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(The letter referred to is as follows:)

Hon. JOSEPH C. O'MAHONEY,

OFFICE OF THE SOLICITOR GENERAL,
Washington, D. C., February 17, 1956

Senate Office Building, Washington, D. C.

MY DEAR SENATOR O'MAHONEY: In response to your inquiry I am very glad to avail myself of the opportunity to set forth the circumstances pertaining to my investigation of the Baltimore Trust Co., conducted 20 years ago.

This was the largest banking institution south of Philadelphia, and its failure, as one can readily understand, seriously affected many people in Baltimore city and neighboring communities. When it first ran into difficulty in September, 1931, members of the business community raised a fund of some 7 or 8 million dollars in the hope of averting failure. However, in the early part of 1933, when the bank holiday was declared by the President, the Baltimore Trust Co. closed its doors. It was thereafter unable to reopen. There were disagreeable rumors about the conduct of officers and directors of the institution.

Under the Maryland banking laws, the State bank commissioner was appointed receiver. Three prominent lawyers were appointed by the court as

counsel for the receiver. I was not one of them.

In September 1935, the receiver moved to collect the statutory double liahility from the bank's stockholders. I was one of a group of lawyers representing stockholders who came into court suggesting that before this liability could be exacted, there should be a showing of the nature and amount of losses, and a finding that the assessment was necessary to pay the bank's debts. There was a hearing in open court before Hon. Eugene O'Dunne, judge. Mr. Henry Thomas, who had been connected with the bank, testified as to the extent of the losses. According to his testimony, an examination of some of the larger loans of the bank, without broadening the inquiry, revealed losses of more than $26 million. Thereupon Judge O'Dunne, in open court, declared himself shocked and spoke, in part, as follows:

“* * * In view of the disclosure and testimony of yesterday as to absolutely worthless loans, 18 in number, aggregating $4 million, it becomes the duty of this court, when confronted with testimony of such order, to make or cause to be made some official inquiry as to whether there was mere banking improvidence of the officials of the Baltimore Trust Co. in so doing, or whether the facts are pregnant with suggestion of more sinister character.

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"There would be a more wholesome feeling in the community if some intelligent, impartial, efficient, disinterested, outside inquiry were made by some lawyer skilled in that line of inquiry whose judgment has been accepted in the community as fair and impartial, with the understanding that that be done unostentatiously and conservatively and that the reports and the conclusions that he reaches be made to the counsel for the receiver, and to no one else, to be by the counsel for the receiver analyzed, interpreted, qualified and acted on, in their judgment, and as they see fit.

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"*** To that end, because of the particular qualifications Mr. Simon Sobeloff has, experienced as an eminent United States district attorney— (and Judge Chestnut has said he was the best that Baltimore has ever had), I select him. At a testimonial banquet on his retirement from office I heard all present refer to his impartiality and his devotion to public duty-the court wants Mr. Simon Sobeloff to make this inquiry, with the understanding that his compensation may be considerably circumscribed. The court reserves the right to relieve him from further activities, as and when the court thinks a proper time to do so, has come.

"If the question of his impartial activities and inquiry results in disclosures that the receiver upon advice of counsel, thinks litigation ought to be instituted, why, then, there may be further opportunity and justification for his continued services." (See Daily Record [the legal publication of Baltimore], September 14, 1935 issue.) Photostat of entire opinion is attached.

The judge ordered me to lay aside all other work and to begin the investigation at once. The task required 9 months of concentrated effort. A preliminary report was filed on December 31, 1935, and a final report on May 25, 1936. The court's instruction was "to approach the problem not in a crusading

spirit but with fairness to all concerned," and the report undertook to refute unjust and unfounded suspicions, as well as to present such adverse findings as seemed warranted by the facts. It found no basis for criminal prosecutions as there had been no fraud or bad faith, but that there had been gross negligence on the part of certain officers and directors. Several suits were recommended. One of the attorneys for the received announced that because of personal relations with some of the defendants, he would decline to participate in the prosecution of the cases, and Judge O'Dunne appointed me to cooperate with the remaining two counsel. In that capacity I helped to prepare the suits. A sum of $225,000 was ultimately recovered by settlements.

My participation in the receivership was confined to the limits set forth in the judge's order. I did not advise the receiver in the general administration of the receivership, as it was beyond the scope of my appointment.

Later, Judge O'Dunne ordered the stockholders' liability to be compromised upon payment of $5 per share, which offer was generally accepted by those subject to the liability. I did not represent the receiver in any negotiations looking to this settlement. My clients paid precisely what all other stockholders paid, in accordance with the publicly announced offer of the court, and they received no advantage directly or indirectly through my contact with the Baltimore Trust Co. in the limited manner indicated above.

For my services in the investigation I was paid a fee of $30,000 which was awarded after a public hearing, and later $7,500 for participation in the suits themselves.

The point which it is important to note is that my representation of stockholders was open and known to all concerned. In fact, having come into court as an attorney for stockholders, the judge cited this as one of the reasons for my selection to conduct the investigation.

It was

There is no basis whatever for any suggestion of conflict of interest. to the benefit and advantage of the general fund and of the depositors and stockholders to recover whatever should rightfully be recovered from the officers and directors. Their respective interests did not clash but coincided. In the 20 years that have elapsed, not a single suggestion of conflicting interest has come from any source, until the question was raised in a letter to the chairman of the Judiciary Committee. If there had been any basis for such a charge, those against whom suits were recommended and who were familiar with all the circumstances at the time certainly would not have overlooked it. This thought is embodied in the attached editorial from the Baltimore News-Post of January 16, 1956. Also appended are editorials from the Baltimore Sun and Evening Sun, published in the community which had contemporaneous knowledge of the above events. In the intervening years I practiced law actively in Baltimore, engaged in many civic activities, headed the Maryland Commission for the Reorganization of the Administrative Structure of the State, and finally, before becoming Solicitor General of the United States, served as Chief Judge of the Maryland Court of Appeals, the highest court of the State.

If any further details are desired, I am at the committee's disposal.
Respectfully yours,

SIMON E. SOBELOFF.

[From the Baltimore News-Post, January 16, 1956]

SOBELOFF QUIZ

Most Marylanders will feel instinctive resentment because Senator Olin D. Johnston, of South Carolina, has asked a special subcommittee investigation of past activities of United States Solicitor General Simon E. Sobeloff, of Baltimore. Senator Johnston goes gack 21 years in his effort to dredge up grounds for an inquiry.

The mere fact that he asks it, even if there be no valid basis for it, unfortunately tends to cast the suggestion of a shadow on the distinguished man nominated by President Eisenhower to the Fourth Circuit Federal Court of Appeals.

Marylanders have known Mr. Sobeloff more years than that as a man of extraordinary integrity and intelligence and of ever-increasing stature in the legal profession.

They knew him as an able city solicitor.

They knew him as a respected chief judge of the State court of appeals. He gave unpaid service of great value to the State in commission work that bears his name.

In his appearances before the Supreme Court its members have given marked attention and weight to his views on constitutional and other questions.

Mr. Sobeloff, 21 years ago, by court appointment made a factual analysis of the affairs of the then insolvent Baltimore Trust Co. The South Carolina Senator says he understands that later Mr. Sobeloff "presented claims for clients against the insolvent defendant, the Baltimore Trust Co., wherein many depositors and claimants suffered heavy losses."

That is a tricky sentence. By its odd juxtaposition of clauses, it rather tends to imply that Mr. Sobeloff somehow skinned claimants, although it doesn't actually say so.

Is there any one who feels that Senator Johnston would have dug back into ancient history in search of something to clean up in "fairness" to Mr. Sobeloff and others concerned had Mr. Sobeloff not represented the Government in the school segregation debate?

In his appearances before the High Court, Mr. Sobeloff was in the role of a sworn official spokesman. In view of the Court's decision that segregation violates the 14th amendment and its jettisoning of the "separate but equal" schools principle, we feel that few constitutional lawyers hold that Mr. Sobeloff could have taken a much different attitude than he did take toward implementation of the decision.

But his position irked Senator Johnston and some of his colleagues. Thus, in the absence of legal grounds for a frontal attack, his confirmation is being delayed by an attempted guerrilla skirmish to the rear-21 years back. That's the way some Senators operate.

[From the Evening Sun, Baltimore, January 14, 1956]

THE SOBELOFF NOMINATION

Mr. Simon E. Sobeloff was originally nominated last year for a seat on the United States Circuit Court of Appeals for the Fourth Circuit. When Congress adjourned on August 2, the nomination was still in the files of the Senate Judiciary Committee which had done nothing about it.

Now the President has resubmitted the nomination. The nomination ought to be considered by the committee promptly, and it should be promptly reported to the Senate, where we are sure it will receive confirmation. There can be no excuse for a repetition of the dilatory procedure followed last year, when the committee held up action while individual Senators made what they called "investigations." The "investigators" were southerners who wished to punish Mr. Sobeloff for having argued the desegregation cases before the Supreme Court on behalf of the Government. Their tactics recall, in a disquieting way, the procedure which so long delayed the nomination of Justice Harlan to the Supreme Court. That procedure was a disgrace to the Senate and should not be repeated

now.

Mr. Sobeloff made an excellent record as Solicitor General. He had previously served as chief judge of the Maryland Court of Appeals. His qualifications for the post are numerous and impressive. As President Eisenhower himself said last July, Congress has a right to make a thorough investigation of a nominee's record, it does not have the right to hold up all action merely to satisfy the personal animosity of a few Senators.

[From the Sun, Baltimore, January 19, 1956]

WHY DELAY LONGER MR. SOBELOFF'S CONFIRMATION?

Once more President Eisenhower has sent the name of Simon E. Sobeloff to the Senate for confirmation as United States circuit judge for the Fourth Circuit Court of Appeals. At present, Mr. Sobeloff is, course, Solicitor General of the United States, a post which he has filled with remarkable wisdom and

success.

When the President submitted Mr. Sobeloff's name at the previous session, opposition immediately developed, led by the two Senators from South Carolina, Thurmond and Johnston. Ostensibly they objected because of a feeling that the new judge should come from their State which lies within the fourth circuit But no secret was made of the fact that underlying opposition existed because

Mr. Sobeloff had so successfully argued the antisegregation cases before the Supreme Court.

The important thing for more open-minded Senators to remember is that Mr. Sobeloff is a brilliant lawyer, with the widest possible experience and a reputation for wholehearted devotion to the public welfare. His first experience was as clerk for Judge Morris A. Soper (whose retirement makes the vacancy he is selected to fill) and in many ways he has patterned his career after that of his first patron. No lawyer could have had a finer mentor. It is true that he has had comparatively brief experience on the bench, but that experience was as chief judge of the Maryland Court of Appeals, one of the most respected judicial bodies in the country. His associates on that court have testified to his quick grasp of its procedures and his wholly judicial bearing. And, as for the charge that he displayed bias in the antisegregation cases, the event proved that the members of of the Supreme Court accepted his arguments unanimously. What greater proof of legal acumen could be presented?

Underlying all these considerations is this one: The fourth circuit needs its full complement of judges. To postpone any longer the confirmation of Judge Soper's successor is to put an unjust burden on that distinguished jurist and upon his colleagues on the bench.

CIRCUIT COURT No. 2 OF BALTIMORE CITY

(Filed September 11, 1935)

IN THE MATTER OF THE RECEIVERSHIP OF THE BALTIMORE TRUST CO., QUESTION OF STOCKHOLDERS' LIABILITY

Reasons given by the court for the appointment of Simon E. Sobeloff in investigate and report on the question of liability of either officers or directors of the defunct Baltimore Trust Co., in connection with loans, settlements, shrinkage of assets, involving a loss of some $25 million of other people's money.

EUGENE O'DUNNE, J., orally (after some general remarks about other features of the case):

Now, I want to make a suggestion, for what it is worth, and which I do with some little trepidation. I was shocked at the testimony I heard yesterday given by Mr. Henry Thomas, Jr., president of the liquidating corporation (Baltimore Trust Corp.) and vice president of the Baltimore Trust Co., with regard to activities of the trust company in the matter of loans, with which subject-matter he was, as vice president, in no wise connected. In other words, the matter of loans was in another department, and not his. Therefore, what I say is not any reflection on Mr. Thomas at al. I was shocked at the character of loans he described in his report, and shocked at the character of collateral accepted by the Baltimore Trust Co. for the loans, and was shocked at the magnitude and extent of this character of loan. I speak from memory, but in round figures it is $4 million in loans that is washed out as worthless, without a dollar's worth of collaterial to secure any one of the 18 loans (there was collateral but it was worthless) and without any solvency of any of the makers of any of the notes. In other words, these 18 loans were money taken out of the bank, belonging to other people, and loaned to these 18 borrowers. None of it was paid back, and $4 million of other people's money was in fact thrown away. Now, in the compiled form in which it is reported to the court (without other explanation of what may or may not be extenuating circumstances which may at the time have seemed to justify the loans, or induced the belief in the value of collateral produced), at this time looks almost like a steal, if unexplained. At the same time there may have been no bad motives, and the presence of nothing sinister in connection with any one of the deals.

We must not forget that a large part of this business was done before 1929. That was before the era of depression, called Coolidge prosperity. Banking ideas then were very different from what they are now. Ideas of investment were very different then from what they are now. Speculation was the order of the day. Some banking was loosely conducted and money was obtainable by some, upon mere signature and without security on what might be called in God we trust, and in the solvency of the maker we at least have hope. This seemed to be the order of these loans under which $4 million of other people's money was thrown away or given away to shrewd or plausible borrowers.

I do not know-the report does not disclose who were the officers, directors, or other officials who made these loans. I believe Mr. Thomas was asked and that he gave the names of two heads or responsible persons connected with the loan department. I forget what names he mentioned.

Insofar as it is proper for me to do so, I would like to spend a reasonable amount of this court's time (and I think the expenditure of the time is wholly justified by the importance of the inquiry) to try to ascertain who was responsible for these loans. They may be a subject matter which neither Mr. Page or Mr. Sobeloff, or some of the other counsel actively participating here today may desire to prod, and they may wish to examine officials of the Baltimore Trust Co. to find out who made these loans and why, and whether these officials are now alive or dead, and what were the circumstances surrounding the making of these loans. What board of directors, if any, and what officials approved of themif approval was in fact had. And whether the loans were regular on their face, or whether they were of such character and so negligently passed upon, and the money of depositors so improvidently expended, as to spell legal liability of the officers and directors of the Baltimore Trust Co. who passed or approved of such loans. The inquiry may extend not only to the question of who they were but where they now are, and whether the statute of limitations has run upon the transactions, and whether there is liability, civil or criminal in character (either or both). After we have gotten more detailed facts, the court, upon such testimony, may be able to suggest to the receiver or his counsel the propriety of determining whether legal proceedings should be instituted, if, in the judgment of receiver's counsel, such course seems warranted. What I suggest now is that we take enough testimony on the question of these 18 loans aggregating a $4 million loss, to determine whether legal action seems appropriate. It is our duty as a chancery court (including the receiver and counsel for receiver as an agency of the court) to cold-bloodedly pursue such course, as right and justice seem to dictate, for the protection of all depositors, who include the widow and the orphan, the lawyer, layman, or mere gambler, the solvent and the insolvent, the investor and the speculator, who in law all stand upon an equal footing. It is our duty to more carefuly ascertain whether there are undischarged obligations on the part of the officers and directors or other officials, agents or agencies of the now defunct Baltimore Trust Co. as the result of this most gigantic failure in our midst.

On the other hand a simple inquiry into the real history of the matter may disclose such facts and circumstances as to show mere improvidence in investment in an era of speculative activity, without moral obliquity, and without culpable negligence in the handling of trust funds. In the determination of which question, the standard to be used, as the yardstick of measurement, is the accepted standard of the year and time in which the transaction occurred. So measured, there may be neither criminal nor civil liability, other than the corporate indebtedness of the depository of other people's funds. We know that for some years before the crash money was lent with less protection and without the security that surrounds it today. We must be sensible and approach the inquiry not in the spirit of the crusader but with the analytical judgment of a court of equity, using the standards of business judgment of the time, and not in this postmortem substituting the symbols devised in the light of hindsight and the more hypercritical wisdom that has come to us as a result of banking experience since the black Friday and the banking moratoriums.

How far this suggestion of the court meets with the present appproval of the counsel for the receiver, I do not know. In view of the disclosure and testimony of yesterday as to absolutely worthless loans, 18 in number, aggregating $4 million dollars, it becomes the duty of this court, when confronted with testimony of such order, to make or cause to be made some official inquiry as to whether there was mere banking improvidence of the officials of the Baltimore Trust Co. in so doing, or whether the facts are pregnant with suggestion of more sinister character. If the latter be not the case, the public is entitled to have the consolation of knowing that these banking transactions, resulting in such tremendous loss of other people's money, were at least wholly honest in character even if the expenditure and loss was the result of unwise and mistaken judgment, but free from implication of moral obliquity. If such be the fact, it is the duty of the court, in fairness to the public, in justice to the depositors, and in justice to the officials of the bank who handled and lost other people's money, to see that the true facts and circumstances surrounding the loss are fairly known, judicially ascertained, and not by whispering campaign proclaimed and misrepresented.

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