Evening star. [volume] (Washington, D.C.) 1854-1972, 1956-02-28
Rx DONALD B. HADLEY


after discovery of irregular prac-
tices in it's small loan offices and
questioning of its accounting
policies by the Securities and
Exchange Commission. an &C
countant said today.
James j. Sanders. partner in
the accounting firm of O'Connell
g. Co., testified at an SEC hear
ing that his firm compiled new
balance sheets in February.
which showed assets of $3,019.-
462 on June 80, 1855, compared
with S3,2S7.866 listed for the
same date in a prospectus pre-
pared for an offering of addi-
tional Coastal stock last August.
ETAOINb
The irregularities, he testified,
were first discovered by him in
Coastal's Arlington office in Au-
gust only a few days after the
prospectus was used for the
stock offering. Later he said ir-
regularities were found in II of
the company's IL Offices.
Amounts involved in the So
called irregularities totaled SILL
4l0 on June 80. including SIS.
occurring in 1854, he said.
Rolling of Accounts
Cited as Big Factor
After the first discovery, Mr..
Sanders said he discussed it with
President Frank Bush of Coastal
and John J. Conway. vice presi-
dent in charge of operations.
Mr.. Bush expressed the opinion
at that time that the irregular
tiles represented Just a little
rolling of accounts" term
used in the industry,
Mr.. Sanders said he under
stood that rolling an account"
took place when an account be-
came delinquent and the borrow
er was asked to come in, make
a new note, including unpaid
principal and overdue interest.
The new note took the place Of
the old note and the interest
added to the new note became
net income. he declared.
Mr.. Sanders also said fictitious
notes we're made out to repre-
sent funds actually taken in and
used as payments to reduce de-
linquent accounts. The cash was
spread over many accounts.
If any amount was paid on a
delinquent account within 90
days it was removed from the
delinquency list even if the
amount due was $50 and the
amount paid was only 81. In
fact. he said his firm had dis
covered quite a number of 81
payments where much larger
amounts we're due. In many
cases 80 cents was credited to
interest and / cent was credited
as payment on principal and the
account taken from the delin-
quent list
DeIinquencies Estimated
At Around $4,000
Mr.. Sanders said that in COM
putting a revised delinquency list.
his firm estimated delinquepcies
at around $4,000.
The new balance sheet COM
piled in February was quite diff
ferent than the one issued with
the stock Offering in August. al
though both were as Of June 80.
he testified.
Small loans receivable were re-
duced from 1861. 1874 to $2,597.-
965, a decrease Of around $70,-
900. Reserve forclosses rose from
$S0,975 to $256.973. a jump OF
sl75.000 Capitol surplus rose
from sl16.491 to $172.622. while
earned surplus shrank from s82.-
IT'S to a deficit of $214,931. Total
surplus shrank from sl99.267 to
a deficit of S42.319.
The revisionS also showed big
changes in the reported earn
ings figures for six months ended
.ItIne IN last wear. Gross OBJ
Grating income dropped to $751;
897 from s407, 1927 and provision
for losses scared to 1903 OCT from
$1,000 Net operating income
of S107.6 96 became a total OPP
Grating deficit Of around
Sl28, 900.
The hearings started today are
expected to continue for several
days and are being held before
SEC Examiner james G. Ewell.