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The Commoner
MAY, 1915
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Treasury Officials and the Bank Suit
A suit filed April 12 in the supremo court of
tho District of Columbia by the Riggs National
bank, of Washington, for an injunction against
Secretary of the Treasury Wm. G. McAdoo,
Comptroller of the Currency John Skelton Wil
liams, and. United States Treasurer John Burke,
alleges a combination and conspiracy to wreck it
and asking that these officials be restrained from
carrying out their alleged conspiracy. A tem
porary injunction was granted and the Buit set
for trial on April 16, but a postponement was
granted at tho request of Louis D. Brandies,
special counsel for the department of justice, un
til May 12 th.
Below is a statement given to the press in re
gard to the injunction suit and an explanation
of the dealings of the treasury officials with the
Riggs National bank.
STATEMENT FOR THE PRESS
Jolin Skelton Williams, comptroller of the
currency, said:
"I have not seen the bill filed by the com
plainants but have read the extracts furnished
the press.
"The recent investigations of the affairs of
the Riggs National bank disclosed Irregularities
and unlawful practices on the part of certain
officers of sufficient importance to merit their
reference to the department of justice, and that
department engaged the services of Louis D.
Brandeis, of Boston, some weeks ago as special
counsel in the case. It is consistent with the at
titude of these officers to attempt by unwarrant
ed and untrue statements to place themselves
and the bank in a position of martyrdom at the
hands of the administration.
"It Is not the practice of this department to
discuss in the public press the affairs of any na
tional banking association, but since the officers
in question have had the temerity to submit this
matter to the court, this office is prepared to
show a condition of affairs in the management
of this institution which fully warranted tho ac
tion taken by this office. The bank is solvent.
The interests of the depositors have been safe
guarded by the actions of the comptroller's
office, but if the methods and practices com
plained of, had been permitted to continue, the
results would have been serious. The evidence
will abundantly show that it has been necessary
for this office to seek to terminate the repre
hensible practices of the officers in question and
their misuse of the powers delegated to them by
the directors.
"The penalty imposed for failure to make re
ports, the collection of which penalty they seek
to have enjoined, grows out of their unwilling
ness to disclose the true nature of the transac
tions engaged in.
"The whole purpose of the department has
been to require the bank to give up the unlawful
and dangerous practices and methods which had
been In vogue for years past, and which had
threatened alike the welfare and security of
both shareholders and depositors, and to require
the banks to conform to the plain requirements
of the national bank act, and to the regulations
of the office of the comptroller of the currency.
"In view of the many false and misleading
statements contained in the announcement pre
pared for the press by the Riggs National bank,
and the references of the bank to the letters
which it lias received from this office during the
past six or eight months, this office thinks it
proper that the public should be given further
information as to the true contents and purport
of this correspondence and therefore submits the
following extracts from three of the letters ad
dressed to the Riggs National bank by the comp
troller of the currency since July last, and re
ferred to in the statement given out by the bank.
INFORMATION REQUESTED
"In its efforts to ascertain the real truth in
regard to the operations and affairs of the Riggs
National bank, letters were from time to time di
rected to the bank from the office of the comp
troller of the currency for information. These
requests for data in various cases were refused,
and on March 30th, the Riggs National bank was
notified of the imposition of a penalty of $5,000
under section 5213 of the United States revised
statutes, for its refusal to furnish information
to the Comptroller's office in regard to its affairs.
"On April 5th, the comptroller of tho cur
rency addressed a letter to tho bank calling its
attention to various false statements which had
been made by its officers under oath, and what
are regarded as deliberate efforts to deceive tho
department, and notified tho bank that "In view
of the unsatisfactory and dangerous conditions
which have como to light as tho result of the in
vestigations of tho bank by this office and tho
national bank examiner; in view of the unre
liability of the statements made by your officers
under oath or otherwise, and your long con
tinued defiance of the law and disregard for tho
instructions of this office, you are hereby notified
that the comptroller of the currency will, until
further notice, refilse to approve the Riggs Na
tional bank as depositary for the reserves of
other national banks."
Extract from letter addressed, by the comp
troller of the currency to the Riggs National
bank July 22, 1914:
You are hereby admonished that this office
strongly disapproves of the policy and practice
of having tho president, vice-president and cash
ier of a national bank conduct a brokerage shop,
or business, within, and as a part of the business
of the national bank, buying and selling specu
lative and "wildcat" stocks and other securities
on commission and using the bank as an agency
for carrying, on margin, stocks and other secur
ities thus bought and sold and dealt in.
The books of your bank show that large sums
of money are being loaned on speculative secur
ities to the officers of your bank and to its clerks
and employes, in these speculations. This office
regards this as a demoralizing example to the
other employes of your bank.
In speaking of the loans made to the cashier
of your bank, aggregating $63,500, you declare
that these loans "were secured by high-class,
marketable local and out-of-town stocks and
bonds, having a market value of $70,000," al
though at today's prices they barely cover tho
loan.
Among the "high-class, marketable local and
out-of-town stocks "and bonds" I note the fol
lowing: Market
Valuo
200 shares St. Louis and San Francisco
preferred stock 4
100 shares Rock Island railroad pre
ferred stock 1 V
100 shares Rock Island railroad common
stock 1
200 shares Missouri Pacific railroad
stock 0
200 shares Inspiration Consolidated
Copper stock 18
350 shares Inter-Continental Rubber
stock . .. 7
Among the stocks securing the loans to your
assistant cashier, which you approvingly refer
to as "recognized stock exchange collateral," I
notice:
100 shares American Can 26
200 shares Missouri Pacific 9
Among the stocks securing loans to Vice
president Flather of $63,800 appear 415 shares
of Green Cannanea Copper stock, etc.
Such securities as these I should hardly ex
pect to find in the loans of conservative bank
officers and their clerks, who should certainly be
expected to scrutinize with special care the col
lateral placed upon the loans which they may
require the bank whose interests they have
sworn to safeguard and protect to make to them
selves. It appears that for the sake of the commis
sions collected by your officers in buying and
selling bonds and stocks, you have been execut
ing orders for women (including treasury em-
ployes), young men, clerks, professional and
business men, who have been tempted to engage
through you in stock speculations which have
proved in various cases costly and damaging, if
not ruinous. To facilitate these operations there
is, it appears, Installed in your bank a private
telegraph line connecting you with a stock
brokerage house in New York, and two private
telephone lines connecting you with two stock
brokerage offices In Washington.
The books of your bank showed at the date
of the last examination that nearly $1,000,000
of tho funds of tho bank woro bolng loaned to
somo forty or fifty womon on stocks and other
securities, many of them of a highly speculative
character, which had been bought for account
of these womon by officers of your bank, and for
Twhich your officers had dulycollectcd their "com
missions." Somo of these loans had sufficient
margin, but others wero but scantily secured.
But few, if any, of thoso women had any hhU
ances with your bank upon which they might
have drawn to raako good shrinkages In their
collateral, and as much of tho collateral was of
a slow character, it Is uncertain what tho results
would have been, or would be, If it should have
boon necessary, or should bo necessary, for yon
to call thoso loans.
As an example of the evils which have re
suited from the policy and methods pursued by
your bank in this connection, I will clto tho cast!
of who, it appears, purchased through
in January last whether through your active
solicitation or otherwise I am not Informed
1,000 shares of Rock Island preferred
stock and 500 shares of Rock Island common
steck at a cost of $26,978.50. Theso stocks In
tho brief period of six months havo shrivelled
up so that today they are worth at current quo
tations scarcely $2,000, showing a loss to your
unfortunato customer, including interest, of
more than $25,000.
Tho commission which you collected of
$187.50 it seems to me is no compensation for
the injury Inflicted upon your unhappy client,
who was, as you presumably know whon you
mndo tho transaction for him, a man of limited
credit and means, and in no condition to engage
in such a speculation. lie still owes you, I un
derstand, approximately $20,000 on extremely
doubtful security. You inform mo that ho has
given you as further protection against the cost
of tho Rock Island stock now valued at only
$2,000, $16,000 of the notes of the
Company,
I regret to have to inform you that this office
has cvidonco which indicates that other state
ments recently submitted by you and other offi
cers of your bank to this office, under oath, ,ln
addition to tho incorrect statements to which
your attention has been specifically called in this
letter, are also untrue.
Should you or the other officers of your bank
desire to review and correct .statements which
have been made to this office by yourself and
other officers of the Riggs National bank In con
nection with these recent investigations, before
this office takes action in the premises, you aro
requested to notify rao immediately, and to fur
nish, under oath, such corrections as you may
be prepared to submit.
You are instructed to have this letter read to
your board of directors, at their next meeting,
and send copies of it to thoso members of the
board who may not be present at the meeting,
and to notify this office that these instruction?
have been complied with.
Extract from letter addressed by the comp
troller of the currency to the Riggs National
bank under date of March 9, 1915:
"Investigations by this office indicate that the
officers of your bank have not only made or con
nived at the making of so-called "dummy" of
indirect loans, by which funds are furnished to
customers beyond the amounts which the bank
could legally lend directly to theso customers,
nived at tho making of so-called 'dummy' or
could legally lend directly to theso customers,
but your officers have, on different occasions, it
appears, loaned to themselves or one to ibm
other, the bank's funds through these so-called
"dummy" or indirect loans."
Extract from letter addressed by the comp
troller of the currency to the Riggs National
bank on March 30, 1915:
"Tho investigations of the bank examiner hail
raised serious questions as to whether or not
your bank had collected the proper amount of
interest, which it was entitled to receive, from
its officers on loans (large and small) which had
been made to those officers personally, some
times directly on notes signed by themselves and
sometimes Indirectly on "dummy" notes signed
by clerks of the Riggs National bank, or of other
banking institutions, or by outsiders, which said
'dummy' loans were usually secured by 'collater
al' provided by the officers of the Riggs National
bank."