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THE SACRAMENTO BEE, WEDNESDAY, AUGUST 1933 PAGE TEN Bank Directors Closed Jurors Excoriate Grand
Many Changes In State Act Urged To Protect Depositors
In Penalties Demanded For Officials Lacking Due Diligence Handling Affairs And Lacking Knowledge Of Banks
(Continued from Page One.)
Bank stock Trust and Savings but the actual was recognized stock owner entity affairs voting and Savings the The the the the California Nagroup Bank and voted by tional Martin and A. Fred Carter Board Of Directors. direcThe California Clarence Savings Carter John Robert W. Geary. Marshall Kruse, Meister Miller. Em Arthur E. William Robert Thomson and W (Mr Pentz having Wright 1932 but whose place signed late been filled board on the board identical of the Caliand was fornia National the stock the vote elected Trust and Savings the the trustees above Bank cast by its prior selecnamed board of directors tion the National Thus the the California were the interests Savings Bank completely Trust and those the CaliNational which fornia contact with far less broadly in public
Qualifying Shares. that Under no violation of the corporation necessary issue of the twenty-three selected. five shares directors so of the Califorof the capital nia Trust and Savings Bank. and while no evidence apparent that upon jury, it succession of directhe death the SO issued reverted the Califo: National Bank through the trustees, issued in the name of the new rector.
Practice Assoiled. In the opinion of this committee. such practices are contrary pubpolicy and subordinated moral honesty to business expediency and paint an easy for evading of the law requiring actual qualification for directorship in corporations the feeling and recommendation of this that the grand jury urge the speedy amendment of the general corporation laws to the end that the issuance qualifying shares of capital and acceptance for the purpose to the posidirector of any without actual bona fide purchase, and full payment. each constitute felony
"Loading" Charged. The evidence before grand jury shows that the board and the executive titular the California National Bank and the California Trust and Savings Bank employes and departmental heads those institutions operated under the same roof subsidiary. incidental, and opportunity other private institutions The Company and The California National Corporation. as investment and stock which "loaded" California Trust and Savings Bank with questionable securities excessive prices. Change In Laws Urged. It is the feeling of this commit- that while the might profitable, reprehensible and proximity has such banking conductfor the safety and and is contrary public policy our mendation bank of that ifornia be speedily bank can be per directly brokerage con any which dealing qualified the securities or hold to deal the banks and that every ings of the bank shall subemploye to the same conditions: ject shall any bank California be permitted with under the of any other cor-
General Banking Conducted. Facts this grand Trust show Savings operated both branches and departments: the branch conducted in the ramento same building the California Na. tional Bank maintained no mercial department operated savings and departments: while addition to trust and branches the California Trust and Savings Bank Loomis, Ione and North Sacramento operated commercial departments. Thus California and Bank seen banking business comIn many respects under the state branch the sponsibilities and liabilities of arate banks only Uniform Liability Proposed. contrary the interests of the general public that the liability of branch made and equal the and that the law be so specify May your digress the end that attention be recalled the fact the state bank in the contests protecting the interests holders the institution financial enterprises too little with adequate and protection of the deposits the public Penalties Proposed banks under in an ownership opinion of committee that directors charged. should scrutiny of the under care that negligence should doubly that for tion and existing The perfunctory shown the before this jury and the pitiful showing knowledge as state the California and Savings Bank by and every one testimony was taken energetically be The failure the law to recognize criminal and the penalty of for crass indifference to the rights thoe whose means are entrusted their cannot be too speedily corrected. Charge Urged. It the dation of this that the bank act should amended that the failure bank directors know condition of the institution and to from exact truth falsity document and report bearing their signature shall constitute felony and that additional liability equal to four times the stock ership such shall should be shown that the bank served has been due either deceptions the neglect directors or their officials We further recommend that such phrases "knowingly violate' and "wilfully permit' the bank and included the oath of make their use the defense directors and officials of failed banks null and void and that the phrase the best our knowledge and belief the affidavit officials attached bank statements be made read "of our own knowledge Exact absolute knowledge the part of directors the least that be accepted of those controlling the funds others. Perjurers Protected. In this connection the grand jury will recall the expressed our legal advisor that "perjury is the hardest possible charge prove. when the question of dering such indictment raised in connection with evidence the bank and that the of this grand also this jury, specifying director, that mere perfunctory signing by rector of official report, though fense the opinion of this committee that indicates has the right and for which that state banking departments and officials the partially Responsibility Not Fixed. The evidence before grand jury failed to fix the sponsibility tions, the legality which is upon any offiemploye group of either. the opinion dation that the state bank act definitely and fix the absolute both stockholders for specifically that the policy shown by this bank designate vice presidents excessive salaries prohibited by High Reserves Urged. The before grand jury indicates that bank was required to maintain for amount equal to 10 per cent and its savings department equal per cent total exclusive public funds The testimony also shows this have been inadequate and public policy warrants the requirement not less than twice that which mittee should quired by worthy of note that specifically that receiving deposit does debt" the meaning of the
Trust Department. The grand jury shows that the trust ment the bank operated both private and court trusts the permission the treasurer of which ceptable securities sufficient amount "for the performance' the bank the execution trusts are These deposited securities to be confused collateral security by law set aside for trust funds in banks other departments banks however travesty that there according testimony undisputed, differ protection required tween funds deposited "for distribution funds the posited further testimony that such segre gation could not made without knowledge of the terms of each Clarification Urged. That provision the bank which declares that trust ments "shall be for and by conthe that veys bility for "investments" covers sponsibility should be clarified strengthened to cover all trust though the same cared for under provisions the penal peculiarity the law protects "private trusts" from examination the and seems entirely "privileged communication" ex tended in this case and the of trust held The should be fully advised of public and so long as the practice recognized protected by law suffering losses during the private the of failure the part the seek the Loans Attacked. The evidence before grand shows certain material loans This permitted by the the feeling this that own or bank be prohibited
Bank Separation Urged. The Califor Savings the the clusion financial directors policy fraugh danger to depositors al though affords sources profits feeling that ing its good brings itself of and the which also contrary the public policy recommend such modification the bank not permit any group banks either an ficer director in more than one bank
The state requires specific reports at stated intervals made by the or mittee the stockholders of the bank for their which the bank commissioner may according to his cept guide such periodic examinations the affairs bank as he required to make. The bank examiner clear that ports not for his ment but for the banks forms and with data contained as is required his One the anomalies of the presbank act indicative of its adequacy the following vision the report above referred to: the make report of and liabilities shown by the books, together with any deductions from the sets or additions to the which such directors committee after examination determine to make statement detail of loans, if which their opinion doubtful collateral security and its actual value as nearly as possible. REPORT IMPOSIBLE We submit that such report from an examination by such examiners be completely insufficient and Such signed such directors the and Savings Bank have been submitted to the grand jury the truthfulness of some state ments of which in question The state bank act provides reports are "intended and for the preparation of falsehoods "wilful intent" to mislead or
Bond Deal Explained The that block of defaulted Milwaukee and St. Paul Railroad bonds transferred of the California Savings Bank the California National Bank the period reports and the report form blank carries notation meaning that the bank had had no unauthsecurities portfolio further testified by the of banks that the bonds from the of the Trust and Bank that the made and there had nothing far discovered than with the affairs of the bank or in the records his department nor examination his examiners made. indicating criminal Diligence Questioned. the evidence before this body that same dividual acted as bond officer the California and the California Trust Savand
Bank and that the two institutions were harbored the same building and officered by the same board directors, there may be question raised gence in the transfer under conditions and give rise suspicion. especially two vestment subsidiaries that and "juggling" practice unfortunate that "loading "juggling" fined legally declared felonithis committee that the holding un by any bank should be made felony amendment state bank act False Rumors Reported. Evidence before this grand jury false and unfounded rumored reports the failure during the Fall and Winter just passed citizen and business suffered particularly financial institutions The truths the general depres were marked enough threaten the stronger conand perings proved fatal many Policy Questioned. This might question of the state department in the matter failure to demand an repair of the depreciated capital California Trust and ings Bank regardless the judgment of this department that to precipitate acute spread run on many California inEvidence before this grand jury levied. in fear that action might an
Weakness Admitted The weakness had been admitted the report to the Corporation loan however, the opinion of this comthat the way which the part for the holders themselves tify their confidence their own repair any impairment of its capital ture the of this the bank amended that the state bank be denied discretion in such and that any the capital structure any bank repaired by stock assessment immediately upon its
PENALTIES ASKED this provision the law, recommendation of this com- mittee that the penal code be strengthen its operation and penalties for the circulation any rumor, the display any calculated directly or indirectly excite any bank to bring into question the ability the bank to meet its obligations, and that such activities shall be defined as constitutfelony. Because evidence submitted this grand jury by volunteer witnesses showing their utter lack of facts concerning the California and Savings Bank, our grand jury action and practice should modified vide the publication of such evidence to that public anxiety and interest be satisfied during and that purof reports credited only extent of their actual SECRECY SCORED In this recognizing value the four provided by the banks, committee still feels that the atmosphere secrecy failbanks and the subsequent uncalled for and calculated arouse popdistrust both bank examining officials: therefore, our that immediate and subsequent periodic progress reports be issued in bank examinations by the state superintendent banks Estimate Of Assets. Your committee finds evidence public statements prepared reports the California Savings regardless of the depression which had greatly actually "frozen" brought default many and other evidences of investment aggregated such investments prices above current market quotations. We consider this judgment, to lull both the its and practice. what be the values securities held assets by banks, matter of opinion frequently highly controcommittee that for the "statements of and the deterof the of banks, the law amended to the such securities as have been for vestment only prices revised June 30th and December 31st of year conform to those tablished and set by legally tablished from tations upon those dates recognized securities markets, and where bank securities offered assets are not found to be listed upon such recognized markets, the amounts for which they are cluded shall within certain definite limits to set up by the state banking in the judgment said general business conditions and marketability justifies.
Law Enforcing Machinery. A study the law this that the state banking department uncover violations the bank which calculated replace the not penal and that upon the formation that department to violations of penal county prosecutors upon their own or or upon its own motion by having evidence laid before county jury may investigate matters of purported criminal nature and in case dence leading the conclusion "reasonable presumption guilt" indictments bank that the state banking department any zen knowledge of crime can criminal proceedings. That grand jury does not deem that information laid before to date sufficient upon which return indictments abbrogates the duty of either state bank should have, their crime sufficient to justify the tion, from filing information proper courts: of private citizens with knowledge crime from manding that the proper officials
BANK OFFICE SCORED finds the the law called any time the stockholders California Trust and Savings Bank and laid before them the known by the partment exist. Evidence before the grand the state while Will Wood was the attention Fred W. Kiesel, president the bank, and others its official family shaky which Evidence before shows that from the bank closed department did possible secure tution impaired imperative order, but that the MORALLY CRIMINAL Unfortunately procrastinanot legally criminal although morally criminal in the opinion this committee any of expedlency which prompted the state banking department to permit it. However, we are prepared to think that probably lected and attentative directors, trained to operate financial stitution rather to count dividends, would have managed this institution as to have maintained sound condition To the qualification investment the selection of bank the that law defieducational standard and specified practical state certification. established prerequisite the election on the board of directors any Explains Transfers. The evidence before this grand showing certain trust funds the savings department without legally required security suggests evasion of law nothing but further showing that distinction between trust funds "deposited distribution" and trust funds "deposited for investment' is permitunder the indicating that trust funds "deposited for disrequire protection that there was way determining except by the terms individual trusts. many which might "privileged" coupled the testimony the state commissioner the failure department to intent indicates that is insuffiwithout banking department ruling definitely defining trust fund deposit the recommendation of this that the bank act be amended require that suffiof liquid assets postwith trust department trust deposited in savings and that neglect to collateral deemed felony on the of part the officer Loopholes Indicated. As special significance, indicative of the even its invitation responsibility. and the and inattention to duty not crimiunder the we recall the testimony of your grand jury ex pert he reports: cannot personally that transactions coming with- say my examination and which have been woefully irregular of my that California and Sav. ings Bank and their affiliates have provided temptation bilk the public under legal safeguards. TOO MUCH NEGLECT OF LAW. closing begs express the opinion that much has been by public to the laws, practices and comprehended the economics stitution banking. It has much been the interest of bankers only. matter of the California In the Savings Bank we Trust that institution could possibly no officered by and their business than their own evidence before grand showed. That ignorance and should have been a shame tention themselves MERELY In main proved Evidence showed that the president culpably ignorant-too seldom contact with affairs-too dependent his information Irresponsible subordinates: the institution top-heavy of economic conditions-too careless in appraisals stock securities-too obsessed with realty ditions which could not have been with trained men Interest in successful banking operation the extent that would detheir personal attention an institution departmentalized and involved subsidiary corporathe California National is: could such conditions been bank with teeth with. the opinion your committee. the tions made enacted into law; and last we that the bank amended to define 'due gence" make penalties for its violation by directors and officials