. Syinington, who plans to
put his long-deferred resignation
into effect tomorrow, announced
the appointment of RFC Secre-
tary Leo Nelson as acting ad-
ministrator pending Senate con-
firmation of a new head.
In one of his last official state
ments. MIR. Symington said the
agency's general counsel, Soils
Horwitz. concurred in Mr.. Smiths
opinion that nothing can be done
legally to set aside the 1914 loan
adjustment and the RFCs pur-
chase of the railroads bonds at
that time.
S. Million Already Repaid.
"Butsthe conclusion" he added,
"does not in any way affect the
opinion of the RFC that, in times
of good earnings. prudent f1nan-
cial management should make
every effort to effect debt rednc-
ton to the Government as rapidly
as possible. The B. & o. has al
ready repaid S. million more
than is legally required and plans
additional payments in the near
future. It is to be hoped that the
road 81 financial program will in
clude even more substantial re-
ducation in the debt, particularly
In periods when funds are avail
able for cash dividends to stock
holders"
MrglSymingtons called attention
TO a situation noted by Mr.. Smith
concerning the railroads en-
ployment several years ago Of
former RFC officials.
"Such employment" Mr.. Sy-
mingten said, "gives rise to
suspicion and distrust. It is an
unsound practice and should be
avoided, if the RFC is to operate
in an atmosphere Of public con-
fidence."
Tobey Sticks To Guns.
Senator Tobey, whose criticism
of the RFC loan to the railroad
caused Mr.. Symington to engage
Mr.. Smith for an independent
investigation of the matter, stood
by his guns today.
IT spoke the truth" he de-
clared. II would not change a
word OF my charges"
The dispute started almost three
years ago, when the New Hamp-
shire Senator wrote a one-man
dissent from a Senate Banking
Committee report, which accepted
q court decision that fraud was
not involved In the RFC loan
transactions with B. & o.
Mr.. Smiths report conceded
that ''it may be argued with con-
siderable persuasiveness" that the
Government could have made a
better arrangement with the rail-
road and should have required
more rigid terms. But the report
stated that any charges of fraud
were groundless and were based
on misinformation, misinterpreta-
ton or, unfounded suspicion. 1t
added that Federal Judge Calvin
The Won+hoy