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The receiver in his testimony said his record had been destroyed. Was he entirely frank in this assertion? Was he not attempting to sidetrack or divert the committee's attention? While his records may have been destroyed, they were first microfilmed, or should have been destroyed, they were first microfiled, or should have been destroyed, they were first microfilmed, or should have been, in compliance with the court order permitting their destruction. Mr. Charles Shankroff, an elderly real-estate dealer, now in semiretirement, told me in person that he had spent over a year in a study of the court records of the Baltimore Trust Co. case. I want to say right here concerning Mr. Charles Shankroff that nothing by the subcommittee or anyone has come up concerning him or his character or why he has entered into this case. I want to say this, that I have been criticized because this appointee belongs to a race. He happens to be a Hebrew. Mr. Shankroff, I believe, also belongs to the same race. He is the one that has testified here. If anybody knows my record as an individual, in my whole political career, I have never persecuted the Jewish race at any time, and I think if you will go back to South Carolina, you will find that the Jewish people have always supported me as near 100 percent as any race of people in my State. I want to say that somebody has seen fit to raise that question. I have not raised it. Neither have I raised, although the newspapers have tried to criticize me, anything in regard to these segregation matters.
I do differ with him in his way of thinking on States rights. I do differ with him in regard to turning over to the courts probably more authority and taking away from the States and Congress the authority that I believe that they rightfully have. That is my position in that field.
Now continuing. His interest in the case was first aroused by reason of the fact that as a retired real-estate dealer, he became concerned with the transactions leading to the final disposition of one of the largest single assets of the Baltimore Trust Co., namely, the office building it occupied, which I am told is the largest office building in the city of Baltimore. He states that through a series of corporate and private transfers and manipulations, the building was sold and title transferred with tremendous losses resulting to the receiver through inadequate considerations in these several transactions. I am told that the building finally was purchased either personally or through a corporation owned by Mr. Funkhouser, that is the reason we wanted him to come in and clear up the situation and the reason Mr. Sobeloff either directly or indirectly advised with Mr. Funkhouser or his personally owned corporation in the final purchase of the building.
What relation has Mr. Sobeloff to the Baltimore Trust Co. case? I will detail that relationship from the statements made by Mr. Shankroff, which has been submitted to the subcommitee and upon which the subcommittee denied Mr. Shankroff an opportunity to testify fully.
Senator WATKINS. Do you understand, Senator, that he did testify, but he didn't show competency to pass on the records of a court proceeding. He was examined at length on his qualifications, and he didn't have any qualification that we could discover by which he could give us any light whatsoever on the documents and the instruments in a lengthy case which took place some 20 years ago.
Senator JOHNSTON. As I understand it, the Judiciary Committee in this particular case is looking into the facts to find the facts and to see whether or not that case was handled and whether or not in the handling of that case by Mr. Sobeloff, he represented two sides or both sides and compromised himself with the people that first he was trying to keep from receiving a judgment against them, then he comes in and compromises that on the other side when that happens. I personally don't think that is the type man we should have on the
Senator WATKINS. The record that was made for us doesn't harmonize with what you have just said.
Senator JOHNSTON. You mean to say that he didn't oppose the directors' suit when they were suing on the liability? Do you mean to say later he didn't come in and represent the receiver and then compromise with them for less than the court told him he could?
Senator WATKINS. I think your statements are at variance with the records before us. I don't care to debate it now because we want to get this finished, Senator.
Senator JOHNSTON. In the first case, Mr. Sobeloff enters the picture about 1935, representing certain stockholders who were opposing an additional proposed stock assessment for the receivers. I have here the case. Then it was finally determined that a statutory stock liability of $10 per share should be assessed against each stockholder, to the extent of the impairment of the capital assets of the Baltimore Trust Co.
Mr. Sobeloff next enters the picture because he was later appointed by the court to make a report on the liabilities of the officers and the directors for alleged negligence. There were elaborate reports. They charged both civil and criminal negligence.
Mr. Sobeloff then takes the contrary position to that which he entertained in a private case representing the stockholders. He filed as one of the attorneys of record for the receiver 15 suits, 9 in the circuit. court No. 2 of Baltimore, Md., and 6 in the Baltimore City court to enforce liability against the officers and directors. These suits, I repeat, for the negligence he, Sobeloff, had charged against them in his report, were based upon his charges of civil and criminal negligence in his civil reports. The damage claim was set, fixed, and determined. Therefore, as an officer of the court, Mr. Sobeloff brought these suits to enhance the assets in the hands of the receiver, for the benefit of the depositors and the general creditors. The complaint was sworn to by the receiver because the measure of their damages was fixed. In the latter respect, these negligence actions differ from ordinary suits in negligence in that the ordinary damage was certain and subject to mathematical determination. The amounts claimed in these suits aggregated over $56 million. Mr. Sobeloff participated and approved a settlement of them for about 4 cents on the dollar.
Mr. Shankroff gives the case numbers of each of the 15 cases and their docket numbers. Have you checked to see that they are not there?
Mr. Shankroff reports that only 17 of the 19 defendants answered in damages, and then only for the small sum adjudicated against them, that 2 of the defendants, though financially able, were relieved of liability altogether.
Mr. Shankroff further says that the other 17 defendants were financially able to make much larger restitution than the small sum for which the cases were settled. For his services in making the reports to the court against the officers and directors for their alleged criminal and civil negligence, Mr. Sobeloff received a fee, by the order of the court, of $30,000. Further, as an officer of the court and one of the attorneys of record in pursuit of his charges wherein only about 4 percent of the claim was actually received, Mr. Sobeloff received a further fee of $7,500. What Mr. Sobeloff received for resisting the stockholders' liability he has not shown by the record, because he was not interrogated with respect to the same.
What he thereafter received, if anything, in representing either Mr. Funkhouser when the latter secured the biggest single asset personally or through the corporation and association controlled by Mr. Funkhouser likewise is not a matter of record.
Senator LANGER (presiding). What did Funkhouser pay for the building?
Senator JOHNSTON. I think as I go on down, I will go into those details. I don't recall personally.
Senator LANGER. You claim that he got the building for far less than its real value?
Senator WATKINS. The record shows that Mr. Sobeloff had absolutely nothing to do with that, Mr. Chairman.
Senator JOHNSTON. I understand that Mr. Sobeloff denies he represented Mr. Funkhouser. Did he represent the interests controlled by Mr. Funkhouser? What were those interests? It is a matter of record, however, among the estate papers of Mr. Donald Symington, filed in the orphans court of Harford County, that he, Mr. Symington, via the Colonial Mortgage Co. purchased in a package deal in 1942 the remaining assets of the Baltimore Trust Co. for about $1,162,500. Included among those assets were (a) for $160,000, he purchased the note of the Baltimore Realty Trust, Inc., dated February 27, 1931, bearing interest of 4 percent, amounting to $5,403,081.75, and other notes, accounts, judgments, et cetera; then (b) for $332,500, he purchased the notes of Papsco Corp., endorsed by himself, Donald Symington, and endorsed by the McCormick & Torley Corp. amounting to $730,000, and bearing interest at 2 percent from August 31, 1935. Senator LANGER. Were those notes 100 cents on the dollar?
Senator JOHNSTON. The man who was buying them owned some of them, and if you will notice they are endorsed by him, then he was certainly worth it.
Senator LANGER. What about the $5 million note?
Senator JOHNSTON. I would have to look into the $5 million note. I think that would be in the records there, and you can look into it. That is what I have been calling to the attention of the committee. I didn't have to run over there and check all these records, but some of them were brought over here to me.
In this later transaction, we find a purchaser buying his own endorsed note executed by his 2 corporations for less than 50 cents on the dollar.
How did Mr. Sobeloff participate in these sales, and what if any connection did he have with them and the losses resulting from them? Witness Funkhouser, who didn't come
Senator WATKINS. They couldn't find him.
Senator JOHNSTON. He can be found, I think. He is over there in Baltimore, in my estimation.
When the subcommittee sees fit to endorse his presence here, he ought to be made to reveal whether Mr. Sobeloff, directly or indirectly, represented him or any of his affiliated corporations or advised with him in the purchase of the building and in the sale of the remaining assets of the Baltimore Trust Co.
Certainly, Mr. Sobeloff's prior connections as attorney for the receiver, and in his case representing a resistant stockholder, gave him expert and inside knowledge of the various transactions that are of such great concern to the receiver that of course, through him, are the depositors and general creditors. It appears that one Higgins, now dead, acted as a strawman in the several conveyances of the Baltimore Trust Building. Did Mr. Sobeloff advise Mr. Higgins? Can you answer that?
Senator WATKINS. Can you say that he did?
Senator JOHNSTON. Who knows? Mr. Funkhouser is alive and a search and inquiry can and should be made of him to ascertain his relationship.
Senator WATKINS. Does anybody make that charge with any responsibility before this committee?"
Senator JOHNSTON. When anybody makes it, I think it should be cleared up.
Senator WATKINS. But does anybody make it? a charge. You're just asking questions.
You are not making
Senator LANGER. Is that Funkhouser the millionaire that bought the John J. Raskob property?
Senator JOHNSTON. I understand that is true. I understand he is the one and they can't find him.
On Mr. Sobeloff's connection with the companies controlled by Mr. Funkhouser or Mr. Symington-because it was Funkhouser who finally wound up with one of the principal assets by becoming the owner of the building of the defunct Baltimore Trust Co. The testimony of Mr. Stockbridge, as reflected on pages 4 and 5 of the statement of Mr. Shankroff, is indeed illuminating. Mr. Stockbridge concluded in substance:
There was nothing in the situation which could by any stretch of the imagination, create a situation of conflict of interests.
In the next breath, in the same testimony, there is the open confession of Mr. Stockbridge, not intended as such, that Mr. Sobeloff was in a contradictory position, and his interest was in conflict, for the next paragraph, Mr. Stockbridge says:
Mr. Sobeloff was acting as representative of the court to perform a duty assigned to him. As a matter of fact, the settlement which resulted was of benefit to the stockholders
certainly, it was; he didn't call on them to pay up all of it
in that it was something less than the full statutory liability.
That is his testimony.
Senator WATKINS. Where was this testimony taken?
Senator JOHNSTON. It was submitted to you by Mr. Shankroff here. This testimony here in regard to Stockbridge-didn't you have him come over?
Senator WATKINS. Stockbridge? No; we didn't have nim come
Senator JOHNSTON. He didn't send in any testimony?
Senator WATKINS. I don't know that he did. I am not sure.
Senator JOHNSTON. Haven't you read all the testimony that has been filed?
Senator WATKINS. I was here when the testimony was taken. I don't recall at the moment.
Senator JOHNSTON. I got this out of the record.
Senator WATKINS. If it is in the record, it is there. We had that before us when the subcommittee considered this matter.
Senator LANGER. What percent did the stockholders pay on the liability?
Senator JOHNSTON. I think he testified it was $5.
Mr. Wood. I believe it was $10 and some of them compromised for $5.
Senator JOHNSTON. Compromised for $5 when he got on the other side and wasn't representing them.
Senator WATKINS. The court
Senator JOHNSTON. The court O. K.'d it, but he was the attorney for it. You know yourself when the attorneys bring these in, the judge just signs these things and O. K.'s the records as they go. I have been an attorney myself, so I know.
Senator WATKINS. I have been a judge and I don't think the court
handles it like that.
Senator JOHNSTON. In a case as large as this, and a fellow as old as that man was at the time, it would have been impossible for him to have searched the record.
Senator LANGER. What did the stock liability amount to for the stockholders, and how much did they pay?
Senator JOHNSTON. I don't know if I have that in my records or not. I will have to look that up and give you the information later. I don't have all of them in my record.
The sent over certified records and things to me. That is all that I have gone by. This is a big thing, spread out over several years. Mr. SHANKROFF. I can answer that. The settlement of $5 a share was about $1,300,000. They should have made $2,600,000, but they paid only $1,300,000.
Senator LANGER. Fifty percent.
Mr. SHANKROFF. That is right, 50 percent. It should have been at $10 a share.
Senator JOHNSTON. I ask the question now, can an attorney revise a stockholder's liability in the same suit, then bring a suit to endorse the officer-director liability for the benefit of the receiver and be absolved of a charge of representing conflicting interests in the same suit, or subject matter involved in the same suit?
In this connection, I want to refer to a part of a paragraph of Mr. Sobeloff's letter to the chairman of the subcommittee under date of May 20, 1956. Mr. Sobeloff was replying to Mr. Shankroff's charges. He said:
The facts are that the records show that I represented neither the seller nor the buyer in that transaction.
Please note that Mr. Sobeloff makes no reference to the latter sales or whether he represented the corporate interests, directly or in