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Volume 247, March 13 – March 18, 1940
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Volume 247, March 13 – March 18, 1940
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 247
March 13 - 18, 1940
Regraded Uclassified
- A -
Book Page
Argentina
See Latin America
Arnold, H. H. (General)
See War Conditions: United States Committee
- B - -
Bank of America
Eccles, now that Bank has accepted plan, tells HMr
he feels everyone should be congratulated -
3/14/40
247
84
Delano discusses acceptance with HMJr - 3/14/40
89
Foley reports that Cushing left in amicable mood -
3/15/40
161
Landis thanked for his assistance - 3/18/40
265
Business Conditions
Hass memorandum on situation for week ending 3/16/40
228
- C -
Canada
See War Conditions
China
Malaria Control Board - - 3/14/40
119
Coal
See Mar Conditions
Colombia
See Latin America
Customs, Bureau of
Abolition of Surveyors and Comptrollers: Ways and Means
Committee displeased at Treasury attempt to cut off
appropriations; abolition will be included in next
reorganization plan but Congress does not know this;
Foley advocates in interest of harmony that provision
be left over until next reorganization plan -
3/14/40
63
- F -
Financing, Government
3/15/40:
Announcement of subscriptions and allotments - - 3/13/40.
4
Finland
See War Conditions
Freight Shipments (Railroad)
See War Conditions
- G -
Germany
See War Conditions
Great Britain
See Mar Conditions: Purchasing Mission
Regraded Uclassified
- I - -
Book Page
Indiana
See Tax Evasion
Italy
See War Conditions
- K -
Kidde and Company, Walter
See War Conditions: Closing Agreements
- L -
Latin America
Argentina: Monetary problems discussed by Cochran with
Irigoyen, Financial Counselor of Embassy, after
several months' visit at home - 3/14/40
247
134
Colombia: Request for $10 million long-term loan from
Export-Import Bank discussed in American Embassy,
Bogota, message 3/13/40
5
- M -
Mail, United States
See War Conditions
- N -
Norway
See War Conditions
- P -
Portugal
See War Conditions
- S -
Securities and Exchange Commission
Investment Trust Bill:
a) Copy
326
b) Senator Wagner's (who will introduce the sponsor)
statement - 3/18/40
318
c) Foley memorandum
316
Silver (Townsend bill)
Conference on procedure prior to HMJr's appearance
before Senate Committee on Banking and Currency;
present: HáJr, Foley, White; Senators Barkley, Wagner,
Adams, Bankhead, and Pittman - 3/13/40
1
McNary tells HMJr he need not testify on new legislation - -
3/18/40
259
HMJr's proposed statement
286
HMJr's statement as finally given - 3/19/40: See Book 248, page 6
(Reading copy, page 20)
a) H&Jr tells Senator King "not a friend of silver was present" -
3/21/40: See Book 248, page 340
Regraded Uclassified
- S - (Continued)
Book Page
Statements by HMJr
See also Silver (Townsend bill)
Townsend bill - before Senate Committee on Banking and
Currency - - 3/19/40: See Book 248, page 6
Surplus Commodities
Wheat export sales, et cetera: Haas memorandum - 3/18/40. 247 221
- T -
Tax Evasion
Indiana:
Conference on possibility of proceeding immediately
(civilly) in Keeler and Greenlee cases; present:
Foley, Helvering, Irey, and Sullivan - 3/13/40
8
a) Discussed at Treasury meeting
13
HMJr-Mrs. McAllister (Chairman, homen's Division of
National Democratic Committee) as to persecution
of McNutt - 3/13/40
14
Graves to pinch-hit for Irey because of Irey's ill
health - 3/14/40
90
Conference (Drew-Pearson leak discussed); present: HMJr,
Foley, Sullivan, Trey, and Schwarz 3/14/40
103
a) Memorandum of Pearson conference with Sullivan
118
Conference; present: HMJr, Graves, Helvering, Irey,
Thompson, and Cairns - - 3/15/40
162
a) Helvering discusses actual securing of evidence
b) Carpenter (member of Foley's staff) wanted by
Helvering and Graves but Foley objects
168
c) Hoosier Democratic Club: Summary of record
relative to inquiry relating to taxable status
179
Foley agrees to release of Carpenter - - 3/16/40
207
Townsend Bill
See Silver
Tyler, Royall
See War Conditions: Italy
- U -
U.S.S.R.
See War Conditions
United States Savings Bonds
Conference; present: HMJr, Bell, Broughton, Kilby, and
Sloan - 3/14/40
136
a) All publicity discussed
b) Future possible changes discussed
Regraded Uclassified
- W -
Book Page
War Conditions
Airplanes:
Woodring to appear before Aviation Subcommittee of
House Military Affairs Committee; Subcommittee
believes error was made in original request for
money for planes and that this rather than any
other cost factors accounts for General Arnold's
present request for supplemental funds - 3/13/40
247
29
Status of French contracts as of 2/29/40 -
3/14/40
75
Liaison Committee conference; also present: Brett
(Army Air Corps), Burns (Assistant Secretary Johnson's
office), MacMorland (Clearance Committee, Munitions
Board), Lingle (Army Air Corps), Towers (Chief,
Bureau of Aeronautics, Navy Department), Purvis,
Sir Henry Self, Pleven, and Jacquin - 3/14/40
81
a) Towers-Collins conversation concerning
availability to Allies of latest svistion
materiel - 3/15/40
189
1) Edison, Stark, and Towers agree that
Navy will discuss with Anglo-French
Purchasing Board any aviation materiel
in existence or in development which
may be of use in proposed program
a) Collins BO informe Purvis
Edison letter to House Naval Affairs Committee
asserting that sale of aircraft to Allied governments
has not interfered with Navy Department program -
3/18/40
249
a) HaJr congratulates Edison
252
Woodring asks to have conference postponed - 3/18/40
250
a) HWr tells Edison Alsop-Kintner's column gives
reason for postponement
252
Canada:
war Supply Board to be represented in United States by
Anglo-French Purchasing Board under chairmanship of
Arthur B. Purvis - (3/5/40)
95
Exchange Control Policy: Cochran memorandum after visit
with Deputy Governor Gordon of Bank of Canada at
Ottawa - 3/14/40
124
Closing Agreements:
Conference with Kavy representatives on application of
Walter Kidde and Company - 3/16/40
202
a) Sullivan memorandum: "Retrest is so rapid
song might be changed from 'Anchors Aweigh'
to 'Anchors Away'n
201
Coal:
Edison asked to instruct Navel Attache, London, to
inform Treasury on English-Italian-German coal
arrangements - 3/15/40
149
(For report see Book 248, page 114)
Regraded Uclassified
- W - (Continued)
Book
Page
War Conditions (Continued)
Exchange market resume - 3/13/40, et cetera
247
43,46,144,
197,218
Finland:
Reconstruction: HMJr discusses possibilities at
9:30 meeting - 3/14/40
49
a) Tanner and Ryti could be invited to work out
comprehensive plan of reconstruction: loan
against their gold (practically entire supply
in this country), et cetera
b) This plan could be used as pattern to be
used later for other countries
c) Stability of present government may be helped
if they have this constructive plan to offer
d) Stabilization Fund: HMJr would even be willing
to go to the Hill regarding authorization for
a loan from this fund
55
Cochran memorandum - 3/14/40
121
Red Cross assistance - 3/15/40
240
See also Book 248, page 120
France:
Report on Movement of Foreign Funds: Reports from
American Embassy, Paris, after conference with
Jahan (Banque de Paris et des Pays Bas) - 3/18/40
305
Freight Shipments (Railroad):
Report and chart showing receipts at New York and
nine other North Atlantic ports - 3/18/40
295
Germany:
Financial and monetary plans and problems reported on
by American Embassy, Berlin, after conference with
Puhl, Vice President and active head of Reichsbank -
3/14/40
128
Italy:
Tyler (Royall) resume of recent "curious exchange
developments" - 3/13/40
32
Mail, United States:
Transportation by Norwegian and Icelandic vessels:
Foley memorandum - 3/18/40
294
Norway:
Resume of payments agreement between Norway and
Great Britain - 3/13/40
30
Portugal:
Collins' memorandum on desire to purchase heavy
ordnance for coast defense purposes, et cetera -
3/13/40
19
Regraded Uclassified
- W - (Continued)
Book
Page
War Conditions (Continued)
Purchasing Mission:
Great Britain: Report on official sales of
British-owned dollar securities under vesting
order (effective February 19, 1940) as of
March 18, 1940
247
218
United States Committee: FDR's conversation of
2½ hours on lack of cooperation described by
HMJr to Treasury group - 3/13/40
11
a) General Arnold trying to get Colonel Burns
on committee instead of Quartermaster
General; Arnold told those people who
can neither control themselves nor the
people under them will be sent to Guam
b) FDR also tells Early and Louis Johnson
that if General Arnold does not cooperate
he will be removed as head of Air Corps
c) HMJr considers Woodring, Johnson, and
Arnold all liars
d) Collins' memorandum on FDR's conference -
3/13/40
23
e) HMJr discusses FDR's conference with
Purvis - 3/13/40
25
Shipping:
Harris resume on West Coast situation -
3/14/40, 3/18/40
96,300
Harris resume on Port of New York - 3/18/40
301
Strategic Materials:
Smokeless Powder:
HMJr tells Collins he is going to persuade
Edison to tell duPont that the English
may have the Navy's 600,000 pounds -
3/14/40
69
a) Edison-HMJr conversation
148
Woodring plan "so that English and French will
get what they need": Collins explains plan to
HMJr insofar as he understands it - 3/14/40
69
U.S.S.R.:
Shipments to - 3/18/40
303
Regraded Uclassified
1
MEMORANDUM FOR THE RECORD:
Conference in Senator Barkley's office, March 13, 1940.
Present: Secretary Morgenthau, Mr. Foley, Mr. White;
Senators Barkley, Wagner, Adams and Bankhead;
Senator Pittman dropped in later.
The conference was called at the Secretary's suggestion to
ascertain what some of the Democratic leaders thought was the best
procedure with respect to the Secretary's appearance at the silver
hearings before the Senate Committee on Banking and Currency, for
which Senator Townsend was pressing.
Senator Wagner stated that nobody seemed to be interested in
supporting a continuation of the purchase of foreign silver and that
unless there was strong assistance coming from the Administration
his Committee was certain to vote out Townsend's bill favorably.
He stated that were Secretary Hull to come out in favor of a con-
tinuation of the silver purchase program at this time on grounds
of international political policy it would help a great deal in
defeating Senator Townsend's bill in his Committee. Senator Wagner
stated that he had spoken to Secretary Hull and Secretary Hull had
taken the position that it was a matter of indifference to his
Department how Congress acted on the bill, and that it was the
Treasury that was chiefly affected, and that he (Secretary Hull)
was disposed to let Secretary Morgenthau carry the ball so far as
the State Department was concerned.
Senator Wagner said he knew that the President opposed Townsend's
bill but that even the Senators from the silver states, who had
fought so strongly for the continuation of domestic purchases of
silver, seemed disinterested in what happened to the Townsend bill.
Secretary Morgenthau said he recognized the fact that the silver
Senators seemed to be disinterested, and for his part if they were
not interested in defending the bill he did not feel that he could
do very much for it. It was his opinion that any defense of con-
tinued purchases of foreign silver should come from those Senators
who had done so much to insist upon its continuation in the past.
The Secretary added, however, that he believed that under the
circumstances the continued purchase of foreign silver at this time
Regraded Uclassified
2
- 2 -
was doing no economic harm and might even be doing a little good,
Ile stressed the view that since there was a comprehensive examina-
tion of the monetary policy being undertaken he deemed it desirable
to postpone any action on silver until the matter had been thoroughly
canvassed along with the other portions of the monetary program in
the monetary investigation. He thought it would be a mistake to con-
sider silver a question separately from the total program, and
hence he (Secretary Morgenthan) could not favor the Townsend bill.
Senator Barkley wanted to know just what could be said in favor
of continued purchases of foreign silver and Mr. White indicated
some of the reasons why there were on the whole some minor economic
benefits that flowed from the continued purchase of foreign silver
at this time. The Secretary stated that he much preferred not to
appear before the Senate Committee on Banking and Currency to testi-
fy on the Townsend bill. Senator Wagner stated that Senator Townsend
was very pressing on the matter but that possibly he might be induced
to alter his mind. Senator Wagner wanted to know if Mr. White could
appear before the Committee instead of the Secretary and could speak
for the Treasury on the bill. The Secretary said that that was
entirely satisfactory to him.
At that point Senator Pittman appeared and indicated that he
was not concerned with the Townsend bill one way or the other.
Whether it was desirable to repeal the purchase of foreign silver
depended on whether "it was good or bad for our economy", and he had
no view on that subject. That aspect of the problem was, he claimed,
a matter about which the Treasury should have definite views.
When asked whether he was concerned lest a decline in the price
of foreign silver might follow cessation of Treasury purchases of
foreign silver and, by increasing the discrepancy between the world
price for silver and the domestic price for silver, increase public
dislike for domestic silver purchase program at current prices,
Senator Pittman responded that they had the situation with regard to
domestic purchases of silver well in hand, and that he didn't think
it made any difference what the world price for silver was. Later
on he said that he thought the world price was going to rise, much
the same as it did during the last war. He went on to state that
he was chiefly concerned with demonstrating the falsity of the state-
ment made in some quarters that silver was not a valuable metal
and that its use as money had decreased. He said he felt very
strongly that silver was valuable and would become more valuable,
and that its use as a monetary metal had increased.
Senator Wagner asked him whether he wouldn't like to appear
before the Committee on Banking and Currency to be held that day to
give his view on the Townsend bill. Senator Pittman said that he
Regraded Uclassified
- 3 -
would like to attend the hearings to testify on the utility of
silver, but he didn't intend to say anything about the merits of
the Townsend bill. Senator Pittman went on to say, however, that
he couldn't attend Committee hearings that day but could if the
hearings were postponed a day er two.
After Senator Pittman left, it was agreed that Senator Pittman
could be the first one called at the Conference and if Townsend in-
sisted on the Secretary's appearance the Secretary could appear
after Senator Pittman had testified.
When the discussion on silver ended, the Secretary said he
wanted a few minutes to express to the men assembled just exactly
what he had been doing in carrying out the specific orders of the
President to promote increased production of planes for the Allies,
and what the proposed Allied plane order meant for recovery and
employment in this country. He stated that as a result of intensive
efforts they now expected it would be possible to obtain the Allied
orders for planes on conditions satisfactory to all concerned, and
to so expedite production of planes, engines and parts as to
substantially heighten business activity within a few months. He
said that he thought these additional orders would result in an in-
crease in income-creating expenditures directly and indirectly of
possibly $1 billion during the coming 12 months. The Senators each
expressed themselves as being very favorable to the idea and were
clad to learn about the details from the Secretary.
E.N.7L
HDW
Regraded Uclassified
4
TRE/SURY DEPARTMENT
Washington
FOR INTEDIATE RELEASE
Press Service
Wednesday, March 13, 1940
No. 20-46
Secretary of the Treasury Morgenthau today announced that reports from
the Federal Reserve banks indicate that $718,098,200 of Treasury Notes of
Series B-1940, maturing June 15, 1940, have been exchanged for 3/4 percent
Treasury Notes of Series A-1945.
Subscriptions and allotments were divided among the several Federal
Reserve districts and the Treasury ns follows:
Federal Reserve
Total Subscriptions
District
Received and Allotted
Boston
$ 19;564;900
New York
502;203;200
Philadelphia
12;572;100
Cleveland
17;632,900
Richmond
43,978;100
/tlanta
7,710;300
Chicago
84,988,300
St. Louis
7,016;600
Minneapolis
4;537;100
Kansas City
9;832;000
Dallas
3,781,400
San Francisco
3,483,400
Treasury
797,900
Total
$718,026,200
⑉000⑉
Regraded Uclassified
5
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Bogotá
NO.: 61
DATE: March 13, 1940
Reference is made to the Department's telegram
no. 46 of March 5, 1940.
A copy of a memorandum which is being sent to the
Colombian Embassy in Washington was given to me today
by Jaramillo. I will forward this copy to the Depart-
ment by the first airmail.
Jaramillo said that the Government of Colombia
wishes to obtain a long-term loan in the amount of
$10,000,000 from the Export-Import Bank. of this
amount $5,000,000 would be apportioned to the Bank of
the Republic, thereby reenforcing the Bank's reserves
and easing exchange control restrictions. American
exporters would be benefited through prompt payment
and through increased exports to the United States.
Part of the loan would be used for agricultural develop-
ment under strict supervision; $1,385,000 would be used
for railroad construction; $1,715,000 would be used to
purchase railway equipment; $1,006,000 would be spent
for highway construction and $300,000 for equipment for
the latter. As other countries repay their indebtedness
to
Regraded Uclassified
6
-2-
the Export-Import Bank, the Government of Colombia hopes
that it may be possible for the Export-Import Bank to
grant additional assistance to Colombia.
BRADEN
EA:EB
Regraded Uclassified
M March 13, 1940.
7
MEMORANDUM
TO:
Secretary Morgenthau
FROM: Mr. Sullivan
Subject: Shall we immediately proceed civilly in the
(1) Keeler, (2) Greenley cases.
1. Messrs Foley, Helvering, Irey and Sullivan are
in accord that proceedings may and shall be started at once.
Tomorrow, March 14th, the deficiency notice in the Keeler
case will be forwarded to the Collector in the district in
which Keeler filed his return (either Louisville or Indianapo-
lis) and Keeler will then have 10 days in which to pay.
2. On the subject of Greenley, Mr. Irey states that
he believes that his men will recommend a criminal prosecution
and that no civil proceedings should start before the criminal
prosecution has been terminated. If Agent Sullivan leaves
here tomorrow to return to Indianapolis he can forward in here
within a few days the civil tax report but unless some court
order is issued it is questionable that any witnesses can be
made to talk so that the criminal prosecution of Greenley will
be recommended unless there is some other source of informa-
tion as yet undisclosed. Commissioner Helvering stated that
any recommendation as to criminal prosecution of Greenley
should be scrutinized carefully. General Counsel Foley has not
been contacted since I have received this subsequent information
from Mr. Irey. It is my opinion that no action on Greenley
should be taken until the report from Indianapolis is received.
TLS
Correctacing of The
schwerd 17177 2/14/40
Regraded Uclassified
MEMORANDUM
March 13, 1940.
TO:
Secretary Morgenthau
FROM: Mr. Sullivan
Subject: Shall we immediately proceed civilly in the
(1) Keeler, (2) Greenlee cases.
1. Messrs. Foley, Helvering, Irey and Sullivan are
in accord that proceedings may and shall be started at once.
Tomorrow, March 14th, the deficiency notice in the Keeler
case will be forwarded to the Collector in the district in
which Keeler filed his return (either Louisville or Indianapo-
lis) and Keeler will then have 100 daye in which to pay.
2. On the subject of Greenlee, Mr. Irey states that
he believes that his men will recommend a criminal prosecution
and that no civil proceedings should start before the criminal
prosecution has been terminated. If Agent Sullivan leaves
here tomorrow to return to Indianapolis he can forward in here
within a few days the civil tax report but unless some court
order is issued it is questionable that any witness can be
made to talk. Accordingly the criminal prosecution of Greenlee
will not then be recommended until there is some other source
of information as yet undisclosed. Commissioner Helvering
stated that any recommendation 88 to criminal prosecution of
Greenlee should be scrutinized carefully. General Counsel
Foley has not been contacted since I have received this sub-
sequent information from Mr. Irey. It is my opinion that no
action on Greenlee should be taken until the report from
Indianapolis is received.
TLS
Regraded Uclassified
TO:
3-13-40
The Secretary
\
9
On the whole, I felt Baldwin's
story was as decent as could be
expected. Certainly your talk
with him neutralized much of the
poison that had already been in-
jected into him. Your attention
is called to the start of his
tenth paragraph: "Some army and
navy officers are afraid," which
doesn't sound very stalwart for
military men. Felix Cotten hints
about 8 controversy and then
nowhere in his story does he
really define a controversy. The
Wall Street Journal story, follow-
ing on their New York lead, treated
you more fairly, I think, than
any of the others. I have arranged
for all the information that may
be obtained at the conclusion of
Rep. Harter's subcommittee session
this morning and will relay same.
From: MR. SCHWARZ @
10
GENERAL DISCUSSION ON
March 13, 1940.
PENDING MATTERS
2:30 p.m.
(Discussion on Bank of America
took place during this meeting
but was transcribed separately)
Present:
Mr. Bell
Mr. Sullivan
Mr. Foley
Mrs Klotz
H.M.Jr:
There is something I wanted to tell you people.
Did you get that message of mine? What is the
thing the fellow wanted, what is this resolution?
Foley:
Well, it is to determine whether or not military
secrets by the third of September have been given
up and whether or not what we are giving to for-
eign governments affects in any way delivery on
contracts to our government and prices that our
government would pay for ammunition and airplanes
and war supplies. The resolution hasn't been
printed yet and it has come to the Military
Affairs Committee. It has been referred to the
Military Affairs Committee. Now, that 1s Sheppard's
Committee. It isn't an awfully good committee
from our standpoint.
H.M.Jr:
Did you see that Barkley said word for word what
we told them? It was just perfect.
Foley:
It was 8. good thing you primed him, because he
didn't know, apparently, that LaFollette was
going to offer this at this time.
H.M.Jr:
It was just sheer Morgenthau luck.
Klotz:
No, that was no accident. You planned it.
Foley:
Sure you planned it that way.
H.M.Jr:
Believe me, when Mr. Louis Johnson had a press
conference today he was B. very good boy. He said
he liked the Coordinating Committee and went
right down the line. Believe me, he got it yes-
terday.
Sullivan:
oh, he did?
Regraded Uclassified
11
- 2 -
H.M.Jr:
The President spent two and B. half hours on
the airplane thing yesterday. Oh boy, did
General Arnold get it. They are trying to
put Colonel Burns on this committee in place
of the Quartermaster General. He says he can
be a liasion officer. He tried his best to
get him on and the President said, "You know,"
looking at Arnold, he said, "When people can't
control themselves and their people under them,
you know what we do with those kind of people?
We send them to Guam."
Klotz:
He didn't!
H.M.Jr:
Yes, he did, and he told Steve Early and he told
me this morning that he told Louis Johnson yes-
terday that either Arnold cut it out or he
would be removed as head of the Air Corps. The
President took two and a half hours yesterday to
go into this thing and I don't - oh, the lie that
they did the other day in front of the President
is wonderful. I just knew it. Between Woodring
and Johnson and Arnold. My, what & bunch of
liars.
Sullivan:
Do you want all that on the record?
H.M.Jr:
Sure, it is just for me. I may forget they are
liars.
Sullivan:
Did you say the diary?
Klotz:
This is our diary.
H.M.Jr:
This is mine. You ought to see it.
Sullivan:
Autograph & copy, will you?
B.M.Jr:
There is only one.
Bell:
It will be good reading 20 years from now.
Klotz:
I don't think we can wait 20 years. I may not
be here. I would like to see it in print before
then.
H.M.Jr:
O. K.
Regraded Uclassified
12
- 3 -
Foley:
Mr. Secretary, I am going over at 3:00 o'clock
to see Sam Clark on that Perini and those other
contractors up in Boston. We had & meeting
this morning in John's office, the Commissioner
and Elmer and his man Sullivan. Sullivan gave
us a long --
H.M.Jr:
Just e minute. When does Perini start and
stop and Sullivan begin? Are they all the
same case?
Foley:
No, I am explaining that I am going over to
Sam Clark's on another matter.
H.M.Jr:
Perini?
Foley:
Yes.
H.M.Jr:
What is that trick they used to have, Peruna?
Klotz:
Purina is wheat, isn't it?
Foley:
Well, Sullivan has given us another memorandum
now to substantiate the application for the
order. It is a rehash of what they got in the
letter that came in before and there is nothing
in there that I can use very well. Suppose I
give his letter to Elmer and this memorandum --
H.M.Jr:
Whose letter to Elmer?
Foley:
Sullivan's, in support of the petition, and
this memorandum to Sam Clark and say that this
is the additional material we have gotten from
our agents and will they review it and see
whether or not that makes any difference.
H.M.Jr:
Fair enough. Now, is Sullivan in town?
Foley:
Yes, sir.
H.M.Jr:
Would you, or whoever has time - I want to know
why we can't proceed against Mr. Greenlee.
Sullivan:
Well, you don't need to talk to anybody about
that.
Foley:
Keeler, too.
Regraded Uclassified
13
- 4 -
H.M.Jr:
Why not?
Sullivan: O. K.
Foley:
Did you see the Clapper memo?
H.M.Jr:
No. When was that?
Foley:
Today, in the News. Want it?
H.M.Jr:
No hurry. Have you got it in your hand?
Foley:
It is on my desk.
H.M.Jr:
Well, I will get it, don't worry.
Sullivan:
It isn't that bad.
Foley:
It is a crucifixion of Mr. McNutt.
H.M.Jr:
That is all right. I will tell you something
very interesting. I would like to have a
report from Helvering and you two gentlemen
and Elmer Irey, unanimous, if possible, why
we shouldn't proceed against Mr. Greenlee and --
Sullivan:
I will take care of that over the phone. I
think they all agree that we should go right
ahead, don't you, Ed?
H.M.Jr:
Just to refresh my memory. As I remember, what
we found originally was that Greenlee had col-
lected something like $80,000 and had failed
to report --
Sullivan:
About $71,000 of it.
H.M.Jr:
Isn't that a case?
Sullivan:
Sure.
H.M.Jr:
Why not go ahead with it?
Sullivan:
We have that all along.
H.M.Jr:
I know we have, that is what started the whole
business. I told you this four or five days
ago.
Regraded Uclassified
14
- 5 -
Now, on the thing about the persecution. Last
night we were out at dinner and I happened to
sit next to Mrs. McAllister. She is the Chair-
man of Democratic Women. A grand person. Do
you know her?
Klotz:
Yes,
Foley:
In the Treasury here?
Klotz:
No, Women's Division of the National Democratic
Committee.
Foley:
Oh, I know who she is.
Bell:
She lives in Alexandria, doesn't she?
H.M.Jr:
Yes.
Foley:
I don't know her very well. She has asked me to
go around a couple of times and I have never gone.
H.M.Jr:
She is a grand person. Her husband was there.
He is a Federal judge. I said, "Mrs. McAllister,
I want to ask you & question and you can either
answer me - I want the straight answer or none.
Of the women that you have seen and the talk
that you hear around, what is the talk about our
persecuting McNutt?" She said, "Mr. Morgenthau,
I haven't heard a word,' and I said, "What about
your women from Indiana?" She said, "They were
just in recently. I had a group who came in
from Indiana and not one person mentioned it."
She said, "I have never heard it mentioned."
She said, "Nobody has told me or criticized you
or the Treasury and I have just recently seen a
whole group of women from Indiana." She said,
"I get the stuff, don't you think I don't, be-
cause --" and she started off with WPA and the
work, and so forth and so on, and she is getting
all kinds of criticism on that. I thought that
was interesting, because she does get around,
so I would like to start on Greenlee. What is
the other fellow?
Sullivan:
Keeler. You mean civil suit or criminal suit?
H.M.Jr:
Whatever the crime is. I don't know. I would
like to proceed. I don't know whether 1t is
Regraded Uclassified
15
- 6 -
a criminal or civil matter.
Foley:
Civil, I think.
H.M.Jr:
Whatever it is, let's go to town.
Sullivan:
I will charge myself with that and report
to you later in the afternoon.
H.M.Jr:
Tomorrow morning will be early enough.
Foley:
Look, can I go a further step with Sam Clark
and say that we want the doubt that they have
in their mind as to the granting of this order
removed before we decide to go ahead and we
are going to do it together?
H.M.Jr:
Check and double check.
Foley:
0. K., and if they don't think it ought to be
done and there is still doubt, then we are not
going to say they ought to do it.
H.M.Jr:
It is the old story. If you don't want to, I
don't want to.
Klotz:
I never heard that before.
Regraded Uclassified
16
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Berlin
NO.: 633
DATE: March 13, 1940, 10 a.m.
My 2461, December 26, 10 a.m.
The German press 1s criticizing as discriminatory
and injurious to Germany Rumania's new foreign trade
regulations notably the recent decree that all foreign
exchange derived from Rumanian exports shall be sold to
the National Bank which will pay a fixed "valuta premium"
of 50 percent of the official rate as compensation for
the higher rates which exporters heretofore realized by
the sale of their exchange in the free market.
In its March 8 issue the SUEDOST ECHO, a Vienna
weekly devoted to Germany's economic relations with
Southeastern Europe, asserts that by this decree Rumania
not only converts the concealed premium hitherto paid
for free currencies into an open one but has given the
pound and franc an even greater purchasing preeminence
in Rumania which will make British "nuisance purchases"
cheaper. The SUEDOST ECHO points out that the question
of fixing the reichsmark-leu exchange rate will again
become acute. It will be recalled that on December 21,
1939, Rumania agreed to raise the selling rate for
reichsmarks
Regraded Uclassified
17
-2-
reichsmarks in the German-Rumanian clearing from 40.50
to 49.0 leu although as reported at the time the German
Government demanded B. greater increase.
The SUEDOST ECHO also criticizes the fixation of
minimum prices for Rumanian exports of certain agricul-
tural products to Germany as harmful to Rumanian sales
to Germany since the Rumanian authorities refuse to grant
export licenses for German purchases made at prices below
those fixed by the Government and points out that the
minimum prices introduced January last have not been
published. In its complaint of the discriminatory
effect of the new Rumanian minimum price and exchange
regulations the SUEDOST ECHO claims that Rumanian expor-
ters are allowed to sell B. carload of oil cake to Denmark
for $288 whereas Germany must pay 1418 marks per car
equivalent at the official German rate of exchange to
$592.
It was pointed out at the Rumanian Legation that
these complaints were made by Germany immediately pre-
ceding the announcement of the quarterly periodical
negotiations for which provision 1s made in the Rumanian
Trade Agreement. They deny that there is any discrimina-
tion against Germany and assert that the actual purchasing-
power parity of the mark is closely measured by the new
exchange
Regraded Uclassified
18
exchange and (?) price regulations. It was stated that
the nominal gold parity of the mark does not concern
Rumania; all Rumania 18 interested in is the amount of
products that can be bought with a mark in Germany. It
was stated that by means of the present regulations the
relative purchasing power of the mark, the dollar, the
pound and the franc are exactly expressed. However, it
was indicated that in the negotiations in Berlin some
concession to the German viewpoint might be made by the
Government of Rumania for reasons of political concilia-
tion and Rumania's need of certain kinds of armaments,
particularly artillery, which cannot be bought to advan-
tage in England and France.
Please inform Treasury. I have repeated this
message to Bucharest.
KIRK
EA:EB
Regraded Uclassified
19
TREASURY DEPARTMENT
PROCUREMENT DIVISION
ICE OF THE DIRECTOR
WASHINGTON
March 13, 1940.
MEMORANDUM FOR THE SECRETARY
Dr. Joao Antonio de Bianchi, Minister from Portugal,
called this afternoon concerning the purchase in this country
of certain heavy ordnance for coast defense purposes, as well
as some anti-aircraft guns, anti-tank guns and machine guns.
After discussing the matter at length he stated that
he was going to recommend to his Government that an Army
mission, empowered to discuss their proposed program, as well
as to give details of types and deliveries wanted, be sent to
this country.
He further stated that he had discussed this question
informally with Colonel MacMorland of the Clearance Committee
of the Munitions Board, at whose suggestion he called upon me.
He also said that he was sending a memorandum to me which would
give, in as much detail as he could get, their expected require-
ments. When this memorandum is received it will be handled at
a routine meeting of the President's Liaison Committee.
Chairman, John President's Liaison Committee.
Regraded Uclassified
20
March 13, 1940.
MEMORANDUM FOR THE SECRETARY
Dr. Joao Antonio de Bianchi, Minister from Portugal,
called this afternoon concerning the purchase in this country
of certain heavy ordnance for coast defense purposes, as well
as some anti-aircraft guns, anti-tank guns and machine guns.
After discussing the matter at length he stated that
he was going to recommend to his Government that an Army
mission, empowered to discuss their proposed program, as well
as to give details of types and deliveries wanted, be sent to
this country.
He further stated that he had discussed this question
informally with Colonel MacMorland of the Clearance Committee
of the Munitions Board, at whose suggestion he called upon m.
He also said that he was sending a memorandum to me which would
give, in as much detail as he could get, their expected require-
ments. When this memorandum is received it will be handled at
a routine meeting of the President's Liaison Committee.
Chairman, President's Liaison Committee.
HEC:GE
21
JR
PLAIN
London
Dated March 13, 1940
Rec'd 12:50 p.m.
Secretary of State,
Washington.
635, March 13.
FOR TREASURY FROM BUTTERVORTH.
1. All British security markets WERE weak today on
the news of the Russo-Finnish DESCE terms, the conclusion
of which the city not only interprets as an Anglo-French
reverse but also an indication that the contiguous neutrals
fear Germany more than they respect the potential might
of England and France. It remains to bE seen what Effect
this situation had on the new three per cEnt war loan, the
list of which closed tonight.
2. The Chancellor of the Exchequer moved C. vote of
cradit in the HOUSE of Commons this afternoon for pounds
700 million towards meeting wer Expenditure in the coming
fiscal year.
This method of authorizing Expenditure is adopted
because in place of the usual detailed fighting services'
estimates only token votes are now presented, neither
totals nor details being given for purposes of secrecy.
This is the second vote of credit since the war began, the
first
Regraded Uclassified
22
-2- #635, Harch 13, from London.
first in September being for pounds 500 million and Simon
indicated that up to March 9 the amount which had been
spent from this authorization W.S about pounds 300 million
and that by the End of the fiscal year (April 4) "There
would probably bE short spending of something between
pounds 70 million and pounds 100 million out of the pounds
500 million previously authorized.
KENNEDY
McL
Regraded Uclassified
23
TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON
March 13, 1940.
MEMORANDUM
Conference was held with the President this morning at which were present the
Secretary of the Treasury; the Secretary of War; and the Secretary of the Navy;
the Assistant Secretary of the Navy; the Assistant Secretary of War; General
Arnold, Chief of Air Corps, Army; Admiral Towers, Chief of Bureau of Aeronautics,
Navy Department; Admiral Spear, Chief of Bureau of Supplies and Accounts, Navy
Department; and the Director of Procurement.
The President expressed his concern over the stories that are creeping into the
press, particularly those which indicated a disagreement as between departments
of the Government, and in definite terms stated that it must be stopped. He
even went so far as to indicate punitive action in the event that there was
not an immediate discontinuance of such newspaper publicity. General Arnold
pointed out that he had been misquoted and stated that he did not say the things
before the House Military Affairs Committee attributed to him. The President
then gave him some advice as to the manner in which certain types of questions
propounded by members of the Committee should be answered.
Assistant Secretary of War Johnson requested of the President that he be per-
mitted to relieve the Quartermaster General as a member of the President's
Liaison Committee. This question was discussed. Secretary Johnson strongly
recommended the appointment of Colonel Burns of his office in place of General
Gregory. The President pointed out, as he has done before, the purposes for
which the Liaison Committee was created and stated that the fact that the Quar-
termaster General of the Army may not have a technical knowledge of aeronantics
did not preclude his availing himself of such knowledge on the subject as exists
in the War Department. The President finally concluded that Colonel Burns could
act as liaison officer as between the Liaison Committee and Secretary Johnson's
office.
The Secretary of the Treasury pointed out that the Liaison Committee would
shortly receive from the Anglo-French Purchasing Board a request for airplanes
and aviation equipment. It was indicated that representatives of the Bureau of
Aeronautics of the Navy Department and of the Air Corps of the Army would be
invited to be present when such meeting to discuss these requirements is held.
The meeting adjourned with further admonitions on the part of the President as
to the manner in which questions should be answered which were not definite in
their nature.
Regraded Uclassified
24
- 2 -
During the course of the conference Secretary Woodring presented to the
President a letter written by Mr. Harter, Congressman from Chio, which the
President read and stated that he considered it entirely too general insofar
as the information requested was concerned, and he suggested that the Secretary
of War's reply thereto be drafted accordingly.
Meeting adjourned at 12:10.
Chairman, Defreen President's Liaison Committee.
Regraded Uclassified
25
March 13, 1940.
4:13 p.m.
H.M.Jr:
Hello.
Operator: Here he 18. Go ahead.
H.M.Jr:
Hello.
Arthur
Purvis:
Hello. Hello Mr. Secretary.
H.M.Jr:
Mr. Purvis. Morgenthau talking.
P:
Yes.
H.M.Jr:
I thought it might cheer you 111) 8 little bit to know
about the bettle of Washington the last twenty-four
hours.
P:
I'd very much like to hear it.
H.M.Jr:
Well it got so bed, this sabotage I had to go to the
President.
P:
Yes.
H.M.Jr:
And he gave me two and a half hours on the - just
the cuestion of planes yesterday.
P:
Yes.
H.V.Jr:
And result of which the meeting was held this morning
in his office, Secretary of War, Assistant Secretary
of War, Secretary of Navy -nd Assistant Secretary.
P:
Yes.
H.M.Jr:
General Arnold and Admiral Towers.
P:
on yes.
H.V.Jr:
And there was some very plain talking.
P:
Yes.
H.M.Jr:
And I think for the next couple weeks it'll be 8
little easier.
P:
(laughs)
H.M.Jr:
May last for a couple of weeks.
P:
That makes it important to move quickly.
Regraded Uclassified
26
- 2 -
H.M.Jr:
But it got to e point where I explained to him that
my usefulness was being ruined by this sabotage.
P:
Yes.
H.M.Jr:
And he got very much excited about it and put the
whole White House back of it.
A.
Yes.
H.M.Jr:
So I think the atmosphere will be clear.
P:
It was very delightful.
H.M.Jr:
- Senator Barkley today, I saw him this morning,
the Democratic leader in the House of Senate.
P:
Yes.
H.M.Jr:
And you may have seen, Assistant Secretary Johnson
gave cuite a statement out this morning.
P:
Yes.
H.M.Jr:
Yes.
P:
I'll look for that.
H.M.Jr:
So - saying it was Allies did not interfere with
the price or deliveries.
P:
Oh good.
H.M.Jr:
And Mr. Barkley said the same thing and Mr. Stephen
Early said the same thing.
P:
Oh that's very good.
H.M.Jr:
So they have all called General Arnold a liar in
three different ways.
P:
Yes.
H.M.Jr:
So I think it'll be a little easier.
P:
Oh I'm delighted to hear that. Captain Colline has
suggested that we should suggest we would have an
opportunity of meeting the air representatives of
the Army and Navy and so on. We're arranging to
do that tomorrow afternoon.
Regraded Uclassified
27
- 3 -
R.M.Jr:
Yes, I told them to get in touch with you.
P;
Well we settled that straight out of hand and I
just told him we'd be most delighted to do it.
N.M.Jr:
Good.
P:
And against this background that should give US a
much better chance.
H.M.Jr:
Oh yes. They'll - we'll ree how you get along and -
but I suggested that meeting take place tomorrow and
tell them what you want.
P:
Yes, yes. We will.
V.M.Jr:
And - but the President out his shoulder to the wheel
and the atmosphere is clear and I say it ought to
lest for a couple of weeks.
p.
It's not the only shoulder that's been to the wheel,
AS far DE I own nee.
F.",Jp:
Vell 11's been hard work because the sebotage down
here was terrible.
P:
It WAB getting glarming, of course we've been watching
the 787.62° with 8 little more worry.
R.V.Jr:
Well there's real cause for alarm.
P:
Yes,
E.V.Jr:
And I didn't want to TO through another Congressional
investication. I cen't take it physically.
?:
No, no.
But I just wanted to let you know 28 of tonight
the atmosphere on the horizon 10 All clear and I
think the reception you ent down here tomorrow
will be cuite friendly.
P:
Thank you 60 much, I am grateful.
W.M.Dr:
And that's that.
P:
Yes, Thank you very much indeed. We shall TO down
with 8 much better feeling of comfort into the -
Regraded Uclassified
28
- 4 -
H.M.Jr:
Well you can. You'll get a good reception.
P:
Thank you very much.
H.M.Jr:
Good night.
P:
I'm awfully obliged. Thank you. Good night.
Regraded Uclassified
29
March 13, 1940
MEMORANDUM
TO:
Secretary Morgenthau
FROM: Mr. Schwarz
The Aviation subcommittee of the House Military Affairs Committee
decided today to ask Secretary Woodring to appear before its members at
10:30 o'clock tomorrow (Thursday) morning to discuss the release for
export of the P-40 airplane and generally to go into the War Department
policy with respect to export of aircraft and all munitions. General
Marshall and General Arnold may be invited later. It was apparent from
the discussions that the subcommittee believes that the Air Corps erred
in its original appropriations for planes and that such a mistake accounts
for General Arnold's request for supplemental funds at this time rather
than any added cost factors. The subcommittee seemed indifferent to the
cost of military planes for this Government but was definitely curious
about any possibilities that American military weapons might be too readily
sacrificed to foreign nations.
Regraded Uclassified
COPY
30
GRAY
JT
OSIO
Dated March 13, 1940
Rec'd 4 p.m.
Secretary of State,
Washington.
34. March 13, noon.
Legation's 25, February 26, 5 p.m.
In connection with the payments agreement concluded between Norway and England
supplementing the recent trade agreement Norges Bank announced on March 12 "in order
to insure under existing conditions that all payments to Norway from the British
Empire (except Canada, Newfoundland, and Hong Kong) as well as areas under British
mandate Egypt. British Egyptian Sudan, and Iraq in connection with trade, freight,
insurance, commissions, travelling expenses, et cetera, as well as certain financial
obligations will be employed to liquidate similar Norwegian obligations within the
Empire, the following agreement has been resched: Effective on March 18, 1940 all
payments of the classes above mentioned in pounds will be made in the form of
'special pounds' through 'special accounts' which Norwegian banks will open with
their connections in London. Private persons and firms will not be allowed to have
payments due to them from the Ampire credited to their own accounts in England but
they will receive such payments through their Norwegian banking concern.
Payments of debts expressed in kroner will be made in kroner.
'Special pounds' must be used only for payments in pounds within the British
Empire (as specified above) and they cannot be used for other purposes. Accordingly
they may not be purchased on the international foreign exchange market.
Goods imported into Norway from the British Empire through 2. third country mist
be paid for with 'special pounds'. These 'special pounds' can be made available to
the creditor in the third country only upon his written declaration that the 'special
pounds' will be used only for payments within the British Empire." Effective on
Regraded Uclassified
31
- 2 -
March 18, 1940 the officially quoted pounds rate on the Oslo exchange will refer
only to "special pounds" and both buying and selling rates will be quoted.
HARRIMAN
NPL
Regraded Uclassified
32
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris
NO.: 335
DATE: March 13, 1940, 7 p.m.
This morning I had a call from Royall Tyler,
who mentioned "curious exchange developments" which
have recently taken place in Italy. He said that not
long ago Italian banks in Leghorn, Milan and Florence
which are authorized to deal in foreign exchange "let
it be known" that they would buy dollar checks at a
"negotiated" rate. He said he knew personally of cases
where, as a result of this practice, dollar checks were
sold to Italian banks at & rate of 43.50 lire to the
dollar while the official rate was 19.80 to the dollar;
even for amounts under $1,000 he had heard of rates up
to 50 lire to the dollar. One of the banks in question
gave him an explanation to the effect that for the moment
Italian importers needed dollar exchange and that this
was only a temporary procedure and would in all proba-
bility be canceled before long. (Tyler said that the
same "negotiations" with respect to rate were also applied
to sterling, Bwiss francs and presumably to other our-
rencies.) Tyler added that Italian exporters continue
under the obligation of using the official rate for
turning
Regraded Uclassifie
33
- 2 -
over their foreign exchange. Therefore for dollars
importers must pay 43 lire plus, and exporters receive
for them but 19.80, which 1s considerable annoyance to
both. Tyler believes that exporters will prefer to wait
in the hope that later on they will get a better rate,
rather than submit to being "mulcted" as at present.
This situation Tyler thinks must indicate that for the
present at least Italy needs foreign exchange more urgently
than is believed generally. The practice of negotiated
rates, he remarked, 1B indulged in only in the three cities
mentioned above and not in Rome - seeming to indicate that
there is a wish to keep the matter as quiet as possible;
in this connection he said it was his impression that
those who came in recently with the changing of the guard
in Italy were not as efficient 28 their predecessors in
the handling of affairs. Instances had come to his atten-
tion of Italian importers having to pay substantial
"baksheesh" in order to get import licenses - - "baksheesh"
to the amount of 100 percent of the value of his cotton had
to be paid by one cotton importer. He understood that
under Guarneri such practices had not been tolerated.
The recent financial negotiations between Germany and
Italy were also discussed by Tyler. Originally Italy
had made an offer of 4 billion lire as the value of the
property
Regraded Uclassified
34
- 3 -
property of those living in Altoadige who had opted for
German residence, and a value of 16 billion lire had
been placed on the property by Germany; a figure of
8 billion lire was finally settled on. However, Germany
insisted that the clearing rate between Germany and Itely
be revised from 8 1/2 lire per mark to 4 lire. Tyler
remarked that this move, on the heels of pressure by
Germany on Hungary in the opposite direction (to increase
the mark premium) - reference, telegram of January 25,
No. 124 from the Embassy - had caused some amusement among
the magyars. The latter, he said, were perfectly confident
that the old lira-mark rate would be reverted to as soon
8.B the Germans had liquidated this lire credit.
The following may be of interest as an illustration
of the distance France has gone since the Popular Front
days, and also as an illustration of the growing objections
in certain cuarters to the limits placed both on wages and
on industrial profits. Last Thursday in the Senate
M. Francois de Wendel, who of course represents one of
the most powerful groups in heavy industry in France,
demanded encouragement for lagging national production in
France through a relaxation of the limit on profits and
also insisting that there be eliminated the present rule
that overtime pay for labor must be at a rate 40 percent
under
Regraded Uclassified
3's
- 4 -
under normal rates - the said 40 percent is taken by the
Government. M. de Wendel said that both factors have a
tendency to reduce needed "personal incentive" - or profit
motive - for increasing the output. The Socialist leader,
Spinasse - who in 1938 was Budget Minister under Blum -
had an article in LE POPULAIRE, the Socialist paper, in
which he completely endorsed the views of de Wendel regarding
the raising of the limits on profit. He asserted that
the community's real interest 18 more in reducing costs
of production than in limitation of sales prices, adding
that this necessarily implies considerable investment
in technical and operations research, in material, and
in plant equipment, and that therefore higher profit margins
are necessary. Such views would never have been published
by the POPULAIRE as recently 88 a year ago, and Spinasse
would presumably have been read out of the Socialist Party
if he had publicly expressed such views.
Ardant, the Societe General's Managing Director had
lunch with me at my house today, and I broached the above
subject to him. He remarked that consideration was being
given to this whole question of permitting larger profits,
saying that it was strongly favored by the Armamant Minister.
He said that there W&B less enthusiasm for it on the part
of the High Commissioner of National Economy, but that
Daladier
Regraded Uclassified
36
- 5 -
Daladier would now have to decide the question. He
smiled and said that no strong views on the subject are
being put forth by the Finance Minister. I gathered that
Ardant himself thinks there 1s too severe a limitation
on profits, which limitation is in fact acting as 8. brake
on industrial output. He thinks that wages are high
enough in armament and related industries, since these
industries work up to 60 hours a week; however, he does
not think they are high enough in other industries having
a lower operating schedule, such 8.8 certain textiles,
particularly woolen, where mills are operating only 32
hours. Of course, be said that frequently French employers
and employees syndicates are in full accord on raising
prices in the hope that they will reap greater profits
and higher wages, respectively, at the public's expense -
in particular he mentioned the coal industry as being
guilty in this regard.
Ardant does not think France will be able to keep
wages down much longer, in the face of a 16 percent increase
in the cost of living, although it 1s his opinion that
the Government has been well-advised and done "an excellent
wartime job" 80 far. He added that if the white war (military
inactivity) should continue for three months more it will
not
Regraded Uclassified
37
- 6 -
not be possible to prevent an important wage increase.
Ardant 1s of course in an excellent position to take the
pulse of popular feeling in view of the numerous contacts
of the Societe Generale in the provinces; he feels that
the weakening will to sacrifice would be stimulated by
a military offensive somewhere. The recent restrictive
measures he fully endorsed as a beginning, but it is his
opinion that inevitably they must become stronger and
regrets that they were not taken before.
Ardant called attention to the drop in the franc rate
on the free market in New York yesterday, attributing
it mainly to the loss of certain sources of demand for
sterling in view of the new British exchange measures
which require foreign currency delivery for exports of
certain specified commodities. He remarked incidentally
that during the last few days, for reasons he did not know,
the day to day money in Paris has become slightly tighter.
Subscriptions to armament bonds, Ardant finds, are
coming in at an "excellent rate". He thus confirmed the
information which Couve de Murville and other French
officials and American banking sources had given me.
It 1s not at all urgent, he said, that e. French long term
loan be floated, that the matter 1s mainly one of timing -
deciding, from the technical market end psychological points
of
Regraded Uclassified
38
- 70- THE
of view, when is the best moment for putting it over.
The Government has not yet reached any decision on this.
Ardant seemed to be pleased at the complete lack of
difficulties or delays the Societe Generale had encountered
in establishing its agency in New York, as contrasted with
their similar move in Argentina. He remarked that they
intended to go very slowly as a matter of policy so they
would not get on anyone's toes. He understood confiden-
tially that on the contrary the Swiss Bank Corporation had
been rather brusque in its methods with a certain unfavorable
effect.
END SECTIONS ONE TO TWELVE, INCLUSIVE.
MURPHY.
EA:LWW
Regraded Uclassified
34
PARAPHRASE OF SECTIONS THIRTEEN AND
FOURTEEN OF TELEGRAM NO. 335 FROM
PARIS, MARCH 13, 1940.
Rueff also had lunch with me. With reference to
the amount of gold which was recently turned over to
the stabilization fund by the Bank of France, he
remarked that there had been lengthy arguments back
and forth between those who were of the opinion that
larger amounts could better be transferred at this
time without bringing about a ripple of anxiety and those who
were of the opinion that public confidence in French
currency was dependent on the size of the Bank of
France's gold reserves and that for that reason no
greater cession should be made at this time. He him-
self, Rueff said, had been strongly in favor of making
B. larger transfer. (Thus his opinion 18 contrary to
Governor Fournier's. Reference is made to the last
paragraph of my no. 320 of March 10, noon.)
Reference 1s made to my telegram no. 301 of March
7, 6 p.m. With regard to the forthooming measures which
are designed to increase the use in France of the check
for making payments, both Rueff and Ardant seemed to be
of the opinion that there might be some good results but
they were not very optimistic that these measures would
greatly increase the volume of bank deposits.
This
Regraded Uclassified
40
-2-
This morning's AGENCY ECONOMIQUE ET FINANCIERE
reports that Reynaud has submitted a bill granting the
necessary authorizations to contract national defense
expenditures for the second quarter of 1940 and the
opening of the necessary financial credits (see my
telegram 3065, December 30, 6 p.m.).
EA:EB
Regraded Uclassified
41
RFP
GRAY
Paris
Dated March 13, 1940
Rec'd 7:17 p.m.
Secretary of State
Washington
335, March 13, 7 p.m. (SECTION FIFTEEN).
The bill carries the previous provision that the
Minister of Finance bE authorized to cover such Expendi-
tures through the flotation of short-term securities
or Treasury loans.
The securities market after firmness during
the previous two sessions turned weaker today with
the Exception naturally of Scandinavian issues which
advanced on the news of the Finnish-Russian agreement
(which agreement is of course viewed here with deep
regret) changes in rente issues were small with
mixed advances and declines the 1937 dollar Exchange
guarantee issue advanced 85 centimes.
(END MESSAGE).
MURPHY
RR
Regraded Uclassified
42
JR
GRAY
Barlin
Dated March 13, 1940
REC'd 7:32 p.m.
Secretary of State,
Washington.
639, March 13, 6 pam.
My 325, February 7, noon.
TREASURY FROM HEATH.
With the publication of the amount of long term bonds
which the government privately issues to savings
institutions and insurance companies sold during November;
complete figures for the increase of the disclosed
debt of the Reich during November 1939 are now available.
The Reich borrowed 1,548,000,000 marks on short term
and 481,000,000 marks on medium and long term during
November making a total of 2,030,000,000 marks (some
453,000,000 marks less than in October). The above
figures concern only "disclosed borrowing" and does not
include issuance of army promissory notes, Et cetera.
KIRK
DDM
Regraded Uclassified
TREASURY DEPARTMENT
43
INTER-OFFICE COMMUNICATION
DATE March 13, 1940
TO
Secretary Morgenthau
FROM
Mr. Cochran
The reported turnover in sterling transactions was about the same as yester-
is but the volume was more evenly divided between purchases and sales. Prior to
the opening here, sterling fell from 3-78-3/16 to 3.75-1/2 in Amsterdam. The
initial quotation in New York was 3.74 and within an hour, sterling had dropped
to 3.71. During this period, there were heavy offerings of sterling with no in-
terest showing on the buying side. Shortly thereafter, some demand developed and
the rate recovered to 3.74-3/8 by about noontime. It then moved in a nerrow range
until Inte in the afternoon. A firmer tendency subsequently appeared and sterling
rose to 3.77-1/8, the high in New York. It finally eased to close at 3.75-3/4.
Sales of spot sterling by the alx reporting banks totaled L955,000, from the
following sources:
By commercial concerns
1 280,000
By foreign banks (South America, Europe, and Far East) I
675,000
Total
I 955,000
Purchases of spot sterling amounted to 1800,000, as indicated below:
By commercial concerns
452,000
By foreign banks (Europe, Far East and South America)
L
348,000
Total
800,000
The following reporting banks sold cotton bills totaling 128,000 to the British
Control on the basis of the official rate of 4.02-1/2:
= 17,000 by the Bank of Nanhattan
4,000 by the Guaranty Trust Co.
4,000 by the National City Bank
3,000 by the Irving Trust Co.
28,000 Total
The rate for the French franc followed the course of sterling. After falling
to = low of .0210-1/2 in the mid-morning, it recovered to close at ,0213-1/2,
A slight improvement was registered in the quotation for the Canadian dollar
but it was reported that little business was done in that currency. It closed at
B. discount of 17-3/4%.
The rates for the guilder and the belga showed S. weak tendency around our
opening, being quoted at .5310-1/2 and .1693 respectively. Some improvement took
place during the day, however, and the closing rates for these units were .5312 and
.1695. The Swiss franc moved off slightly to close at .2241.
CONFIDENTIAL
Regraded Uclassified
44
-2-
We sold the following amounts of gold to be added to the earmarked accounts of
the banks indicated:
$3,000,000 to the Bank of the Uruguayan Republic
800,000 to the Central Bank of the Argentine Republic
$3,800,000 Total
We purchased $350,000 in gold from the earmarked account of the Bank of the
Colombian Republic.
The Federal Reserve Bank of New York reported the following shipments of
gold:
$2,257,000 from England, shipped by the Bank of England to the Federal Reserve Bank
of New York for account of the Swiss National Bank.
2,065,000 from England, shipped by the Bank of England to the Federal Reserve Bank
of New York for account of the Bank of Portugal.
139,000 from Canada, shipped by Barclays Bank, Montreal, to the Guaranty Trust
Co., New York, for account of the Amsterdemsche Bank, Amsterdam.
$4,461,000 Total
The disposition of the two shipments from England is unknown at the present time
and the Canadian shipment will be sold to the U. S. Assay Office at New York,
The State Department forwarded to us a cable stating that the following gold
shipments were being sent from England:
$ 562,000 shipped by the National City Bank, London, to its head office at New
York,
234,000 shipped by the Swiss Bank Corporation, London, to the Guaranty Trust
Co., New York.
226,000 shipped by the Midland Bank, London, to the Bankers Trust Company, New
York.
$1,022,000 Total
The above shipments will be sold to the U. S. Assay Office at New York.
On the report of March 6 received from the Federal Reserve Bank of New York giv-
ing the foreign exchange positions of banks and bankers in its district, the total
position of all currencies was short the equivalent of $20,566,000, & decrease of
$359,000 in the short position. The net changes in the positions are as follows:
SHORT POSITION
SHORT POSITION
DECREASE IN
COUNTRY
FEBRUARY 28
MARCH 6
SHORT POSITION
England
$ 9,919,000
$10,059,000
$ 140,000 (Increase)
Europe
6,560,000
1.
6,136,000
424,000
Canada
68,000
369,000
(Long)
437,000
Latin America
579,000
699,000
120,000 (Increase)
Japan
2,735,000
2,892,000
157,000 (Increase)
Other Asia
1,065,000
1,186,000
121,000 (Increase)
All Others
1,000
(Long)
37,000
(Long)
36,000
(Incresse in
Long Position)
Total
$20,925,000
$20,566,000
$ 359,000
CONFIDENTIAL
Regraded Uclassified
45
- 3 -
The quotation for silver in Bombay worked out to the equivalent of 40.674,
off 1/8¢.
In London, the prices fixed for spot and forward silver were both 20-5/8a. off
3/16a. The U. S. equivalents were 35.06¢ and 34.87$ respectively. Selling of new
production silver continued to dominate the market and Indian interests were re-
ported as buyers.
Handy and Harman's and the Treasury's prices for foreign silver were unchenged
at 34-3/44 and 35# respectively.
We made three purchases of silver totaling 600,000 ounces under the Silver
Purchase Act. Of this amount, 350,000 ounces represented a sale from inventory
and the remaining 250,000 ounces consisted of new production from foreign
countries, for forward delivery.
B.M.P.
confidential
Regraded Uclassified
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE March 14, 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
CONFIDENTIAL
The reported volume of sterling transactions today reached the highest
figure recorded this year. The feature in the turnover figures was the great
increase in foreign bank orders to sell sterling, which were approximately
double those of yesterday. The demand for sterling was considerably reduced,
with the result that the sterling rate again was weak. Before the opening in
New York, sterling declined sharply in Amsterdam from 3.76 to 3.72-13/16,
then partly recovered to 3.74-3/8. After an initial quotation of 3.74 in
New York, the rate rose to 3.75-1/2 during the first hour of trading. It then
moved off to 3.74-1/4 by noontime. Until mid-afternoon, the rate fluctuated
within a. narrow range, following which it underwent a sharp decline to close
at a low of 3.71-1/2.
Sales of spot sterling by the six reporting banks totaled L1,379,000,
from the following sources:
By commercial concerns
1 155,000
By foreign banks (South America, Far East and Europe)
1
1,224,000
Total
1 1,379,000
Purchases of spot sterling anounted to L598,000, as indicated below:
By commercial concerns
6 355,000
By foreign banks (Far East, Europe and South America)
10 243,000
Total
- 598,000
The following reporting banks sold cotton bills totaling 64,000 to the
British Control on the basis of the official rate of 4.02-1/2:
: 36,000 by the Bankers Trust Company
11,000 by the Chase National Bank
11,000 by the Bank of Manhatten
6,000 by the National City Bank
18 64,000 Total
The rate for the belga improved to reach .1700 by noontime. It closed at
.1697.
Regraded Uclassified
CONFIDENTIAL
47
- 2 -
The other important currencies closed as follows:
French france
.0210-3/4
Guilders
.5311
Swiss francs
.2242
Canadian dollars 18% discount
During the past few days the Cuban peso had a weak undertone and today
it was quoted at B. discount of 9-7/8% the low for the current downward
movement. The Mexican peso has remained unchanged at .1672 since January 3.
We sold $1,700,000 in gold to be added to the earmarked account of the
Central Bank of the Argentine Republic.
The Federal Reserve Bank of New York reported the following shipments of
gold:
$ 4,062,000 from Canada, shipped from Vencouver by the Bank of Canada to the
Federal Reserve Bank of Sen Francisco for account of the Bank of
England. This gold, which will be sold to the U. S. Mint in
San Francisco, was originally exported from India.
3,048,000 from England shipped by the Bank of England to the Federal Reserve
Bank of New York, to be earmarked for account of the Bank of England.
153,000 from India, shipped by the Comptoir National d'Escompte de Paris,
Bombay, to the Guaranty Trust Company, New York.
54,000 from Canada, shipped by the Canadian Bank of Commerce, Montreal, to
its New York agency, for account of the Rotterdam Bank, Amsterdam.
$ 7,317,000 Total
The last two shipments listed above will be sold to the U. S. Assay Office et
New York.
The State Department forwarded to us cables stating that the following
gold shipments would be made:
$ 114,000 from Hong Kong, shipped by the Chase Bank, Hong Kong, to the Chase
National Bank, San Francisco, for sale to the U. S. Mint.
14,000 from England, shipped by the Swiss Bank Corporation, London, to the
Guaranty Trust Company, New York, for sale to the U, S. Assay Office.
128,000 Total
The equivalent of the Bombay silver quotation was 40.56$, off 1/8#.
In London, the pot and forward silver prices were both fixed at 20-11/16d,
up 1/16a. The U. S. equivalents were 34.75# end 34.56$ respectively.
Handy and Harman's and the Treasury's prices were unchanged at 34-3/44 and
35# respectively.
Regraded Uclassified
- 3 -
We made eight purchases of silver totaling 510,921 ounces under the
Silver Purchase Act. of this amount, 260,921 ounces were purchased on a spot
delivery basis and were of the following types: inventory silver - 200,000
ounces, trading silver - 31,000 ounces and new production - 29,921 ounces.
The remaining 250,000 ounces consisted of new production from foreign countries,
for forward delivery.
Mr. Knoke told me by telephone yesterday of the following changes in
Russian balances with the Chase Bank from February 28 to March 8. Deposits of
the Russian State Bank with the Chase rose from $2,200,000 to $2,700,000.
Letters of Credit of the Russian State Bank declined from $7,000,000 to
$6,000,000. The Amtorg's cash balances remained fixed at $1,700,000; Amtorg's
Letters of Credit rose from $2,200,000 to $2,500,000. The largest in-payments
into the Russian State Bank account resulted from transfers made by the Swiss
Bank Corporation, totaling $3,700,000 (which may perhaps be accredited to
Russian gold sales in Switzerland); $175,000 was paid in by Amtorg. On the
debit side, $1,650,000 was paid out by the Russian State Bank to Amtorg.
There were also two payments to the Rotterdam Bank totaling $475,000; &
transfer to the Letters of Credit account amounting to $990,000; and one
payment of $150,000 to the Eesti Pank,
m/8
CONFIDENTIAL
Regraded Uclassifie
49
GROUP MEETING
March 14, 1940.
9:30 a.m.
Present:
Mr. Gaston
Mr. Foley
Mr. Cotton
Mr. Harris
Mr. Thompson
Mr. Cochran
Mr. Graves
Mr. White
Mr. Sullivan
Mr. Schwarz
Mr. Bell
Mrs Klotz
H.M.Jr:
I have got an idea and I would like you all
to listen closely. It seems to me that with
this peace in Finland that we here in the
Treasury have got an opportunity of really
doing B. constructive piece of work. In the
first place - what I am going to say is very
confidential - RS far as I know, I think we
have the whole gold supply of Finland here,
haven't we?
Cochran:
Yes, sir.
R.M.Jr:
Now, there is all this talk about gold and what
is going to happen if and when there is peace.
Well, here if they have peace we have got the
gold and they have got a 20 million dollar loan
which, I take it, they haven't spent. It seems
to me there is a possibility, maybe, of getting
Mr. Tanner over here or Mr. Ryti and sit down
and work out & comprehensive plan of reconstruction
for Finland, not only possibly with the loan against
their gold, or something working out B. pattern which
might be followed later on for these other coun-
tries and showing them what we are willing to do
as a reconstruction matter, and I think it is a
challenge to the best brains, not only in the
Treasury, but the best brains anywhere in this
country, particularly in view of the fact that
we have got practically the whole gold supply
of Finland In this country, and I would like
you all to think about it. I don't expect you
all to spout at one time, but if between now and
tomorrow - naturally, Procope is in no shape to
do any talking at this time. The fellow 1s most
likely too down and out, but I would like to
Regraded Uclassifie
50
- 2 -
see him in a day or two if he has & suggestion.
Both Tanner and Ryti are people who are finan-
cially minded and they know this thing and I
am sure they haven't spent the loan yet on the
Export-Import Bank.
Cotton:
Very little of it.
H.M.Jr:
And if we could get word to them now, don't
just go ahead and spend this thing without a
plan. Whatever they had in mind must be dif-
ferent now. I think it is B. real challenge.
Now, over in the State Department they are
working on a purely theoretical basis of what
they are going to do after - and here it seems
to me is really an opportunity to demonstrate
to the world what we are willing to do to help
the country reconstruct itself. We could cer-
tainly lend them money against their gold,
couldn't we?
Cochran:
That could be done, yes.
H.V.Jr:
I would like to see the gold go back to Finland,
that is what I would like to see, have it move
out, go back. If they have enough confidence
when the war is over, the gold can go back to
the origin where it belongs, and I think that
would have a good effect.
Cochran:
of course, they didn't keep all their gold in
Finland at any time.
H.M.Jr:
We certainly could make them a loan against it.
Cochran:
Yes, but that doesn't do them & great deal of
good, that loan.
H.M.Jr:
Well, I am asking for ideas. Here 18 a chance.
Everybody sits around and nobody did much of
anything to help them when they were fighting.
Now, how about our helping them when there is
peace?
Cochran:
I think there may be a chance in a number of
countries to use much bigger funds than we have
available now. Export-Import Bank hasn't much
to go on with Latin America, for instance, now,
and there will be other countries to help out.
Regraded Uclassified
51
- 3 -
E.V.Jr:
Well, the Latin American thing just doesn't
interest me at this time, but this thing is
a challenge.
White:
I think that is a very excellent idea, not
only for what you may be able to do for them,
as what we may be able to do, as you say, set
& pattern and hold out a promise to other coun-
tries as to what may be done and also make
Congress a little more minded in that direction.
It should be easy to work out something there,
because it takes very little money. It is a
very small country with & few million people
and they start with El good credit and with peace
that looks as though it might be sustained. I
think it has excellent prospects.
H.M.Jr:
Let me throw out an idea. One of the biggest
things that they have is their Consumer Coopera-
tives which are & well-run, going concern.
Supposing they wanted a. loan of 25 million dol-
lars for reconstruction. I mean, the whole
Consumer Cooperative is & wonderful, going con-
cern. I am a little confused - I think that
this fine building - I think it was in Helsinki.
Does anybody here know? It is the finest build-
ing in Helsinki. It is that liquor monopoly,
isn't it?
Cochran:
That is right.
E.F.Jr:
Am I right?
Cochran:
Yes, sir.
E.R.Jr:
Supposing that wonderful building, say, which
they had was destroyed and the liquor monopoly
wants to rebuild that building. It most likely
was bombed and they want to borrow 8. couple of
million dollars to reconstruct that and pledge
part of their taxes against it. There are so
many things which can be done. That great big
building was done by the same architect that
did the railroad station, wasn't it?
Cochran:
I am not sure. It looks like the same style.
H.M.Jr:
It 1a the man who won the --
Regraded Uclassified
52
- 4 -
Baston:
Saarinen.
H.V.Jr:
That is it. Why, it just covers blocks, you
see, that liquor monopoly building.
Gaston:
It would be a fine idea to get them over here
if they are willing to come, just to talk the
situation over.
White:
I think that far more important and the thing
which suggests great responsibilities lies in
a different aspect of 1t, which I am sure lies
in the back of your mind, and that is that that
can be the one big ray of hope that you can
throw on the whole of Europe, that they know
that when this thing is over, they know that
America is interested in a disinterested way,
as far as medium long interests are concerned.
She has enormous capital and she has the oppor-
tunity of setting the kind of pattern in this
small country which can completely change -
not completely, but will go a long step toward
changing their outlook as to what they may ex-
pect after this war is over.
H.R.Jr:
That is what I said, Harry. You are just re-
peating.
White:
Well, if I am, I merely --
H.M.Jr:
Then, it is repeated twice more. The point is --
White:
That is the best form of flattery.
R.E.Jr:
Well, thank you.
White:
I didn't mean to say it was original. I was
thinking aloud.
H.M.Jr:
Well, don't think. I mean, that they are groping
over here in the State Department for something,
but here you can demonstrate and as I say, partly
private capital, and so forth and so on, but I
would love to get & plan and get either Ryti or
Tanner or both of them over here on a mission.
Caston:
I should be inclined to wait B. little bit from
that point of view, Mr. Secretary, until the
Regraded Uclassified
53
- 5 -
Government 1s a little clearer - it is a little
clearer as to who 1s going to be the Government.
I don't know to what extent we are getting a
clear picture of the social changes there.
H.V.Jr:
Wait a minute, if you can hold out something to
Ryti and Tanner, it gives them 8. chance to stay
in.
Schwarz:
The one you --
B.H.Jr:
I can't give myself to illustrate what I mean.
This Welles mission has so upset the people of
France that Daladier for the first time is
shaky and the same thing, if Tanner and Ryti
come over to meet our reconstruction people,
they can stay in and I know those men and they
are damn good men.
White:
I wasn't thinking of their personal competence,
I was merely thinking - I can see where 8. re-
quest can 80 to the Government but to go to
any individuals until there is B. little more
assurance as to what 1s going to emerge from
what must be & very considerable political
destruction which must be going on --
E.V.Jr:
If these fellows are licked, have got nothing
to offer the people, they go down. Then the
next group that will come in will be Soviet-
minded and I won't want to do business with
them, but if these kind of people say yes,
we did the best - the United States is going
to come now and give them a chance to carry
on, if they don't, the people who go in will
be people who are close to the Soviet Govern-
ment. There is another reason why we should
make the loan.
Cochran:
There is one more reason, may I suggest. In
this morning's paper is a story about the
possibility of structive help from Sweden.
Did you see that, about funds coming from
Sweden to help the Finns in the reconstruction?
H.M.Jr:
Look at it from another engle. All the people
of the United States are looking for a place
to invest. Well now, if they sold three, four,
Iclassifie
54
- 6 -
five, ten million dollars to reconstruct the
warehouses of the liquor monopoly in Finland
and they want to sell those bonds in this
country against that thing and they have paid
five percent for the money, it ought to be 8.
very good investment.
Cochran:
Their bonds jumped about 12 points yesterday.
E.H.Jr:
And 18} the day before. That is 30 points.
White:
What I would like to see included in that,
not because of its importance to Finland at
all but because of its importance to us and
its importance of the possible pattern, is B,
monetary gold loan which by the very condi-
tions which we will set up the gold will not
be likely to be used but will be there pre-
sumably and actually to strengthen and buttress
their currency, which is very different from
the ordinary loan which will be spent and the
gold doesn't leave this country. That is the
gold along with the other, not by itself, but
as part of B. program. If we could get that
concept of a monetary loan in which the gold
will not be spent except seasonal movements
and cyclical slight amounts, it can be worked
out so that we can have a pattern for lending
our gold and earning assets on it and exporting
other currencies, increasing the prestige of
gold and eliminating all this talk about its
future uselessness.
E.N.Jr:
I think it is an opportunity and I am tickled
to death that I happened to think of it. That
is being human, isn't 1t?
Gaston:
Yes.
Schwarz:
One unanimous reaction yesterday that cut through
all shades of opinion was that chagrin on the
part of the Americans that we had done a lot of
talking and got tied up on the Hill.
H.M.Jr:
Well now, you people know how I guard this
stabilization fund and how I feel about it,
being trustee of it, but on a thing like this,
Regraded Uclassified
55
- 7 -
I would be willing to go up to the Hill and
talk about it, making a stabilization fund
loan, provided that Congress would pass an
Act authorizing it.
White:
That is just what it should be used for, under
those conditions.
H.M.Jr:
I would be willing to go up and say to Congress,
"Now, here is the thing and this is the kind of
thing that I think it could be used for."
White:
As a part of the larger program, merely as &
part of the larger program.
H.M.Jr:
As a part of the whole thing.
White:
I think something can be worked out very well.
H.M.Jr:
Well, get busy, everybody.
White:
Well, everybody isn't going to get busy, Mr.
Secretary, unless you specifically want us to.
H.N.Jr:
It falls under your branch, Harry.
White:
Well, supposing we do this. Supposing we get -
draw up some kind of & preliminary plan and I
will call 8. meeting of those who are apt to be
interested in it and then see if we can push
it a little bit further and then we will bring
it to you and keep bringing it back and forth.
H.M.Jr:
I would like to do something before Sunday .
Gaston:
Why not have the Minister to Finland get us a
good report about the reconstruction needs
through the State Department?
H.M.Jr:
I don't want to tip my hand.
Gaston:
We haven't anybody there.
White:
We have got a very rough idea of what they may
need without knowing the individual losses. I
think the pattern wouldn't make much difference
as to whether the amount is a few million more
Uclassifie
56
- 8 -
or less and whether the construction is in
one part of the country or another, but I
think that will be an essential part of the
picture after we see what can be worked out
here. We know enough about their finances,
I think, to proceed on a preliminary basis,
but only on 8. preliminary basis. But I think
we need a little more information, unless you
have it, Mr. Secretary, on what the Government
set-up is, because it seems to be pretty shaky.
H.M.Jr:
Anyway, Harry, I will hold you responsible. Go
to it and we will work on it Saturday and Sun-
day.
White:
All right.
H.M.Jr:
Let's get something constructive around here.
Dan, the other memo I got is, we must have
pretty well sold all our Government bonds that
you have on order.
Bell:
Yes, I think there is about $300,000 left.
H.M.Jr:
I want to see you today.
Bell:
I have got on my agenda --
H.M.Jr:
You are coming in at 11:30, unless you have a
meeting?
Bell:
No.
H.M.Jr:
Have you got a meeting?
Hell:
No. That is for what, this?
H.M.Jr:
This, baby bonds. And then those people who are
working on Bank of America, if they will stay
behind I want to talk to them about it.
Norman?
Thompson:
I have a report from Mr. Harris of the shooting
down on the Mexican border. Apparently a Mexican
tried to cross the river. Two Customs Inspectors
saw him and went back to question him and the
Regraded Uclassified
57
- 9 -
man dropped down below the river bank and opened
fire. They returned the fire and the Mexican
was wounded. That seems to be about all there
is to it.
H.M.Jr:
Two Customs Guards only could wound one Mexican?
Somebody ought to get fired.
Klotz:
He started firing first.
H.M.Jr:
What is the matter with your boys, Basil?
Harris:
I guess that is all there were in the vicinity.
Gaston:
We ought to give them hand grenades when they
get down in the trenches.
H.M.Jr:
I am surprised. Border patrol. Two against one
poor little Mexican and they only wounded him.
Thompson:
It doesn't say.
Foley:
What evidence have you got that the Mexican opened
fire first?
Gaston:
We say so. Isn't that enough?
Thompson:
The Treasury Appropriations bill is moving along
a little further. The conferees yesterday agreed
on appropriating three million dollars for
strategic materials rather than the five million
dollars immediately available under a proviso.
They didn't cut the appropriation originally pro-
vided, but they cut the five to three, the amount
of money available.
H.M.Jr:
Dan?
Bell:
The only thing I have is the copy of the telegram
which Giannini sent Delano this morning.
H.M.Jr:
Right after this meeting. I don't know about it.
Bell:
All right.
H.M.Jr:
Is it juicy?
Bell:
It is very good. I will read it if you want me
to.
Regraded Uclassified
58
- 10 -
H.M.Jr:
Let's wait.
Harold?
Graves:
Nothing.
H.M.Jr:
Harry?
White:
We have this foreign economic development
semi-weekly thing (March 12).
H.K.Jr:
Send it up to the house, will you?
White:
I will, and this estimated impact of foreign
transactions on domestic activity. (March 9)
You didn't take that up.
R.M.Jr:
I want you (Cotton) to get in on this thing,
too, on this Finnish business.
Harry, I want Joe in on this thing.
White:
This Consulate dispatch on Russian gold to Ger-
many (January 26) is the reaction of the people
in Switzerland and in France and their explanation
of this indicates that they are slightly worried
lest anybody interfere with the efficacy of gold,
so they are always eager to point out that you
can't distinguish between one gold and another
and therefore there is no reasonable hope of
discriminating against it and the same thing is
true of the more complete discussion of gold which
appeared in the French medium. Those articles
are an attempt to strengthen the prestige of gold.
The few articles that we have seen coming out of
Germany are to the contrary.
H.M.Jr:
Are you giving me something to read on that?
White:
Well, you gave 1t to me, some Consulate dispatches
which you asked me to comment on.
H.M.Jr:
All right. Well, it is just the flow in that
thing to get ready for that statement we are
going to give out.
White:
Oh, I see.
Regraded Uclassified
59
- 11 -
H.M.Jr:
I just read it and I don't know what you
get and what you don't get and hurry up on
that gold statement, too, will you?
White:
Well.... There 1s information that London
is making a 20 million dollar loan to the
Canadian Government. Sterling, free market,
as you know, has dropped way down. I don't
know whether it rose again this morning or
not.
Cochran:
It came back a little bit.
White:
What is it now?
Cochran:
It opened at 3.73 and it has come back to
3.74
White:
Again the question is raised. This time there
are more comments in the paper, as that is an
interesting device to promote those exports in
which they compete with other countries and
demanding dollar exchange for the things which
they don't compete. Now, I am in favor of
examining a little more carefully the total
amount of transactions which may be taking
place here and elsewhere.
H.M.Jr:
Take this, Harry (handing clipping to Mr. White).
You may not have seen lt.
White:
This matter of the Vandenberg trade bill is
coming up and they have asked the Treasury
to comment on it. It 19 an extremely important
bill. I didn't know whether it has any chance
or not, but it has a lot of good points. It
has some undesirable ones. They have asked the
Treasury to comment on it. Is it your thought
that you want to get in that at all?
H.M.Jr:
No.
White:
Just give a noncommittal reply?
H.M.Jr:
Trade bill?
White:
It is called a bill creating a foreign trade
board. It means the abolition of the tariff.
Regraded Uclassified
60
- 12 -
H.M.Jr:
I don't want to get in on it.
White:
Then you want B. noncommittal reply except
where it affects Treasury activities?
H.M.Jr:
Yes,
White:
There is this note that Chick called my atten-
tion to. It 1s rather interesting. Apparently
somebody is trying to start an American Invest-
ment Trust to buy bonds of Latin American coun-
tries, securities of Latin American countries.
According to this report the intention - one
of the objectives is to buy securities of the
British - which the British Government now hold
and thereby give them foreign exchange. In
other words, we buy their securities through
the investment trust. This matter of the Inter-
American Bank and the comments of the Federal
Reserve Bank. I take 1t, it is your thou ht
that we don't have to comment on that, it is
up to the State Department.
H.M.Jr:
Yes. I think somebody pulled E. Louie Johnson
on ne yesterday. When I left - I want you to
back me up on this, Ed - when you and I left
that meeting yesterday with Harry White and the
others, who was to testify?
White:
Secretary Morgenthau, wasn't it?
Foley:
Harry White.
E.M.Jr:
You bet your life, and five minutes after we left
there it is out on the ticker that by & telephone
call arrangement, I am to testify. Now, who
pulled a Louie Johnson on me?
Schwarz:
Mr. Townsend.
White:
I should say that 1s a proper appreciation of
who should testify.
Foley:
Have you heard from anybody?
H.M.Jr:
No, but here it is. The telephone call was
supposed to have been made. When you and I
left there, they all agreed as to the wisdom
and clearsightedness and constructive sugges-
tions that the one person in Washington to
Regraded Uclassified
61
- 13 -
testify was White and Pittman. Now I read in
the paper I am to testify. What I want to know
is, who pulled a Louie Johnson on me.
White:
I slipped out of Pittman's bed and made room
for you.
H.M.Jr:
Here is the thing. What about this? My under-
standing was that it was Harry who was the goat.
Foley:
That was my understanding, too. I think they
had EL little trouble with Townsend and I under-
stand that Townsend said that Harry would be
nice but that they would like to have you, too,
but that certainly wasn't the understanding and
I figured that unless you heard directly from
Wagner they didn't expect you would personally
come down.
H.M.Jr:
Well, we have got to do something. We have got
to do something in this way, that when it comes
to be Tuesday I have got to be busy and then
Thursday night I get on the train and that gives
us another ten-day breathing spell.
Foley:
That is right, and Harry goes down in the mean-
time.
H.M.Jr:
That is the idea.
Schwarz:
Are you going to tell the boys this morning?
H.M.Jr:
I will just say I haven't heard anything.
White:
I suspect that won't satisfy them. What Town-
send wants is a statement out of you.
Foley:
I think that is probably true, but we can try
it anyway.
White:
An alternative may be in the way to get out of
it if they insist on that is for the Secretary
to send up a prepared statement which can be -
and then if there are any explanations the rest
of us can go up --
H.M.Jr:
Well, we will just have to do a little more
kidding around and kind of postpone the thing.
Regraded Uclassifie
62
- 14 -
You are pretty good on silver, Herbert.
Gaston:
That is a secret.
H.M.Jr:
You used to be pretty good. You used to hold
up Oliphant's hand on this thing. Why don't
you go up? Didn't you? You used to believe
in all that stuff.
Gaston:
Well, I don't think I should go up myself.
Foley:
The record is very funny on that. When the
bill came up originally, you (H.M.Jr) made
a prepared statement or read a prepared state-
ment and then you excused yourself and left
Mr. Oliphant down there and he and Pittman
had had conferences before that and Pittman
thought he could give a clearer explanation
in the use of silver than anybody in town.
You left him there and they began to ask him
questions.
H.M.JF:
Who?
Foley:
Mr. Oliphant. All he would say is, "I am not
a technician."
"The technicians will have to
answer that. "That is not legal, I don't know
the answer to that, " and "That is a policy ques-
tion and I have nothing to do with policy."
He never said a word. He just fenced.
H.M.Jr:
Well, what did Harry call you yesterday?
Foley:
A finagler.
H.M.Jr:
Well, do EL little of that.
Basil?
Harris:
Nothing.
H.M.Jr:
Chick?
Schwarz:
I might call attention to the death of Seymour
Lowman. He is & former Assistant Secretary.
H.M.Jr:
Elmira, New York.
Regraded Uclassified
63
- 15 -
Bell:
Former Lieutenant Governor, too, wasn't he?
H.M.Jr:
I knew Seymour.
Schwarz:
The story is in the morning paper.
H.M.Jr:
What should we do? Shall I send the letter,
form letter 110A?
Schwarz:
That is right.
H.M.Jr:
Anything else?
Schwarz:
No.
H.M.Jr:
Joe?
Cotton:
On this Finnish thing, it may be interesting
that this 20 million dollar additional credit
of the Export-Import Bank is a firm commitment.
It was done in such a way - I think Mr. Jones
didn't want to - it is an allocation, so the
character of it could be changed quite easily
and it may fit in with something we could work
on.
H.M.Jr:
Merle?
Cochran:
Nothing.
H.M.Jr:
Ed?
Foley:
Now that Basil is here, I think I had better bring
up again this question of the abolition of the
Surveyors and the Comptrollers of Customs. As
Basil knows, the Ways and Means Committee is
quite irate about our attempt through the
Appropriations Committee to cut off the appro-
priations for those jobs. They said that when
years ago we attempted to abolish the jobs
by the direct route, they opposed the legislation
and killed it in committee and they expect
Treasury to contact them on matters of that
kind and not go down in back to the Appropriations
Committee. Part of this next reorganization plan
is the abolition of those positions by Executive
Order. They don't know anything about that.
Regraded Uclassified
64
- 16 -
The Executive Order is over in the Director
of the Budget's office now. I think we are
going to have an explosion when they find
that out. Perhaps in the interest of harmony,
it might be best to withdraw that provision
in the next reorganization plan at this time.
H.H.Jr:
Maybe Mr. Harris could find as good a reason
for withdrawing this as he did in the Tennessee
matter.
Poley:
I think he has got & better one. He hasn't got
just McKellar here, he has got the whole com-
mittee.
H.H.Jr:
What do you think, Basil?
Harris:
I think there is a lot in what Ed says. I
think it is loaded with dynamite, all right,
but on the other hand, what I am afraid of,
Mr. Secretary, is if it ever gets out that
these men are being paid large salaries and in
some cases they haven't even been in their
offices for three and a half years, I think
you are going to be leaving yourself in a very
unenviable position and I just don't know quite
how to proceed on it. The record is very, very
bad. In one case, one man for seven years has
been in the office once & month where he comes
to draw his pay.
H.K.Jr:
Well, that could be handled E.B. an individual
case.
Poley:
May I make a suggestion?
Harris:
There are seven of these fellows.
Foley:
It might be helpful if you talked with Cullen
and McCormick and Dingell and these other
fellows who represent districts --
H.M.Jr:
May I interrupt? You and Basil get together
and keep Norman Thompson posted, see, and the
two of you handle it. Any way you handle it,
I will okay it. I don't want to be bothered
with it. You fellows handle 1t and whatever
you do, I will back you up. That is fair enough,
isn't it?
65
- 17 -
Foley:
0. K.
H.M.Jr:
Just handle it. It is 8. matter involving - just
go ahead and handle it and keep Norman Thompson
posted and whatever you do, it is okay with me.
Foley:
What I would like you to do now is get you to
sign this letter to Smith recalling the Executive
Order.
H.M.Jr:
See him afterward and fix it up.
Foley:
O. K.
I talked with Sam Clark about the Maney and Perini
cases in Boston and they are going ahead. There
are political implications involved and I think
you ought to know about them.
H.M.Jr:
Must I?
Foley:
Well, I think you ought to.
H.M.Jr:
You want me to share it with you?
Foley:
You may hear about 1t first. Maney and Perini
were a couple of thugs.-
H.M.Jr:
That is marvelous, Maney and Perini.
Foley:
They are contractors in Boston.
H.M.Jr:
I am against them, just because I don't like
the names.
Foley:
Starting out immediately after the Jackson Day
dinner in 1936, they began to take out of the
corporation funds which they have accumulated
and eventually donated to the National Com-
mittee. They claim they gave it to Forbes
Morgan. The records of the Committee don't re-
veal the receipt of the contribution. They
jiggled the books in such a way to show that
this was FL business expense and truck hire and
they deducted it from their income tax returns
for that year. It is quite obvious that what
they were trying to do was to make up this
campaign contribution by & method which would
exempt it from tax and I think it is a pretty
Regraded Uclassified
66
- 18 -
clear case and it is one that we have to go
ahead on and that is what we have decided to
do. Now, Forbes Morgan is dead.
H.M.Jr:
Is that right? Is he dead?
Foley:
We have got B. Collector of Customs up there
in Boston who isn't dead.
Harris:
He is half dead.
Foley:
In the case involved here, he is supposed to
have suggested to these fellows this method
for arriving at it.
Harris:
I don't think he has been in for three and 8.
half years, that fellow.
Foley:
And they claim that they talked to Steve Gib-
bons about it, also. I think unless there is
some kind of a fix that we will get a con-
viction without any difficulty at all, but it
is possible that you may hear about it from
the politicians.
H.M.Jr:
Now, you talked to me about this once before,
you know. You told me all about it at the
time and you said you thought that they were
trying to keep the department - scare the
Department of Justice off by telling them
that they made & 850,000 contribution to Forbes
Morgan. My answer at that time was to 50 ahead
and my answer now is the same.
Foley:
The case is going back to Brandon --
H.M.Jr:
I know all about it and if anybody wants to
come around and see me, I am here. 0. K.T
That is what you want, isn't it?
Foley:
That is right.
H.M.Jr:
All right. What else?
Foley:
Nothing else.
H.M.Jr:
Does Bob Jackson know that?
Foley:
I assume he does.
Regraded Uclassified
67
- 19 -
H.M.Jr:
I hope so.
Foley:
And so does Jim Farley and he may not be too
pleased about it. There is nothing we can do.
Gaston:
We held a large meeting yesterday on the
weather ships and I can give you a memorandum
about it if you like.
H.M.Jr:
You are handling it?
Gasten:
Yes, we expect to appear jointly before the
Budget and ask them if they can find some
way to recondition some ships that can be
used on that service in place of the cutters.
Everybody is together on the thing except
possibly Civil Aeronautics. They are a little
bit sulky about it.
H.M.Jr:
What did you do for Professor Nelson?
Caston:
I had EL very nice scientific chat with him.
He is very anxious to reinstate that magnetic
and geologic expedition to the South Seas and
all I told him was it was clearly impossible
until we got our cutters relieved from the
weather service and I didn't know 1f it would
be possible then, but I would go into it and
it looked like a very good thing and if we
could spare a cutter for the purpose we would
like to do 1t, but I didn't know whether we
could or not.
H.M.Jr:
All right, gentlemen, thank you.
Regraded Uclassified
68
March 14, 1940.
2:20 p.m.
H.M.Jr:
Hello.
Operator:
Captain Collins.
Cantain
Collins:
Hello Mr. Secretary.
H.M.Jr:
Collins?
C:
Yes sir.
H.M.Jr:
Edison and Woodring were here for lunch.
C:
Yes sir.
H.M.Jr:
And Edison says he won't move on this powder, until
he got it from the President and from me.
C:
Yes sir.
H.M.Jr:
Now what 1s the situation on that six hundred
thousand they were to release from, I don't know -
was it DuPont or Hercules?
C:
DuPont.
H.M.Jr:
DuPont.
C:
They were to return their six hundred thousand to
the Navy.
H.M.Jr:
Who was?
C:
The Army.
H.M.Jr:
That's happened.
C:
Uh?
H.M.Jr:
That's been done.
C:
Well that's all there was to it.
H.M.Jr:
Yes, but Edison won't release it to the English.
C:
Oh well, no. I know - - that's another deal again
probably.
H.M.Jr:
Oh you aren't in on that?
C:
No, I wasn't in on that release.
Regraded Uclassified
69
- 2 -
H.M.Jr:
Well I've got it here in writing.
0:
Yes.
H.M.Jr:
I mean the Army has released all credit.
0:
Yes. For one million two, wasn't it?
H.M.Jr:
That's right. And they had, 80 to speak, an option
on the Navy, six hundred thousand.
C:
That's right.
M.M.Jr:
But now I went the Navy to tell DuPont that the
English can have that six hundred thousand.
C:
All right, I'll 20 after that.
H.M.Jr:
No, no, you'd better let me do it.
C:
All right sir.
H.N.Jr:
Because Edison won't take it from anybody but from
me.
C:
All right.
H.V.Jr:
I just wondered if he'd said he wouldn't.
0:
Yes sir.
H.M.Jr:
So he said he wants it direct from the President end
from me.
C:
Yes sir.
H.V.Jr:
Now I'll get hold of Watson and tell him to ask him
once more, call Edison and say that that six hundred
thousand now belongs to the English.
C:
All right sir.
H.M.Jr:
And I had & good lundh with Woodring and he says he's
working on a plan to - whereby the English and French
can get what they need, but he said he can't tell
me about It until next week.
C:
All right, I've got the inkling of that, and I want
to talk to you about it some time at your convenience.
Arnold and Brett were down here today.
Regraded Uclassified
70
- 3 -
R.M.Jr:
Yes.
C:
And of course I had to swear I wouldn't break it.
Well I'm not breaking it when I talk to you about
it.
H.N.Jr:
No.
C:
So, it's about ninety per cent logical.
M.M.Jr:
'Tis. What 18 it anyway. This wire is all right.
0:
All right. Well, the deal is simply this that
if they could recover, the Army could recover the
development costs that they have out up, why that
would give them a basis for conversation with the
people on the Hill and with anybody else who might
be critical.
H.M.Jr:
I see.
C:
Now the effect of that is this. It would be a
three way agreement. The agreement would have to
be with a manufacturer who would agree to accept
2. change order and credit you see and some
succeeding model with the amount of what should
be charged by him to the foreign Governments buying
the released plane.
Y.".Jr:
How much does the development money amount to?
0:
Oh well, that runs all sorts of figures with
different people and different contracts.
F.M.Jr:
Well I mean what would be an outside figure?
C:
Mr. Secretary, you've naked me e. question there,
because there's approximately two million five
I believe in this Allison 17-10 alone.
H.M.Jr:
Well that isn't much.
C:
oh, of course, no. In consideration of the total
amounts from signed contracts the amounts of money
are small.
H.M.Jr:
Two and a half million's nothing as far 88 -
C:
Oh no, well I cite that. That's only one case.
That's on the 17-10.
H.M.Jr:
Yes.
Regraded Uclassified
71
- 1. -
0:
The effect of that would be also this. I think
it can be worked out by formula, mathematically,
so 88 to relieve the manufacturers of the big
sums of money which they've out in the development
of a new plane for instance, which runs anywhere
from four-fifty to nine hundred thousand dollars.
H.V.Jr:
Well that would please the manufacturer.
C:
It would tickle him to death. At the same time it
would give these people, give the farmers access
to what's existent now, and the only catch to It
would be 8 promise on the part of the 'acturer
that he would give out something better than was
being released from B. restricted item.
H.V.Jr:
Well Woodring wants to get this straightened out
before Wednesday, before he testifies, and he's
coming back to see me, with Edison, at cuarter of
nine on Tuesday.
0:
Tuesday, next week.
H.M.Jr:
And he sent for three men from Dayton.
0:
Yes sir.
H.V.Jr:
And they're talking it over, see?
0:
Yes sir.
H.V.Jr:
Now, of course this is all between you and me.
C:
That's right.
H.V.Jr:
The thing that Woodring told me which amused me.
It may be true, that it was he who worked out the
1dea last year that they could have these planes
off the drawing board because they were not in the
competition for the Army.
0:
That isn't 80.
H.M.Jr:
Well that's what he said.
C:
Well that isn't so because we know that Douglas
entered his plane in competition and we know that
the first plane that was turned out - the first
Martin 7-B flew right from the plant to Dayton,
for the company.
Regraded Uclassified
72
- 5 -
H.M.Jr:
Well I'm just telling you what he said.
C:
Yes, sir. Well I'm just telling you the other
side of it.
H.M.Jr:
He said it was his idea.
C:
Yes sir.
H.K.Jr:
O. Y. Now I'll handle the powder thing once more
with Watson.
C:
Yes sir.
H.M.Jr:
And tell him that it's back again in the hands of
the Navy and please tell the Mavy to tell DuPont
that the English can have it.
C:
Aye, aye, sir.
H.M.Jr:
It is DuPont isn't it?
C:
That's right.
H.M.Jr:
Okey doke.
C:
All right, sir.
H.V.Jr:
Thank you.
0:
And listen, any time you want to TO in a little
further with this, they've promised to talk to
me in forty-eight hours. I wanted to get word to
you that I was sitting down with Arnold and Brett.
H.M.Jr:
Good.
C:
So this is on D take down your hair basis, see?
And I was pulling my shots and let them do the
firing.
H.M.Jr:
Yes.
C:
And he said, "You agree to that do you", and I
said, "I agree to anything that'll promote the
World Fair, the Air Corps, the Army, yes". I said,
"If this is the dope, then I'm thoroughly in
accord with it. If
H.M.Jr:
Good.
Regraded
Uclassifi
73
- 6 -
C:
So he said, "Well now, that's what we wanted to
know".
H.M.Jr:
Yes.
C:
"Well," I said, "You know that". I said, "Now when
do we sit down". "Well, # he said, "this matter has
come up the line, this Woodring deal, has come
UD from somebody down the line and Brett has been
toying with this 1dea, but didn't know how to get
1t down into words".
H.M.Jr:
I see.
C:
So they're going back now. They talked about an
hour on this thing this morning.
H.M.Jr:
Good.
C:
And Arnold was very pleased, and he said that he
feared that there was only one other step of it,
he said that the Treasury might step in and ruin
them. And I said, "How".
H.M.Jr:
Who would ruin them?
0:
The Treasury. I said, "HOW?" "Well", he said,
"If there's a case of passing money back, then
the Treasury may want to impound that in
miscellaneous receipts". "Well", I said, "My God,
you're not passing any money back". I said,
"These people here will have to, the manufacturers
will have to finance it and the moment they accept
the change order, why that's that".
H.M.Jr:
Yes.
C:
So be said, "Well that's B. swell idea". So they're
working the thing un now.
H.M.Jr:
Good.
C:
And I hope to hear something from them, say by
Saturday.
H.M.Jr:
Well now are they meeting this afternoon with
the Allies?
C:
Oh they're all outside in my office, outside
office now, the meeting takes in at two-thirty.
Regraded
74
- 7 -
H.M.Jr:
And does Arnold sit in on that?
C:
No, he's - Brett's going to bat for him. Of
course Arnold had to RO back up on the Hill.
H.M.Jr:
I see.
C:
General Brett.
H.M.Jr:
I see. Incidentally Woodring says he thinks
Brett, he's a good man.
C:
I think that's true.
H.M.Jr:
O.K.
C:
All right.
H.M.Jr:
Thank you.
C:
You're welcome. Thank you sir.
75
TREASURY department Hruse
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON
March 14, 1940
MEMORANDUM FOR THE SECRETARY
There is attached hereto a statement showing the status of the
French contracts as of February 29th with reference to airplanes,
engines and miscellaneous equipment.
The above equipment represents contracts aggregating $308,899,360.00
of which amount $171,075,652 has been paid. This amount represents
both advance and delivery payments.
Chairman, Committee
President's Liaison
att.
Regraded Uclassi
AIRPLANES
76
Complete
Contractor
Description
Ordered
Delivered
Delivery
Curtiss-Wright Corporation
1 engine Pursuit 75-A
200
200
-
"
#
1 engine Pursuit 75-A
20
0
June 30, 1940
st
If
If
If "
If
If
530
20
Dec., 1940
1 engine Pursuit P-40
100
0
=
If
North American Aviation, Inc.
Basic Trainer
230
230
Nov. 15, 1939
#
"
If
"
11
If
230
5
September, 1940
United Aircraft Corporation
Chance-Vought Division
Dive Bomber V-156
40
40
Nov. 30, 1939
United Aircraft Corporation
Chance-Vought Division
II
If
If
50
o
March, 1941
Glenn L. Martin Company
2 engine Bomber 167-F
215
215
Dec. 31, 1939
#
#
If
11
= If
11
"
130
0
June, 1940
Douglas Aircraft Company, Inc.
2 engine Bomber DB7-A
100
84
Jan. 31, 1940
If
If
"
=
" If
"
"
170
o
Aug. 31, 1940
#
II
#
=
"
If
"
=
2600 Wright
100
0
Dec. 31, 1940
Consolidated Aircraft Corp.
2 engine Boats 28/5MF
30
o
May 31, 1941
2,145
794
Feb. 29, 1940 (F)
ENGINES
Contractor
77
Complete
Description
Ordered
Delivered
Delivery
Curtiss-Wright Corporation
GR-2600 Twin Cyclone
42
32
Mar. 15, 1940
Curtiss-Wright Corporation
Wright Aeronautical
If
"
#
If
1,440
0
Dec. 31, 1940
Curtiss-Wright Corporation
GR-1820 Cyclone
28
0
Dec. 31, 1940
If
If
If
If
=
455
3
Dec. 31, 1940
United Aircraft Corporation
Pratt & Whitney Division
1830 Twin Wasp
1
0
March, 1940
If
"
"
If
"
If
"
1,821
1,657
July, 1940
11
If
=
If
If
If
"
90
0
February, 1941
It
"
#
11
"
"
If
, 2 speed
2,025
0
Dec., 1940
If
If
"
#
If
If
"
If
#
6
0
Dec. 31, 1940
#
#
"
If
1535 Twin Wasp, Jr.
1,100
82
Dec., 1940
If
If
If
If
R-2800, Double Wasp
150
0
Dec., 1940
If
#
"
If
1340, Single Wasp
200
0
April, 1941
North American Aviation, Inc.
CW R-975 E3, Single Row Whirlwind
450 HP
115
71
May 31, 1940
"
11
#
If
If
If
#
If
If
"
45
0
Nov., 1940
General Motors Corporation
Allison V-1710
115
o
Oct. 31, 1940
13
"
"
=
"
700
o
July, 1941
8,333
1,845
Feb. 29, 1940 (F)
78
PROPELLERS
Complete
Contractor
Description
Ordered
Delivered
Delivery
United Aircraft Corporation
Hamilton Division
Standard
350
265
April 30, 1940
If
200
200
Jan. 31, 1940
Hydromatic
36
6
May 31, 1940
Standard
450
30
July 31, 1940
If
600
0
Dec. 31, 1940
If
900
0
Jan. 31, 1941
Hydromatic
905
0
Jan 31, 1941
If
90
0
Feb. 28, 1941
Curtiss-Wright Corporation
Hydromatic
2,377
0
Feb. 28, 1941
Hydromatic Blades
180
0
Aug. 31, 1940
6,088
501
Feb. 29, 1940 (F)
OTHER EQUIPMENT
79
Complete
Contractor
Description
Ordered
Delivered
Delivery
General Electric
Searchlight Equipment
128
0
Nov., 1940
Trucks (General Motors)
640
123
Nov., 1940
Portable Power Plants
384
0
Nov., 1940
Sperry Gyroscope Company
Searchlight Equipment
256
20
Nov., 1940
Sound Locators
256
20
Nov., 1940
Gyro-Horizons
400
66
May 31, 1940
Directional Gyros
400
66
May 31, 1940
Fairchild Aeronautical
Camera Corporation
Cameras
115
80
May 31, 1940
Colt Patent Firearm Company
Machine Guns
400
400
Air Associates, Inc.
Flares
5,000
2,500
June 30, 1940
J-V-W Corporation
Link Trainers
370
8
June 30, 1941
Pioneer Instrument Company
Compasses
345
50
June 30, 1940
United Aircraft Products
Oil Coolers
4,688
1,858
June 30, 1940
Bendix Aviation Corp.
Generators
1,928
0
Dec. 31, 1940
If
"
=
Gear Drives
1,260
2
Dec. 31, 1940
If
"
If
Starters
4,208
89
Dec. 31, 1940
Feb. 29, 1940 (F)
80
TREASURY department
PROCUREMENT DIVISION
FFICE OF THE DIRECTOR
WASHINGTON
March 14, 1940
MEMORANDUM FOR THE SECRETARY
As a matter of information there is attached hereto a copy of a
memorandum forwarded to the President, Via Mr. McReynolds, con-
cerning meeting held this afternoon at which meeting the pro-
posed program of the Allies in connection with airplanes was
discussed.
Chairman, Defreen President's Liaison Committee
att.
81
March 14, 1940
MEMORANDUM FOR THE PRESIDENT
Via: Mr. McReynolds
it a meeting this afternoon of the President's Liaison Committee at which were
present, in addition to the Committee, General Brott of the Army Air Corps,
Colonel Burns of Assistant Secretary Johnson's Office; Colonel MacMorland of the
Clearance Committee, Munitions Board; Major Lingle of the Army Air Corpo; Admiral
Towers, Chief, Bureau of Aeronautics, Sery Department; Mr. Purvis, Chairman of the
Anglo-French Purchasing Board; Sir Eenry Self: M. Plevan; and Colonel Janquin the
wishes of the Allies conserning their pending airplane program were presented.
Briefly, M. Plevan explained that, conditions being as they are in Europe, they
are not interosted in the further purchase of planes of such types as are at
present under contract for their respective governments; that the engine situation
being the controlling factor in the purchase of any appreciable number of planes,
the consummation of their program will be prevented until the fall of 1941. There-
fore, it is desired that the latest planes possible and those which will be produced
in 1941 be made available to them; that the French had, in their first program,
bought planes off the drawing board for which no prototypes had, up until that time,
been produced, and that they are equally anxious to do likewise concerning the
latest planes and engines that might be available to our Government in 1941.
A clearance was specifically requested on the following items which are at present
on the restricted list of the Joint Aeronautical Board of the Army and Navy:
(a) General Electric turbo compressors on the Allison engine 1710
and on the Pratt & Whitney engine 1830
(b) Two-stage two-speed superchargers on the Pratt & Whitney engine
1830 and on the Pratt & Whitney engine 2800.
(a) The Allison engine V1710-35, specification 130D dated December 18,
1939
(d) Pursuit airplanes
Lookheed intercepter P.38
Bell P.39
Improved Curtiss
Generally any other type of fighter which would be
serviceable in 1941
(Note - Present indications are that war conditions in 1941
will involve a speed for fighters of not less than
400 miles per hour)
Regraded Uclassified
82
-2-
Concerning bombers, they indicated the belief that new types have been developed
and stated that they would like to have information on such developments, with
particular reference to the big four-engine bombers and dive bombers.
Copies of their request have been delivered to the Army and Navy representatives
on the President's Liaison Committee, with the request that they be immediately
transmitted to the proper authorities in their respective departments and the
Chairman of the Committee informed as soon as any action thereon is taken.
Chairman, President's Liaison Committee
HEC:ga
Regraded Uclassified
83
March 14, 1940.
9:21 a.m.
H.M.Jr:
Hello.
Operator: Mr. Hinckley.
H.M.Jr:
Hello.
Robert H.
Hinckley: Yes sir.
H.M.Jr:
Henry Morgenthau.
H:
Mr. Secretary, how are you?
R.M.Jr:
Fine. Mr. Hinckley, you said something the other
day at the White House about wanting to see me and
also about that the airlines are having trouble
getting deliveries, etc.
H:
Yes.
H.M.Jr:
I'd be glad to go into that with you.
E:
Well I'll be very happy to have 8. visit with you,
Mr. Secretary.
H.M.Jr:
Do you want to come over tomorrow?
H:
That would be fine.
H.M.Jr:
How's eleven o'clock?
H:
Eleven o'clock 18 good.
R.M.Jr:
And would you bring any figures that you have showing
what the airlines need and can't get.
H:
Yes, I'll bring the latest figures I have.
H.M.Jr:
will you do that?
A
Yes sir.
H.M.Jr:
Thank you.
H:
Thank you, I'll be there Mr. Secretary.
Regraded Uclassifie
84
March 14, 19401
3:40 p.m.
H.M.Jr:
Hello.
Operator:
Chairman Ecoles.
H.M.Jr:
Hello.
Marriner
Rocles:
Henry?
H.M.Jr:
Yes Marriner.
E:
On this Bank of America, I just wanted, I understand
that it's just about over.
H.M.Jr:
So I heard this morning. I've heard nothing since
this morning.
E:
Well, I understood from - that they had held a
meeting and had accepted, that the Board of
Directors did adout the program and had agreed to
the press release for tomorrow morning 26 indicated.
F.K.Jr:
Good.
E:
So that I just think maybe we all need to con-
gratulate ourselves.
H.M.Jr:
Well, I said to Delano this morning, it's too
early to say anything but It looks as though
congratulations are in order.
E:
As I understand it you - the President hasn't done
or said anything on this yet.
H.M.Jr:
No. Just as soon 88 they have agreed, you see.
E:
Yes.
H.M.Jr:
I'm going to take a letter over to him which I'll
sign and ask him to approve to Jones. That's the
next move.
is
You don't anticipate any cuestion on his noint or
trouble, do you?
H.M.Jr:
No, I'm taking full responsibility, I'm sure that
he'll go along.
is
Yes.
Regraded Uclassified
85
- 2 -
H.M.Jr:
I know what's in his mind and I'm cuite - ninety-
nine per cent sure that he'll approve.
E:
Well -
H.M.Jr:
I didn't want to bother him, but I'm just taking
the responsibility.
E:
Good. What I would like to suggest is this, if I
may.
H.M.Jr:
Please.
M
If there 10 any question, I mean if the program
- his question, it would be modified, I hope that
he would give me a chance to be heard before he
does it.
H.M.Jr:
O.K.
E:
But I feel that we worked like the deveil and I am
sure that he possibly would want to accept the
recommendation of all of us, but if there should
be some cuestion, I -
M.MJr:
You want your day in court.
E:
Yes, T would like a damned court on it.
M.M.Jr:
Well I'll promise you that, but I've mone out,
I mean T figured that - without talking to him
recently - that I knew what he wanted BB to the
principles and T feel that you men have gotten
everything that he could ask for.
E:
Well I tell you we've not a practical program.
H.M.Jr:
Yes.
in
Now when you met right down to It the Bank will
be an awful lot better off and when you look at
the sanctions that we have together we look st
the weakness of our position when you get really
down to the practical end of the thing and that's
what you've got to look at. I think that we've
got a damned good program. What we really need
18 some legislation really to deal with situations
like this.
N.V.Jr:
You're right.
Regraded Uclassified
- 3 -
86
E:
And inasmuch 88 we haven't rot it, I think we're
smart to try to take the best thing we've got until
we can get something better.
E.M.Jr:
You're right.
is
That's the practical thing to do.
H.N.Jr:
You're right.
E:
And it was with that in mind that we worked - tried
to work this thing out and get the most we could,
knowing that after all we weren't in such a strong
position ourselves with reference to our statutory
powers.
H.M.Jr:
You're right.
is
Well, now, I suppose If there was any question on
the case of the RFC that the President would take
that up with Jesse, wouldn't he?
R.M.Jr:
I should think he would.
Don't you think it may be well to mention that to him
tomorrow that it's got to PO over to lesseand 1f
there's any, that he may not be through yet.
H.M.Jr:
All right, I'll mention that to him, but T don't
look for any trouble.
is
Well I don't either, but damn it, it's just 8.8 well
to anticipate and let the President know while
you're seeing him that this thing after all is only
over with after Jesse agrees to out un this money.
H.M.Jr:
That's right, but of course and in this case, I mean
that's between Jesse and the President.
E:
Well I know that but if you indicate to the President -
H.M.Jr:
Oh yes.
E:
That that is something that may have to be done and
80 he doesn't think that he's completely out of it -
H.M.Jr:
Bell has told Jesse the last twenty-four hours all
about this.
E:
Well I don't think there'll be any trouble with
Jesse. I think he was a little peeved at first, but
Regraded Uclassified
87
- DL -
I think he's, I think he's practical enough to
know that there's nothing else for him to do but
CO through with the program and he won't try to
write B ticket that would unset it.
R.M.Jr:
I don't think he will.
in
T think he wants it.
F.V.Jr:
I tell you, if there's any trouble I'll let you
know.
E:
Fine.
B.K.Jr:
T'll let you know.
BI
Now the SEC of course you know, that they're taking
this without getting that fixed up.
That's right.
E:
And I think that that is the practical thing to do
and I'm delighted that, personally, that they did it
because it looked for B. time that they may not do
it.
R.M.Jr:
Well we couldn't solve the SEC.
E:
No we couldn't solve it, but at the same time, they
could throw this program over on the ground that
they were unable to get that settled at this time.
H.M.Jr:
Well I understand, no, I understand, unless I'm
wrong, that the Bank of America is agreeing to this
unconditionally.
in
That's right. There's no condition whatever. The
Bank of America is agreeing to this program but they
did have some discussions with the SEC and they
were treated very well and the SEC, as I understand,
indicated that if they'd 70 through with certain,
- with certain - making amended statement and 80
forth, that It was likely that that this thing could
be dismissed at some later date when everything
was complied with and the record was complete and
gave them a reason, you see. And I talked - Cushing
called me un after that, and said that it was the
best they could do end that he felt, in spite of
the fact that it could be settled entirely that
Regraded Uclassified
88
- 5 -
they ought to RO shead.
H.M.Jr:
Well, let's see, I don't - I certainly don't expect
any trouble from the President, I think he'd have
every reason to be highly pleased.
is
Well I would think so. Gosh yes.
H.M.Jr:
And I think everybody did B. swell job.
Bi
Well I'm glad you feel that way.
H.M.Jr:
Oh yes. Well I think everybody did a swell job.
is
We - my god, I never got such a burn by the tail
in my life, but it's been worth it all, it's really
been worth the effort to get E. mess like this
cleaned UD.
H.M.Jr:
Well when they've signed it and take the capital,
why I think I'm going to give a party.
E:
Well they have signed it you know.
R.M.Jr:
No but I mean when they've taken - the RFC has loaned
them the money.
E:
Yes.
H.M.Jr:
I mean when it's all finished.
3:
Well that's right. I - - the only possible difficulty
- could come of course in the articles of
association between the Comptroller's office and
Jesse and I told Preston and Dan that we still felt
that the agreement wasn't completed until that was
completed.
H.M.Jr:
That's right.
E:
That that's still part of the agreement and that
we were going to be interested in it and they seid
"Well, the committee hasn't been dismissed until
the money is turned over".
H.K.Jr:
0. K, so long.
E:
All right then.
H.M.Jr:
Cheero.
::
Goodbye.
Regraded Uclassified
89
March 14, 1940.
3:50 D.M.
Preston
Delano:
Mr. Secretary.
H.M.Jr:
Yes.
D:
This is Delano talking.
H.M.Jr:
Yes Preston.
D:
I just wanted to tell you that I have just received
word that the Board of Directors, out there in
San Frencisco, approved this program.
H.M.Jr:
Swell.
D:
And the publicity will be in the baners tomorrow
morning, not in the afternoon napers,
H.V.Jr:
Well I'll tell the President now. I'll get word
to him. I'll ask him whether he won't see us
tomorrow.
D:
All right. Have you any 1dea what time that would
be, Mr. Secretary.
H.M.Jr:
It will have to be in the forenoon.
D:
I just wanted to be boned UD on my night work here,
80 that I'd have the - could answer any questions,
that was all.
H.M.Jr:
Well it will be sometime in the forenoon I hope.
D:
All right.
R.N.Jr:
O.K.
D:
Righto.
H.M.Jr:
Congratulations.
D:
Vell I hope it works. I Just can't see why it
won't now. I think they're outting themselves on
record here and I hope it turns out that way.
H.M.Jr:
I think everybody has done a wonderful job.
D:
It's been hard work, but I think it's worth it.
H.M.Jr:
Well congratulations.
D:
Thank you sir.
H.M.Jr:
Goodbye.
Regraded Uclassified
90
March 14, 1940.
4:52 p.m.
Operator: Mr. Helvering.
H.V.Jr:
Hello.
Guy
Helvering: Hello.
H.M.Jr:
Guy?
H:
Yes.
H.M.Jr:
Henry Morgenthau.
H:
Yes.
H.M.Jr:
On this so-called Indiana case, I kind of put a
little pressure on Elmer Irev today.
H:
Yes.
H.M.Jr:
And the poor fellow isn't physically well enough
to take it.
H:
Huhhuh.
H.M.Jr:
Therefore if it's agreeable to you I'm going to
ask Harold Graves to sort of step in on this
thing for me and for me, if you're agreeable.
H:
Yes.
H.M.Jr:
And sort of try to clean this thing up one way or
the other.
H:
Yes.
H.V.Jr:
Is that agreeable to you?
H:
Absolutely.
H.M.Jr:
Well then, beginning tomorrow, I'm going to ask
Harold to give his undivided attention to this.
H:
Huhhuh.
H.M.Jr:
And work under you and me.
H:
I see.
H.M.Jr:
And nobody else. Well I mean keep you and me
informed and be responsible to the two of us
jointly.
Regraded Uclassified
91
- 2 -
H:
Yes.
E.V.Jr:
But nobody else.
H:
Yes, all right.
H.M.Jr:
Is that all right?
H:
Fine.
H.M.Jr:
And when could you nee him tomorrow 80 he can come
over and start with you first?
H:
Well I'll see him any time on that SO as to - I
think it's -
H.M.Jr:
Well what time?
H:
Nine-thirty.
P.M.Jr:
Well I'd like him at my nine-thirty meeting.
Could he be there at ten-thirty?
H:
Yes, oh yes. Yes.
H.M.Jr:
Well he'll come to you and you send for Elmer also,
see?
H:
Yes.
H.M.Jr:
So Elmer - I told Elmer I was going to do this, see?
H:
Yes.
H.M.Jr:
So supposing - Harold is sitting here now.
H:
Yes.
H.M.Jr:
And he and Elmer come to your office at ten-thirty
tomorrow.
H:
Yes. All right.
H.M.Jr:
And then he'll get how you feel about it, anything
that you have, but I want Harold to give his
undivided attention to this.
H:
Yes, all right, I'll be glad of that.
H.M.Jr:
You'll be glad of that?
Regraded Uclassified
92
- 3 -
H:
Yes.indeed.
H.M.Jr:
Well then he'll start with you tomorrow at
ten-thirty, and he'll stick with this thing
until it's cleaned un.
H:
Yes, fine.
H.M.Jr:
Because Elmer is not well enough.
H:
Well I thought he looked awfully haggard yesterday.
H.M.Jr:
Right. Thank you.
H:
All right.
H.V.Jr:
And any time you want to see me on this with
Harold, I'm available.
H:
All right.
H.M.Jr:
Because I - I've just got to get in and we've got to
clean 1t up one way or the other.
H:
I think that's right.
H.M.Jr:
Either we have something or we haven't.
H:
That's it.
H.M.Jr:
Right.
H:
Yes.
H.M.Jr:
O.K.
H:
All right.
H.M.Jr:
And any time you want to see me, I'll see you and
Harold.
H:
All right.
Regraded Uclassified
93 wit
MR. MORGENTHAU'S OFFICE TO--
Mr. Bell
Mr. Thompson
Mr. Gaston
Mr. Foley
Mr. Sullivan
Mr. Graves
......
Mr. Alexander
Mr. Haas
Mr. Allen
Mr. Hall
Mr. Bartelt
Mr. Hanna
Mr. Batchelder
Mr. Harper
Mr. C. S. Bell
Mr. Harris
Mr. Berkshire
Mr. Helvering
Mr. Bernard
Mr. Irey
Mrs. Betts
Mr. Julian
Mr. Birgfeld
Mr. Kilby
Mr. Blough
Miss Lonigan
Mr. Broughton
Mr. Rose
Mr. Bryan
Mrs. Ross
Mr Coehran
Capt. Collins
S
Mr. Schwarz
Mr. Collie
Mr. Sloan
Mr. Spangler
Mr. Delano
Mr. Tarleau
Miss Diamond
Mr. Upham
Miss Flanagan
Mr. White
0
Mr. Wilson
Mr. Young
Cuckran read
and return
to minskloty.
94
somess OFFICIAL COMMUNICATIONS TO
THE SECRETARY OF STATE
WASHINGTON, D. c.
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
March 14, 1940
Co 841.24/208
The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and encloses
for his information a copy of note no. 82 dated March 5,
1940 from the Canadian Legation, stating that the Anglo-
French Purchasing Board, under the Chairmanship of
Mr. Arthur B. Purvis, is acting for the Canadian War
Supply Board in respect of purchases in the United States
for Canadian defense services.
Enclosure:
From Canadian Legation,
March 5, 1940.
of
D
Regraded Uclassified
95
(COPY - RB)
CANADIAN LEGATION
WASHINGTON
March 5, 1940
No. 82
Sir,
I have the honour to state that I am in receipt
of instructions from the Canadian Government which enable
me to inform you that the Anglo-French Purchasing Board,
under the Chairmanship of Mr. Arthur B. Purvis, is acting
for the Canadian War Supply Board in respect of purchases
in the United States for Canadian defense services.
I have the honour to be,
with the highest consideration,
Sir,
Your most obedient,
humble servant,
LORING C. CHRISTIE
The Hon. Cordell Hull,
Secretary of State of the United States,
Washington, D. C.
Regraded Uclassified
96
March 14, 1940.
MEMORANDUM FOR THE SECRETARY:
West Coest Shipping Situation
Further sales and chartering of ships formerly engaged in
the intercoastal trade served to make the intercoastal space situation
more critical than ever. Cargoes both eastbound and westbound were
going begging, as the lines with reduced fleets were completely
deluged with offerings. Because of the nature of its commodity, the
lumber industry was suffering the worst from the shortage, although
their demands for space were having a compensatory effect upon general
cargo space at California ports. Low-grade and low-rate commonities
were finding it increasingly difficult to get accommodations, if any,
under present conditions.
The intercoastal lines have announced general rate increases.
2 vessel was taken under charter for a voyage in the intercoastal trade
at undisclosed terms.
The offshore trades were quiet, especially that to Europe.
Cargo was not offering in very good volume, The let-down in the Europeen
route was ascribed to lack of interest in Pacific Coast agricultural
products. The British lines continued to operate in secrecy, and little
or nothing of consequence could be reported in this direction. Other
routes were quiet and lumber rates remained at approximately $50 per M.
The steamer WEST NILUS was taken under time charter for four to six months
for Atlentic trading; the steamer PETER KERR was chartered for two to four
months on a time basis for general trading on the Atlentic at $4.50. These
vessels were taken out of the intercoastal trade.
Except for the animation caused by shippers getting cargoes
moving before tax day, the Oriental range was not particularly active.
Demand for space was fair, and the lines were having no difficulty filling.
Scrap, which continued to offer in good volume, was being booked by the
berth lines at between $10 and $11 for rails and between $13 and $14 for
No. 1 melting. There were no charters for scrap reported, but a vessel
was taken on & time basis at $5, delivery in the Far East end redelivery on
the U. S. Atlantic. Lumber to the Orient appeared to be quiet, and no new
business was reported for Vladivostok, which had been somewhat active
several weeks ago.
Business, especially gene al cargo, to Australia and New Zealand
was hampered by Government restrictions on certain American imports.
Banl harris
Regraded Uclassified
97
JR
PLAIN
London
Dated March 14, 1940
Rec'd 1:05 p.m.
Secretary of State,
Washington.
644, March 14.
FOR TREASURY FROM BUTTERWORTH.
The negotiations for an Anglo-Norwegian payments
agreement referred to in my 111, January 12, 7 p.m.,
resulted in the conclusion of an arrangement between
the Central Banks of the two countries similar to the
Anglo-Swedish arrangement reported in my 34, January 5,
7 p.m. The agreement is valid until June 17, 1940, and
can bE denounced thereafter on one month's notice. The
following notice was issued by the Bank of England to all
banks.
"Norwegian banks and certain private Norwegian holders
of starling will shortly open 'special accounts' with their
banking correspondents in the United Kingdom. These
accounts are to bE regarded as domestic accounts for the
purposes of Exchange control and balances standing to their
credit may only bE used for payments within the sterling
area.
"Transfers
Regraded Uclassified
98
-2- #644, March 14, from London,
"Transfers from one Norwegian 'special account! to
another will of course bE permitted but any payment from
such an account for the credit of a foreign account should
bE refused and referred both to the Bank of England (Trade
and payments section) and to the Norwegian principal
concerned for reference to Norges Bank.
"The same conditions will apply to Swedish 'special
accounts' certain of which have already bEEn opened EXCEPT
that in the CASE of these accounts payments may also be
made to Belgium and Brazil without reference.
Three post-war payments agreements have now been
concluded providing for temporary blocking of sterling
balances insofer is they accrue from unbalanced trade and
periodic settlement by gold payments namely with the
Argentine, Sweden and Norway,
The British Treasury Expects that an rement with
Denmark will in due course be reached. Since Denmark has
an unfavorable balance of trade with Germany it is anxious
to keep Denmark short of foreign Exchange and therefore it
1s somewhat concerned lest the Export-Import banks credit
to Denmark bE of & character to permit the Danes now to buy
in the United States for credit that which before they had
to pay for in cash. If however the credit merely permits
the Danes to buy from the United States on credit that which
they previously bought in
Germany, the British Treasury
would bE correspondingly satisfied.
The
Regraded Uclassified
SS
ham -3- No. 644, March 14, 1940, from London
The British Treasury states that the Dutch have to
date shown "no interest" in making a payments agreement
and the Swiss to date have not shown "a desire to play".
The British Treasury states in strict confidence
that the negotiations with Spain have now resulted in an
agreement along the lines reported in paragraph 2 of my
71, January 9, 6 P. m. This was to have been signed this
WEEK but the Italians have now represented to the Spanish
Government the importance of an Italo-Spanish agreement
being signed before an Anglo-Spanish agreement. The
British have been making a conscious effort throughout
these long drawn out negotiations to bE patient and it
1s likely that this will bE just too much.
In the negotiations with Italy for a large scale
commercial interchange (which in the main meant coal for
armament manufactures) the question of 9 clearing agree-
ment was not mentioned. The British Treasury states that
it EXPECTS shortly to begin conversations with Italy on
this question which will perhaps lead in time to the con-
clusion of a modified commercial arrangement; its position
is that insofar as the Italians want coal they must pay
for it with pounds or goods that Great Britain requires.
As indicated in No. 378, February 13, discussions
are taking place with Rumania.
KENNEDY
HPD
Regraded Uclassified
100
HSM
GRAY
Paris
Dated March 14, 1940
Rec'd 2:44 P. m.
Secretary of State,
Washington.
346, March 14, 7 p. m.
TREASURY FROM MATTHEWS.
The Bank of France statement published today shows
the changes resulting from the recent gold revaluation
and the gold cession to the stabilization fund. Gold
reserves now total 84,000,000,000 francs. The revalua-
tion added 17,338,000,000 francs to the previous
97,275,000,000 to a total of 114,613,000,000. The
CESSION of 30,000,000,000 reduced that figure to
84,613,000,000. Sight assets abroad and short-term
bills negotiable abroad WERE likewise revalued rising
from 79 to 92 millions. (END SECTION ONE).
MURPHY
CSB
Regraded Uclassified
101
HSM
GRAY
Paris
Dated March 14, 1940
Rec'd 3:05 p. m.
Secretary of State,
Washington.
346, March 14, 7 P. m. (SECTION TWO)
The statement also shows repayment of the 1938 advance
to the state of 20,473,000,000. The state has drawn
300,000,000 further on its original war time authorized
advance to a total of 20,350,000,000. Current accounts
and deposits are reduced 31/2 billions to 13,393,000,000
(resulting from the approximately 31 billions required
of the stabilization fund for the aforesaid reimburse-
ment of the 1938 advance) gold coverage is reduced from
55.75% to 49.52%.
MURPHY
WWC
Regraded Uclassified
102
HSM
GRAY
Paris
Dated March 14, 1940
Rec'd 3:08 p. m.
Secretary of State,
Washington.
346, March 14, 7 p. me (SECTION THREE)
During the period February 1-15 deposits in the
National (Postal) Savings Banks totaling 209,000,000
francs and ithdrawals 18,000,000. From January 1 to
February 15, 1940 deposits in such banks EXCEEDED with-
drawals.
A decree published in today's Journal Official gives
the Minister of Public Works and Transportation the
authority to requisition the personnel of road transport
Enterprises.
My telegram No. 335 of yesterday. The national
defense credits requested by the second quarter of 1940
total approximately 55,000,000,000. (END MESSAGE).
MURPHY
CSB
Regraded Uclassified
103
RE INDIANA INVESTIGATIONS
March 14, 1940
2:30 p.m.
Present:
Mr. Foley
Mr. Sullivan
Mr. Irey
Mr. Schwarz
Mrs Klotz
H.M.Jr:
I take it, Sullivan, that what you sent me
about Drew Pearson isn't confidential.
Sullivan: No.
H.M.Jr:
There's a leak around this place somewhere.
Sullivan:
That is what disturbed me. Now, at that
conference I think there was also Kades and
Leming. Sullivan wasn't in, was he?
Irey:
No, not at the conference you were referring
to.
Sullivan:
By itself. Now, you (Irey) didn't see me either
Friday or Saturday, did you?
Trey:
No, I understood you had gone up to New Hampshire
Friday or Saturday.
Sullivan:
I went up Saturday.
H.M.Jr:
Have you fellows rehearsed this before you came
in?
Irey:
I just got the memorandum before I came in.
Sullivan:
I asked Elmer if he had got the memorandum and
he said no and he came in the office and I
handed him a copy of it.
H.M.Jr:
It looks to me as though they had rehearsed it.
They have got it down too pat.
Seriously, where do you think this thing could
be coming out.
Irey:
I haven't the slightest idea. I just glanced
through this before I came in. I just got it.
In the first place, it says that he had informa-
tion that Irey had conferred with you (Sullivan).
It doesn't say Irey told him that, by the way,
or did he say that?
Regraded Uclassified
104
- 2 -
Sullivan:
No, he didn't say that.
Irey:
It just says he had information that Irey con-
ferred with you. In the second place, there is
a statement to the effect that Irey had discussed
starting grand jury proceedings in Indianapolis
on March 12. Let's see, did I discuss that on
March 7? I don't know just what you mean. In
the conference report in my memo to you on
Thursday of March 7, "Irey had discussed starting
grand jury proceedings in Indianapolis March 12.
Sullivan:
That is right.
Irey:
I don't know what that is all about. I haven't
discussed any such thing or made any comment on
grand jury proceedings at any time.
Sullivan:
You did that day.
Trey:
I beg your pardon. I didn't discuss anything like
that. If you say I did, you must have been mis-
taken. I have had no thoughts of any grand jury
proceedings, Mr. Secretary, and that is all I
have to say and I haven't made any comment in
that respect.
H.M.Jr:
I an full of airplanes and what each person said.
The only thing that disturbs me is that Drew
Pearson should know at the drop of & hat what
is going on.
Sullivan:
Well, it disturbed me, too.
Irey:
As far as Drew Pearson is concerned, I think I
have met the man once or twice but he doesn't
say in there that I told him.
Sullivan:
Oh no, he didn't say that.
H.M.Jr:
This isn't an accusation meeting, this is just
a meeting to put our heads together. Looking
at all four of you, there is too damn much
talking about the whole case anyway. Everybody
knows the business. They have it before I know
it, beginning with Ray Tucker. He was the first
fellow to have this thing. He was the first
Regraded Uclassified
105
- 3 -
fellow to break it and starting with Ray Tucker
right on down the line, there has just been too
much - they know every single movement we make.
I think I am correct. He was the first fellow.
Schwarz:
Ray tells me that he had mentioned it to you at
the time of the press club dinner, that was on
December 7, that far back.
H.M.Jr:
Did you say gratefully?
Schwarz:
No, he didn't say gratefully, but gleefully.
He felt like he had a scoop or something. He
was gloating. He said you wouldn't tell him.
Re said, "I told your boss and he didn't deny
it."
H.M.Jr:
I haven't denied it. There is just too much
talk, talk, talk on this case.
Toley:
Well, there are three columnists who knew about
it, Clapper, Drew Pearson and Boo Allen, and
Ray Tucker. I don't remember seeing anything
in Joe Alsop's and Bob Kintner's column.
E.V.Jr;
But Tucker started it.
Sullivan:
Harlan Miller was in yesterday afternoon.
Poley:
Yes, he has written about it.
Irey:
Well, Drew Pearson and Bob Allen have written
a number of times about it, but of course there
is one explanation of that and the only one I
can make is that they must have known there was
an investigation going on, because there have
been too many people interviewed for them not
to know that, but for them to know the facts
of the investigation is another matter.
H.M.Jr:
Well, Elmer, I am getting to the point myself,
now, after reading Clapper's column yesterday,
either you have got 8. case or you haven't.
Now, my God, you have been on this thing - when
you 8° in, if you did, according to Clapper,
interview judges and the American Legion people
and all the rest of the thing, either now you
have got a case or you haven't and this fellow,
Regraded Uclassified
106
- 4 -
as far as I can find out, this man that has
come down here, this agent Sullivan, again
he is down here and has he produced anything
new?
Irey:
Well, I think he has, Mr. Secretary.
D.M.Jr:
Well, what? What the hell have you got now?
Let's get down to brass tacks.
Trey:
Well, one particular item --
H.N.Jr:
You have been at this thing for months and
turned the whole thing upside down and what
have you got?
Irey:
The particular item, answering your question,
is the item of ,117,500 which is recorded as
having been received in the Hoosier Democratic
Club and their records show it having gone to
the Democratic State Central Committee. The
Democratic State Central Committee records do
not show the receipt of it, Bowman Elder was
asked about it and he said he was mistaken,
his records were wrong. He gives no statement
as to the disposition of it except that it was
spent for the benefit of the party.
H.M.Jr:
Have you any reason to believe that McNutt got
this personally?
Irey:
No, sir, I haven't any reason to believe he got
it.
H.M.Jr:
Well, the point - are you agreeable to go ahead
with the Greenlee case?
Irey:
Why, yes, sir. I am agreeable. I have already
told them to get B. report in as quickly as they
could and as soon as Sullivan can get back there,
the report will be sent in within 24 hours.
H.M.Jr:
What kind, civil or criminal?
Irey:
Well, I don't know what he will recommend. He
1s going to recommend civil action. He is
going to recommend the assessment of taxes,
Regraded Uclassifi
107
- 5 -
but whether it is sufficient to recommend
prosecution, I don't know.
H.N.Jr:
Well, how old is the Greenlee case?
Iroy:
The Greenlee case was the first case we started
on in August, 1939.
H.M.Dr:
Exactly. Hasn't that been closed?
Iray:
No, sir, it hasn't because we have been trying
to get the Information out of Greenlee to support
other cases out there, so we haven't closed it
as & matter of strategy.
E.M.Jr:
Well, are you ready to go ahead with Greenlee?
Irey:
I would say just as soon as the report comes in.
When he gets back there tomorrow, I will have
the report in by Monday.
H.M.Jr:
This thing doesn't say that.
Sullivan:
oh, I think it does.
H.M.Jr:
Let me read it.
"In the conference reported in my memo to you on
Thursday, March 7, Irey had discussed starting
grand jury proceedings in Indianapolis March 12."
We don't even know we have got & case against
Greenlee.
Irey:
No, sir, we do not.
H.M.Jr:
Well, you know, I always have to take this. You
don't; I do, Now this thing has been knocked
around all over the state, inside, outside. I
never have had a thing like it in my life and
everybody knows more about it than I do. A
fellow comes in and he knows what happened this
day and that day and this thing and that thing.
I don't think you have got anything, Elmer.
I thought the Greenlee thing was all settled
last August. I don't see that agent Sullivan
has got anything. I read that report. I told
you that - did he bring in anything new since then?
Regraded Uclassified
108
- 6 -
Irey:
He brought in another report in which he em-
phasized the things that he had said.
H.M.Jr:
But have you got anything on Mr. McNutt?
Irey:
No, sir, we have not.
H.M.Jr:
Then let's say so.
Irey:
Any time, Mr. Secretary. I certainly have no
desire to continue this case another day. I
have simply been carrying on because of in-
structions to go out and 80 into the whole
situation and we have been trying to go into
it, that is all. I have no desire to continue
the investigation.
H.M.Jr:
Well, either we have something or we haven't.
Now, if it has been since last August, we either
ought to know by now that Mr. McNutt has taken
money which he has not reported or he hasn't.
Now, it is seven or eight months, and if we
have to hang the whole thing on this agent
Sullivan, I don't think the case is worth that
(snapping finger) and I don't see why you don't
say SO. Either you say the man is right or he
is wrong. It is up to you to say one thing
or the other. He is your man.
Irey:
Mr. Secretary, we have been delayed since
December trying to get an order to bring Bo
Elder into court. We have thought all the
time if we got him into court we would get
him to do talking which would force other
people to talk. That is one of the reasons
for the Greenlee case. We thought we could
get other people to talk when we got the order
against Elder.
H.W.Jr:
You certainly can't, on what you have got there,
take this man into court. Mr. Jackson says so
and of what I have read, I say so, and it is
the other thing which I think ought to be
cleared up, and you have got to clean this
thing up. Now, we are talking right here in
this room. These men say that they read
agent Sullivan's report and the references
that he made, the chapters and verses, just
Uclassified
109
- 7 -
aren't 50, And that is the report that you
gave me to read, the 12 pages. Either it is
or it isn't.
Troy:
I certainly want to clean it up. I don't agree
with them. I mean, I don't get the same con-
clusion they get out of it, but I want to E°
into it and find out whether that is true, of
course.
B.V.Jr:
Foley told me and I know he is right, because
everything in here is my business, that 1f that
man worked for him and put him in the position
he did you and 1f that was a lawyer and he gave
me - Foley gave me EL full page report of recom-
mendation and I read it and the misstatements
in that, he said he would fire that man and
either that is a fair statement or it isn't.
Trey:
Well, I would like to find out whether it is
a fair statement or not. I have had Mr. Hel-
vering go over the report and he has agreed
with me that It 1a not that type of report.
Poloy:
Well, Elmer, I analyzed the testimony for you
and I showed you what he said in his letter
and I showed you what the testimony was.
Iroy:
Yes. Have you analyzed it in the light of the
additional information which he has furnished?
Poley:
I am only talking about the letter which he
sent you on the 13th of February.
Irey:
Let me make this statement with respect to that
letter: This letter came over from Sam Clark
on one morning. About noon, I think, I got a
copy of it. I telephoned to this man and told
him to have B. report in to me by airmail that
afternoon. He wrote it up in about three hours,
so if there is a slight discrepancy --
Poley:
It isn't slight. There are gross inaccuracies.
S.M.Jr:
The whole thing depends upon this man's veracity.
Now, here is Foley - I don't know whether you
(Sullivan) went over that or not, but Foley
Regraded Uclassified
110
- 8 -
went over that thing, item by item, and I
might as well say what you said, you said
the man lied.
Foley:
Well, I said it is inaccurate.
H.M.Jr:
And he said it is an outrage to give me &
report like that. Now, I have defended you
and continue to do so, right or wrong, but
my God, I want something I can put my teeth
into.
Irey:
But needless --
H.M.Jr:
And if I have got to depend upon the man who
is in charge who isn't truthful, it leaves
you and me in an impossible situation. Now,
here is Foley, who has my interests at heart
just as much as you have, and he tells me that
this statement is full of inaccuracies and
either - and 1f that is so, then it is up to
you to do something about it.
Irey:
It is, of course, and it is up to me to review --
H.M.Jr:
But that statement was made over B. week ago.
That statement - and Foley said, "I am not
saying anything to you, Mr. Morgenthau, that
I didn't tell to Irey. He said, "I made
exactly the same statement to Irey that I
am making to you."
Irey:
And I had this man come in and write a 15-page
report in further explanation of his report
and submitted that to Mr. Foley. I thought that
further report of his explained everything. Now,
if it doesn't, I want to go through it and find
out. I have been waiting for this conference
which we had just yesterday.
H.M.Jr:
Here is Foley right here.
Foley:
Well, it didn't --
Irey:
I mean the delay of this thing has not been due
to - it has been due to - we were ready Thursday
or Priday for the conference on the thing and
Regraded Uclassified
111
- 9 -
I have been waiting until today for it.
M.M.Jr:
Now, you and I and Mr. Helvering and every-
body else are depending upon a person by the
name of Agent Sullivan. On Mr. Helvering's
recommendation, I took the lawyers out of
there, so I am solely dependent upon Agent
Sullivan. Now, I am told by my General Coun-
sel that Agent Sullivan gave you and you gave
1t to me - and I take it that you read it be-
fore you gave it to me.
Trey:
I did.
H.N.Jr:
a 12-page report and Mr. Foley says it is
full of inaccuracies. Now, I don't care about
anything else and I am depending on you and
the only thing that I have got, 1f I have got
to go before the Joint Committee on Taxation,
what am I doing, is a report by Agent Sullivan
that my General Counsel said is full of in-
accuracies. Where does that leave me? Now,
you have got to take care of me on this thing.
Irey:
I am going to take care of you, Mr. Secretary.
H.M.Jr:
I will take care of you publicly, but in the
office you have got to take care of me.
Irey:
I am going to take care of this matter. Just
as soon as I go out of here - BS I say, I am
not convinced of what Mr. Foley has said.
H.M.Jr:
What I want you to do, over your own signature,
and today is - and I give you until Monday
morning. I want & summary from you, what have
you got on anybody, without any grand jury
investigation or anything more, what have you
got on anybody who has withheld paying their
income tax in the State of Indiana. I want a
report from you on Monday. Is that fair?
Trey:
Yes, sir, that 1s entirely fair.
H.M.Jr:
I want to know Monday that you have or haven't
got any facts that you can prove, that you are
Regraded Uclassified
112
- 10 -
75 percent sure of, against any individual,
man or woman, in the State of Indiana. Now,
I want it Monday. I want to know - and I
just want it over your signature to me,
Irey:
Very good.
H.M.Jr:
And not this, that, or the other. Just what
you think and then what you have to back it
up.
Irey:
All right.
H.M.Jr:
Now, the thing that I have been waiting for,
this life insurance policy, the premiums of
which are paid for by this political machine,
to whose order 1s that life insurance made
out, to whose benefit?
Irey:
I couldn't answer that to you right now.
H.M.Jr:
I have asked it for over a week. I have asked
for it for over 8. week.
Irey:
Mr. Secretary, I don't remember any such ques-
tion as that.
H.M.Jr:
I asked somebody.
Irey:
Was it asked of me?
Klotz:
You (HMJr) and I talked about it.
H.M.Jr:
Well, I asked about it. The first question is,
anyway, whether I asked for it or didn't ask,
I asked somebody, and if I did or didn't, the
whole thing depends upon 1t, if it was made
out to the Hoosier Democratic Club, it is per-
fectly legal and proper. Whose benefit is it
made out to? If it is the Hoosier Democratic
Club who wants to insure McNutt's life, it is
all right, but if it is paid out to Mrs. McNutt
it is something else. I should think you would
have that, because that is the only thing you
have got. I should think that would be the
first question you would ask.
Irey:
We have deposits of five thousand dollars each
at two different times in two different bank
Regraded Uclassified
113
- 11 -
accounts in addition to the life insurance
policy.
E.H.Jr:
But to whose benefit is the life insurance
policy made out?
Irey:
I will let you know that.
H.M.Jr:
I want to leave it now until Monday and inside
the Treasury, you have got to take care of me.
Outside of it and toward the rest of the world,
I will take care of you. That is & fair divi-
sion, but I want to know where I stand on that
thing. It is getting impossible and everybody
else knows every move that we make. Now, let
me have something Monday, will you?
Trey:
All right, sir.
H.M.Jr:
And everything in this room here is absolutely
in the room, please. You haven't fallen down
on ne yet in six years. I don't see why you
should now.
Trey:
I don't either.
E.M.Jr:
Let's take an inventory of the thing and you
have it for me Monday.
Trey:
of course, if Mr. Helvering had been here I
think he would have had some views to present
as to his conclusions, also.
H.K.Jr:
I will have him here at 10:30 Monday. These
same gentlemen Monday. Mr. Helvering isn't
investigating this case, you are, Elmer.
Irey:
I have consulted with him in regard to his
advice. I am not trying to shift responsibility,
but I haven't failed to consult my superior.
H.N.Jr:
When I called you in here, I wasn't going to
start - I didn't call in for that. I called
you in because I was bothered to think that
Drew Pearson knew every single move that is
going on.
Schwarz:
His column last week is still part of the same
picture, too.
Regraded Uclassified
114
- 12 -
Sulliven:
Chick, you are not making any effort to find
out where Pearson got that?
Schwarz:
Oh, yes.
E.M.Jr:
It doesn't do any good. You will never find
out.
Sullivan:
He said, "Oh, yes."
Schwarz:
I will make an effort, but I shouldn't expect --
Sullivan:
That won't get us anywhere.
Schwarz:
The very worst thing for public relations is
to try too strenuously. He may next week come
in and tell me in order to - I haven't seen
the fellow for weeks.
H.M.Jr:
The best public relations that can happen is
that 1f there is anything, let's prosecute to
the limit. If there isn't, let's say SO. That
is the best kind of public relations.
Schwarz:
We can't say so even officially. We have never
officially admitted --
H.M.Jr:
That there is an investigation going on?
Schwarz:
And the only way we can say so is - the next
question is to refer people to Justice and let
them say they have got no case,
B.M.Jr:
Well, we can't do that.
Foley:
No, I don't think we can do that, either.
Schwarz:
There is no obligation on our part to say --
Foley:
I think in fairness to McNutt - and I hold no
grievance for him - if we have gone all over
the State of Indiana and we have asked every-
body questions and everybody out there knows
that we are investigating this situation - he
is a responsible member of this Administration.
The least we can do for him, if we have no
tax case against him, is to say so, that we
Regraded Uclassified
115
- 13 -
have investigated the reports that have come in
here and we have found them to be groundless.
Schwarz:
We will say the investigation is closed?
H.M.Jr:
I agree with Ed and I will have the pleasant
task of doing that.
Schwarz:
That is what I am trying - I think it is un-
fair to you where you have not at all been
responsible for the situation that has developed
to expect to put you in --
E.M.Jr:
I am responsible at the beginning, when this
Greenlee matter came in I said let's 80 ahead
and look how much more there is and let's make
a complete study of this situation. I am
responsible when I heard about it - read the
investigation of our Collector of Internal
Revenue. I said, "It smells to heaven. Let's
investigate,' and we did and I think at that
time Harold Graves was in on it.
Irey:
Right.
H.M.Jr:
I started it, but as to - but the fact remains --
Schwarz:
Then I will agree with Ed that 1t might be in
fairness - you might have to admit --
H.M.Jr:
I still want Irey to tell me --
Schwarz:
of course, that was --
H.M.Jr:
....whether this man, Agent Sullivan, is or isn't
a reliable person and I can't - it is hard for
me to understand when Foley made the statement
he did and that statement is & week old that
you haven't made up your own mind.
Foley:
I gave Elmer an analysis of the letter and the
transcript. It showed the statement made in
the letter, it showed the reference to the ques-
tions and answers in the transcript and showed
what was said in the letter wasn't borne out
by the references in the letter to the transcript,
the questions and the answers.
Regraded Uclassified
116
- 14 -
H.M.Jr:
It is a pretty stiff statement he is making.
Irey:
It is that.
H.M.Jr:
What is the answer?
Irey:
I am going to give you the answer Monday on it.
Regraded Uclassified
117
EMORANDUM
Harch 14, 1940.
TO:
The Secretary
FRA: Mr. Sullivan
RX:
Conference with Drew Pearson at 10:15.
After a long general discussion about the New Hampshire
politics and New Hampshire affairs, Pearson said be wished to ask
a few questions about the Indiana and MeNutt situation not from
the point of view of writing a news story, but to give himself
background.
lie said be had been advised that last Friday or Saturday
Irey had conferred with me about the advisability of instituting
grand jury proceedings in those cases and be wondered what decision
we had arrived at. (In the conference reported in my name to you
on Thursday, Varch 7th, Trey had discussed starting grand jury pro-
ceedings in Indianapolis March 12th). I told him that the Treasury
Department was determined that no man, because he happened to be a
public character, should receive either preferred treatment or be
persecuted; that it was difficult to give to a can in the public
eye the same impartial treatment that is given the average taxpayer;
that it is hard not to learnover backwards in either direction, but
that we have concluded that until whatever investigations that are
in process are completed, WE would refuse to deny, confirm, or coment
in any way on those cases other than to say that whatever investige-
tions were being conducted would be accelerated as much as possible.
He then wanted to discuss the degree of acceleration possible
and in the course of his remarks on this subject he said: "I know that
these cases have not yet been sent to the Department of Justice and I
an wondering how long it will take after they are over there." I
said that I thought we would be able to conclude whatever work we were
doing in three weeks and told him I would be glad to let him know if
there was a change in the time scheduled if he would call ne within a
week or ten days.
COPIES TO:
Helvering
Foley
Irey
Regraded Uclassified
118
MEMORANDUM
March 14, 1940.
TO:
The Secretary
FROM: Mr. Sullivan
RE:
Conference with Drew Pearson at 10:15.
After a long general discussion about the New Hampshire
politics and New Hampshire affairs, Pearson said he wished to ask
a few questions about the Indiana and McNutt situation not from
the point of view of writing a news story, but to give himself
background.
He said he had been advised that last Friday or Saturday
Irey had conferred with me about the advisability of instituting
grand jury proceedings in those cases and he wondered what decision
we had arrived at. (In the conference reported in my memo to you
on Thursday, March 7th, Trey had discussed starting grand jury pro-
ceedings in Indianapolis March 12th). I told him that the Treasury
Department was determined that no man, because he happened to be a
public character, should receive either preferred treatment or be
persecuted; that it was difficult to give to a man in the public
eye the same impartial treatment that is given the average taxpayer;
that it is hard not to lean over backwards in either direction, but
that we have concluded that until whatever investigations that are
in process are completed, we would refuse to deny, confirm, or comment
in any way on those cases other than to say that whatever investiga-
tions were being conducted would be accelerated as much as possible.
He then wanted to discuss the degree of acceleration possible
and in the course of his remarks on this subject he said: "I know that
these cases have not yet been sent to the Department of Justice and I
am wondering how long it will take after they are over there." I
said that I thought we would be able to conclude whatever work we were
doing in three weeks and told him I would be glad to let him know if
there was a change in the time scheduled if he would call me within a
week or ten days.
?
Regraded Uclassified
Book 247
119
FEDERAL SECURITY AGENCY
WASHINGTON
OFFICE of
THE ADMINISTRATOR
March 14, 1940.
Mrs. Henrietta S. Klotz,
Assistant to the Secretary,
Treasury Department,
Washington, D. C.
Dear Henrietta:
You may be interested in the attached
copy of a telegram to Dr. Parran from Dr. Williams
in China.
Sincerely,
Mary Mary E. E. Switzer Suitzer
Assistant to the Administrator.
Enclosure.
Regraded Uclassified
120
RADIOGRAM
CHUNGKING, CHINA
MARCH 7, 1940
FOR PARRAN PUBLIC HEALTH
NATIONAL HEALTH ADMINISTRATION WILL CONTINUE MALARIA CONTROL
WITH STAFF WE TRAINED PERIOD PROPOSED CONTROL AT CITIES ON LOWER
ROAD AND LABOR CAMPS PERIOD GOOD SET UP IF FOLLOWED THROUGH PERIOD
LARVACIDES JUST ARRIVING, ESSENTIAL SUPERVISE LARVACIDE FORCE FEW
WEEKS UNTIL SWEET ESTABLISHES ROCKEFELLER RESEARCH STATION CHEFANG
PERIOD RECOMMEND BUSH REMAIN UNTIL END APRIL PERIOD REQUEST
AUTHORITY MY DEPARTURE ABOUT MARCH EIGHTEENTH
WILLIAMS
COPY
Regraded Uclassified
STRICTLY CONFIDENTIAL
121
TREASURY department
INTER-OFFICE COMMUNICATION
DATE March 14, 1940
TO Secretary Morgenthau
FROM Mr. Cochran
In this morning's group meeting. the Secretary announced that he desired an
imadiate study made of the question of granting financial assistance to Finland.
Ke envisaged the use of the Stabilization Fund, subject to specific approval by
Congress. The Secretary thought of asking Ryti or Tanner to come to this country
All NO early date for a discussion of what could be done. He would have a prelim-
Insry talk with Minister Procope within the next few days. The following first
throghts on this subject are respectfully submitted.
There is no question but that Ryti and Tanner are the two outstanding men of
Finland. They have been responsible for a large part of the development of
Finland, both through handling of Government finances and through fostering private
undertakings. Ryti is an exceptionally capable central banker. Tanner has con-
structive ideas on banking, in addition to a reputation for success in private
business, including the development of cooperatives in a way that achieved good
results without developing extreme socialism or preventing business initiative in
Finland. Since these men have been the two most responsible members of the war
cabinet in Finland, it is nov conceivable that one or both of them might drop out
of the Government, following the acceptance of the peace treaty. It 16 to be hoped
that Ryti will continue as head of the Bank of Finland, but this cannot be post-
lively expected.
This morning's press reports indicate that Sweden and Norway have agreed to
negotiate a defense alliance with Finland and that Sweden is prepared to provide
Finland immediately with credits, loans and public subscriptions, to an estimated
total of from 48 to 72 million dollars, for reconstruction. It was indicated that
part of the funds would be used for fortifications along Finland's new frontier with
Russia. The outlook is thus for a defensive alliance between the three Scandinavian
countries, since Norway and Sweden must necessarily be alarmed over the demands
which Ruesia achieved in the peace pact, insofar as railway connections between
beundisavia and Russia are concerned. particularly. Do we desire to enter into
Scandinevian defense plans? Anything may still happen in that area during this con-
fused var, We have no definite information as to how much assistance the Swedish
Government, Swedish industry and Swedish subjects have given to Finland during
recent months. but it is understood that this is very large. From our knowledge of
the Bank of Finland account in liew York, ve can conclude that the Sveriges Riksbank
the nade foreign exchange available to the Bank of Finland considerably beyond the
gold resources of the latter which might have been held in Sweden.
Is this at proper time and occasion for the Treasury to take the initiative in
8. foreign credit, especially one involving use of the Stabilization Fund in any
nanner not heretofore contemplated? My personal view is that, irrespective of our
sympathies, we must handle the Stabilization Fund with absolute coldness, and not
D In for philanthropy. As guardians of this Fund, responsible for formulating our
122
- 2 -
monetary policy in the future, I an convinced that we should not even recommend
to Congress the idea of utilizing this Fund for credits to rebuild foreign countries.
The funds now available for foreign loans, consisting almost exclusively of
Export-Import Bank capital, will by до means be sufficient to moet bona fide demands
for loans from this country to assist in economic reconstruction after the war,
Sometime we will be obliged to face the question as to what, if any, role the
Government itself should play in providing such capital.
Convinced that there is no necessity now for us to make such loans as that
under reference for the purpose of assuring the continuity of the monetary use of
gold, I think we should husband our resources until such time as the world situation
may be viewed more dispassionately and clearly than in this present very uncertain
period. We do not even know what our own status may become as this war continues.
The Stabilization Fund could buy Finn marks and hold them, with or without a
gold deposit guaranteeing repayment. The Treasury's policy heretofore has been to
demand gold or silver security for such a. transaction. Considering the insignificance
of the Finn mark in international payments, I do not favor making some unduly large
arrangement with Finland on the basis of monetary stabilization. To give Finland a
credit against gold, whather this be in the form of & credit from the Federal
Reserve to the Bank of Finland, against earmarked gold in this country, or through
the purchase of Finn marks by the Stabilization Fund, holding gold as security,
really provides Finland little help, keeps their limited gold supply tied up, and
even reflects upon their credit rather than constitutes a friendly gesture.
I feel strongly that this Government should not now lend funds to Finland for
constructing new fortifications, any more than we should have loaned funds for arma-
mente and munitions during the war.
I approve the idea of our Export-Import Bank making the allocated $20,000,000
available as needed, and even increasing this amount further, if Congress is willing,
and actual opportunities for the export of American commodities exist.
I feel that borrowing for military purposes on the part of Finland should be
on the markets of those countries which will in the future support her in a military
crisis. These markets would be Stockholm and perhaps London. I BD not at all of
the idea that the United States desires to make any political or military commit-
ments to Finland. Stockholm has in the past acted to a considerable extent as
Finland's banker.
With the recent quick recovery of Finnish bonds, there is the possibility that
B. Finnish loan could be raised on the American market, through the usual banking
channels. This I would heartily favor.
I believe ve would be taking quite a risk, both for our Finnish friends and
the Treasury, if we invited Ryti or Tanner to cone to this country without absolute
assurance on our part that we could do something concrete for them after their
arrival. & visit by either of these men to the United States in the near future
would attract B. tremendous amount of international attention. If Ryti as & central
Regraded Uclassified
123
- 3 -
banker seeking assistance should desire to come over on his own responsibility,
and not on the invitation of this Government, this would be a logical move and
could be explained. He already has his banking friends in this country who have
helped Finland float loans in the past.
If Congress may on its own initiative desire to refund payments which
Finland has already made on its so-called war debt to the United States, that
should be left to Congress. The character of the assistance which should be given
Finland was studied at such length by Congress, that I hesitate to recommend that
any new suggestions be made, After all, $30,000,000 of export credits is a con-
siderable assistance to be given by our Government to a country the size of
Finland. As the war is now ended, private capital could be obtained much more
easily than heretofore.
The above rather dampening suggestions are made with considerable reluctance,
but indicate my honest belief. As the Secretary is aware, I have known Ryti for
many years, have visited him at his home, along with Tanner, and consider him one
of the finest public officials whom it has been my pleasure to meet in Europe. My
personal sympathies with Scandinavia, and Finland in particular, are very strong.
I know of no area in the world where the Governments as well as the people have
ideals and aspirations 80 completely in common with our own. At the same time, I
feel that in our handling of the Stabilization Fund we must think primarily of our
own interests, without charity or emotions entering into the consideration.
10mR
Regraded Uclassified
124
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 14, 1940
TO
Secretary Morgenthau
STRICTLY CONFIDENTIAL
FROM
Mr. Cochran
There is appended a copy of & letter which I today received from Deputy
Governor Gordon of the Bank of Canada at Ottawa, In this letter Mr. Gordon
has reduced to writing the substance of remarks which he made to me on his
recent visit.
I am particularly pleased to have at this time such a clear explanation
of Canadian exchange control policy. In recent days the unofficial Canadian
dollar has been discounted as low 8.6 20% in New York, as compared with the
official rate of 10 to 11%. The answer simply is that Canada so completely
controls the payment for exports of Canadian products that there are few
purposes for which unofficial Canadian dollars can be utilized, The demand
for the latter is consequently small, and when holders thereof decide to get
rid of them the price paid therefor may drop precipitately on a thin market.
The business done in unofficial Canadian dollars is very small and has
no significance in Canada's trade, The considerable discount on the un-
official market is an evidence of strength of Canadian control rather than
of weakness of the Canadian dollar. Mr. Gordon told me, however, that there
WE so much misunderstanding in the public mind of the low rate for the
Canadian dollar in New York, that his people had thought for some time of
creating a small loophole in their regulations which would permit 8. sufficient
use of unofficial Canadian dollars to absorb the small quantity floating in
Sew York and thus keep the unofficial rate more nearly the official rate,
In this connection, reference is made to Mr. White's remarks in this
sorning's meeting in regard to the depreciation of sterling. The shifting
in sterling rates and the volume of transactions in sterling on our market
have been covered in my daily reports to you. In addition, we have been
assembling from official telegrams, conversations with Federal Reserve Bank
in New York and through that bank data from private banks in New York, with
respect to the working of the new British exchange regulations. It is too
early to come to any conclusion upon which we should take any action vis-d-
via the British.
With it now being required that the specific important exports from the
British Empire be paid for in certain foreign currencies or in sterling
acquired at the official rate, much of the support for the unofficial sterling
will be reduced. Consequently the market has interpreted the new regulations
accordingly and the unofficial rate has weakened. It is not yet known whether
the British Control will limit still further the use of free sterling so that
the payment for exports to the United States in other than United States
dollars or official sterling will be practically prohibited. During this
maiting period the unofficial sterling rate is likely to fluctuate sharply.
Regraded Uclassifie
125
-2-
For the present it would appear that free sterling may be used for insurance
premiums, freight payments and certain minor imports. The point which we
shall have to watch is that of the minor imports. So far, I think we would
be quite hasty in deciding that the British policy has been inspired by any
desire to dump British manufactured goods on the American market. The whole
plan is to acquire foreign exchange more extensively for British exports.
It is conceivable that the British Control may follow the Canadian plan and
practically eliminate the use of free sterling for British exports. In such
case we would have no basis for complaint against the depreciated unofficial
rate. It remains to be seen whether the depreciation in free sterling may
cause the British to keep open certain uses therefor. It is not likely that
the British would be willing to utilize their dollar resources to clean up
the unofficial sterling on our market in present circumstances.
HMS.
Regraded Uclassified
126
Bank of Canada
Confidential
Ottawa March 12th, 1940.
H. Merle Cochran, Esq.,
Technical Assistant to the Secretary,
Department of the Treasury,
Washington.
My dear Cochran,
You will no doubt recall our brief chat on the subject
of the unofficial rate for Canadian dollars, quoted in the New York market,
and that I promised to send you a note explaining some of the reasons for
the differential between this rate and the official rate of the Canadian
Foreign Exchange Control Board. The recent New York quotations have
made me rather guiltily aware that I have, since my return to Ottawa,
allowed pressure of other matters to delay my letter.
Since the establishment of Foreign Exchange Control in
Canada, it has been the policy of the Board to require that all exports
from this country shall produce foreign exchange. The system installed to
ensure that this policy be made effective has been, generally speaking,
based on a provision that no export is allowed to leave Canada unless
a suitable declaration is made by the exporter of the amount of foreign
exchange he is to receive, with the date on which it is payable, and this
declaration is used by the Board to check to see that the exchange is ac-
tually forthcoming, Consequently, the foreign demand for Canadian dollars
is being steadily reduced and 1s now pretty much confined to payments
for sundry services, insurance premiums or other similar undertakings due
by non-residents and expressed in Canadian dollars.
Regraded Uclassified
127
- 2 -
There is, as you know, & fair amount of non-resident
owned Canadian dollar balances in Canada. So far, little uneasiness
has been shown by their owners, nor, so fer as we know, have they attempted any
large scale effort to withdraw them since foreign exchange control has been
instituted. It is the case, however, that there is, and I suppose always
will be, some desire on the part of non-residents to obtain foreign exchange
for their Canadian dollar balances. Consequently, since the operation of
Control has dried up any effective demand on the one hand, and there
continues to be some selling pressure on the other, the tendency is for the
unofficial rate to weaken. You will no doubt understand that the Canadian
dollar quotation in New York has no real significance in relation to the
Canadian economy as a whole. It is merely the figure at which one non-
resident is willing to sell his Canadian dollar balance to another non-
resident, who may have a use for it in this market. For this reason it
would not be surprising to find that rates quoted for Canadian dollars
in the various cities of the United States may show fairly wide
differentials as the market is, we believe, extremely narrow and very
little volume can show a marked effect.
I need hardly add that under Control practically all the
exchange transactions arising out of this country's foreign trade take place
in the official market and that the Board sells exchange freely at its official
rate to importers or others who have approved foreign exchange obligations to
meet.
I hope this covers the query you have in mind, but do not
hesitate to let me know if you wish any further information.
With kind regards,
Yours sincerely,
(s) D. GORDON Regraded Uclassified
128
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Berlin, Germany (via Rome)
DATE: March 14, 1940, 11 a.m.
Rec'd: March 16, 1940.
NO.: 641
FOR TREASURY FROM HEATH.
Last night Puhl, the Vice President and active head
of the Reichsbank, had dinner with me and discussed at
some length the Reich's present financial and monetary
plans and problems.
For the last five months, he said the Reichsbank,
through Funk, who 18 its President and also Minister of
Economics and German plenipotentiary for economic matters,
had pressed for further increases in taxes and the issuance
of a large war loan on long term in order to take up
or immobilize excess purchasing power. They had not yet
received final permission for the issuance of a war loan,
but Puhl assured me that before long it would be granted,
and 4 percent would be the interest rate. One difficulty
that they would have to overcome, he said, was popular
distrust of "war loans" in view of the experience of
German investors in the issues of the World War. During
the past few days, the Reich Treasury as a first step
had started selling five year 4 percent bonds without
publicity, which the banks and the public were taking up.
He
Regraded Uclassified
129
- 2 -
He said that because the rate of interest on the present
five year issue and on the future war loan is only 4 percent
does not mean that it 18 the intention of the Government
to revise downward all interest rates. He said that the
forthcoming war loan would in the main be a conversion
of the short term paper which up to the present had been
the principal means of financing the war. The older
4 1/2 percent government bonds, he pointed out, had gone
above par - being 100-3/8 today without the Reichsbank
giving any support thereto. The Reichsbank had on the
contrary taken advantage of the liquidity of the money
market to reduce its holdings of securities. The larger
portion of Government paper now being sold, he remarked,
consisted of three months bills at an interest rate of
3 1/8 percent, and slightly higher rates of interest for
five and six months bills.
END SECTION ONE.
KIRK.
EA:LWW
Regraded Uclassified
COPY FOR SECRETARY
230
PARAPHRASE OF SECTIONS TWO, THREE AND FOUR, TELEGRAM
NO. 641 of March 14, 1940, from Berlin
Puhl said, with regard to increases in taxes, that
despite stories in the press - reference: telegram of
March 7, No. 577 from the Embassy - they had not yet
made final decision as to their form and rate. The whole
controversy had recently been resolved by Goering, who
stated that the differences between the proponents of
extreme increases and those who objected to further raising
of the income tax rates should be settled by Funk, who
18 111 with a serious sinus infection at present.
It is interesting to note that Goering 1s apparently
exercising authority in matters of taxes, since Goering
and Funk are relatively conservative in their financial
and monetary views AB compared with certain officials of
the Party, such as Reinhardt, who is State Secretary of
Finance and the author of the "new plan", for financing
by means of tax certificates, which plan has now been
discontinued.
Puhl told me of the essentially conservative character
of the economic views of Funk. While Funk 1s in favor
of an increase in taxes, he said, Funk was rigidly opposed
to what he called "Bolshevist" rates which would prevent
private capital from action. Incidentally, I have learned
from
Regraded Uclassified
131
- 2 -
from another source that the words "Bolshevist" and "Capitalist"
were heatedly exchanged in taxation conferences between
Funk and other officials of the Reich.
I asked Puhl whether an increase in Government borrow-
ing and spending was the cause of the expansion of the
Reichsbank's bill portfolio and note circulation during the
past two months. He avoided answering my question. I have
heard from another source that there has been a very sub-
stantial increase in Government borrowing over the
earlier average monthly rate of 2 1/4 billion reichsmarks
indicated in the debt statements for September, October
and November. Reports of contacts in other departments
of the Government that there are steadily increasing military
expenditures support this information.
Puhl said with regard to the increase in note circula-
tion of the Reichsbank for the last three months that
this was due to a certain extent to the inclusion in the
mark system of the former Polish territory and to the
note circulation's diminished velocity. In the portions
which have been annexed, he said, it had been necessary
to issue a lot more marks than were needed to effect the
exchange of doty notes because cash was not circulating
as rapidly as before in view of the war conditions.
Large reserves of cash were also held by military units,
which moved slowly; much greater cash reserves were being
Regraded Uclassified
132
- 3 -
held by both individuals and firms in order to be able to
take immediate advantage of any unexpected chance to buy
materials or goods. Puhl expressed his confidence in
the solidity and efficiency of the present system of
rationing and price controls which he said represented
a new development in management of monetary affairs; however,
he very clearly indicated he was fearful lest the increasing
pressure of excess buying power in the hands of the public
should break through these controls. Because of the
vivid memory of the 1923 inflation in Germany, the buying
public of the country no longer had any "monetary dis-
cipline". He was keeping a daily watch of indices of
this situation, he said.
Puhl told me in conclusion that the Reichsbank was
working on studies as to future German and international
monetary arrangements after the war is over. The present
direction of the Bank held the view that the mark would
have to be devalued and again become an international
currency, and as soon as peace made such action possible,
exchange control would have to be abolished. However,
until there was confidence on the part of the public in
a stable peace, this could not take place. It might be
essential, even then, to continue the moratorium on debte
and the standstill arrangements for a time. It would of
course
Regraded Uclassified
133
- 4 -
course be necessary that gold be lent to Germany to bolster
the confidence of the public in the currency and to act
as a cushion if, as would probably be the case, the new
parities which the governments selected should prove to
be incorrect in view of unforeseen developments in the
post-war economic situation. Puhl thought that after peace
is declared the international monetary arrangements should
be concluded as quickly as possible. He believed that
such arrangements could for the most part be worked out at
meetings of heads of central banks at the BIS, which the
Reichsbank, he said, was giving its full support.
//
END OF MESSAGE.
KIRK.
EA:LWW
Regraded Uclassified
.34
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 14, 1940
TO
Secretary Morgenthau
FROM
Mr. Cochran
STRICTLY CONFIDENTIAL
Vr. Irigoyen, Financial Counselor of the Argentine Embassy, called on me
Posterday afternoon. Mr. Irigoyen has spent the last several months in
Argentina, and only recently returned to the United States. We had a general
Macussion of monetary problems.
Irigoyen mentioned that B. credit which Argentina has from Swise and
Dutch bankers will mature in May. The Bank of the Netherlands is not agreeable
to & renewal of the Dutch share. Negotiations are still being carried on with
the Swive bankers in regard to renewing their portion. In the meantime Mr.
Irigoyen in endeavoring to learn whether he could raise in New York the ten
or fifteen million dollars necessary to pay off this credit. So far, I believe
law has found a rather cool reception to the idea among New York bankers. He
will be quite unhappy 1f it is his task to report to his Government that it is
impossible in this country, notwithstanding the plethora of funds, to raise
the comparatively small sum required. He commented upon the limited resources
of the Export-Import Bank.
Irigoyen spoke to me of Argentina's trade with Great Britain. This is
now done principally under a clearing agreement. Since the trade balance is
favoralle to Argentina, there is an accumulation of sterling in Argentina's
favor. The British agree to convert this at a fixed rate into gold, but the
cold must be retained in London. The rate, I believe, is based on dollar ex-
change. While this permits trade to continue between Argentina and Great
Britain on an active scale, Argentina may find her cash importantly frozen
If the gold balances in London grow actively. There would then arise the
question of having enough dollar exchange to pay for Argentina's normal pur-
chases on the United States market, There might also develop a situation where-
in the Argentina Government would be short of pesos for Internal expenditures,
particularly if the process should be followed very far of Argentina repatriat-
lag bonds issued in London and of taking over British investments in Argentina
in payment for exports. There has been some talk of Argentina acquiring the
Fritink owned railways in that country. Irigoyen is against this plan since
it would involve B continuing drain upon the Government to provide the foreign
exchange necessary to buy equipment, etc. for the railway. He thought it more
likely that the Government might acquire power plants and similar utilities
7.5m British owned. Irigoyen is obviously interested to know whether any finan-
cial assistance could be expected from the United States 16 as a result of the
above described circumstances, Argentina should require dollars.
Irigoyen stated that Argentina's export trade in meat, hides and wool is
now good, with prices remunerative, There is more concern about the export
market for corn. During the last war much of this WBS shipped to central
Regraded Uclassified
135
-2-
Europe, which market is now closed. There is no acute wheat problem, since
the last wheat crop in Argentina was so poor.
Irigoyen does not seem concerned over the outlook for sterling, since
he feels that British prestige and requirements for foreign materials demand
that the official rate be maintained. He was also of the opinion that the
recent depreciation in the unofficial sterling rate will probably not be
used extensively in fostering Argentine exports competitively.
When Irigoyen spoke of their dollar needs, I reminded him that during
recent months his central bank had acquired important amounts of gold from
us against dollars, which they are still holding under earmark in New York.
Mr. Irigoyen admitted that there was no immediate need for dollars, but
thought that it might possibly develop within the next two years.
NMP.
Regraded Uclassified
136
RE SAVINGS FONDS
March 14, 1940.
11:30 a.m.
Present:
Mr. Bell
Mr. Sloan
Mr. Kilby
Mr. Broughton
Bell:
Shall we go ahead on this for EL moment?
H.M.Jr:
Sure.
Bell:
A few days ago you asked me to get you St
statement as to the monthly expenses of the
Savings Bonds Division, how much was being
spent on promotion from sales. We can't
very well break that down by months or that
wouldn't mean anything if we broke it down
by months, because on their publicity end
they spent so much of their money in the
first part of the year and the material they
get lasts throughout the year, but this 1s
the figure here that they are allowed for
printing and binding, which is largely their
publicity. They are allowed $248,000 for
the year and up to January 31, they had
spent $228,000 or obligated it, which means
that they have got material in that will last
them through until June. That is right,
isn't it?
Sloan:
That is right, yes, sir.
Bell:
And last year we started talking about changing
the rates on Savings bonds and then the war
came along and we had a discussion along early
in October and we decided there wesn't anything
to be done about it because the spread between
the yields on the long Governments and the
savings had narrowed from the spread that it
was from June until about August, so we deter-
mined either late in September or early in
October that we weren't going to make any
changes in the Savings bonds. Mr. Sloan's
division got busy on the new publicity and
they devised this little circular which is now
just coming off the press and hasn't been dis-
tributed yet.
H.M.Jr:
I never had seen it. I think it is beautiful.
Regraded Uclassified
137
- 2 -
Bell:
It really 1s a nice job.
H.N.Jr:
Incidentally, Sloan, get together for me 8.
collection of every piece of promotion from
the beginning to end. We may have it. Check
with Miss Chauncey whether we have it or not,
but if not, I would like to have a regular
complete set of all promotional matter that
went out in the mail from the beginning.
Broughton: You had better have our circular, too, hadn't
you?
Bell:
I think you have got them in a nice file, but
I think it would be nice to put them in &
book.
H.M.Jr:
Now, this is in process?
Bell:
This is being delivered. None of them have
been delivered to the public.
Sloan:
None are being released until we get a release
from you, sir.
H.K.Jr:
How many of these have you ordered?
Sloan:
About four or five million to take care of us
until the end of the fiscal year.
E.M.Jr:
Let's just actually table this for 8. minute.
We have ordered it and we have got to use it.
Hell:
You may be able to use it, even though you
can make some changes.
Sloan:
We were careful in putting no detail in there.
We thought we were protecting ourselves.
Bell:
In considering the changes that could be made,
we have divided them into three classes. Two
of them would be a change in regulations and
one under that would be a change in regulation
that we could make effective April 1, which
would be pretty quick action. The other one
would be possibly July 1, which would take a
little longer, and under the one we could make
effective April 1, would be to restrict the
sale to individuals in their own right, elimi-
nating all sales to banks, corporations, fidu-
ciaries and trust companies, and the like,
Regraded Uclassified
138
- 3 -
and we think that might cut down the total
sales by some place between 20 and 25 per-
cent.
Sloan:
Based on the results we have been having.
Bell:
Yes. And there is another one under that
which would restrict the amount that may
be issued in the aggregate, say to 30,000
or 24,000, but we have no legal opinion on
that. We are not so sure and we think
administratively it would be very difficult
to enforce, because our records are not such
that we could --
Bloan:
They are filed by series and it would take a
long time to --
H.V.Jr:
Supposing tomorrow - supposing today we decided,
and tomorrow being the 15th, I got the Presi-
dent's approval to cut this thing down, keeping
it to individuals, you see,
Sloan:
Yes, sir.
H.K.Jr:
Tomorrow is the 15th. Could you reach every
post office by the end of the month?
Sloan:
Yes, sir. We will have the notice in the hands
of every sales agent and have time to cover
on it.
Broughton:
When you restricted trusts, we could get notice
to post offices.
Bell:
We changed the regulations in January to cut
out those pension funds and that went out within
five or six days and was in the hands of every-
body, wasn't 1t?
Sloan:
Yes, we can do it all right.
Broughton:
They can do 11 by telegraph to the distant places
and by letter to the nearer places.
H.H.Jr:
That would give you - say, tomorrow, it gives
you two weeks.
Regraded Uclassified
139
- 1 -
Kilby:
Plenty of time.
Broughton:
It would take two or three days to get the
regulations through counsel, and so forth,
and we would have it by the first of April
without any difficulty at all.
Bell:
And this group here recommends that change.
H.M.Jr:
They do?
Sloan:
Yes.
Bell:
As B. matter of fact, we think it should have
been done a long time ago.
H.M.Jr:
You do recommend it?
Bell:
Yes, They do.
Broughton:
Mr. Secretary, we have also discussed with
respect to the sale in one name only without
a beneficiary or a co-owner, but the set-up
in the beginning has put emphasis on those.
H.M.Jr:
I think it would be bad.
Bell:
We don't recommend it.
Sloan:
Another thing, Mr. Secretary, that Mr. Broughton
pointed out, probably to search down the person
that was entitled to payment in the event of
death would cost us as much administratively
as it would to carry the registrations the way
they are now.
H.M.Jr:
You people are all in favor of cutting these
other things out?
Sloan:
Yes, sir.
H.V.Jr:
Well, I think - have you got a letter prepared
along those lines?
Bell:
We have a letter here prepared and I will show
it to you a little later.
H.M.Jr:
Well, that will do 20 or 25 percent?
Regraded Uclassified
140
- 5 -
Sloan:
That is what we estimate.
Bell:
I agree with that.
H.M.Jr:
I think we ought to do that and that is a move-
ment in the right direction.
Broughton: Mr. Bell, before you go ahead to that next item,
you might mention that second small item about
restricting sales to residents of the United
States.
Bell:
Oh, yes, In connection with that, we think it
would be a good thing if we restrict the sale
of these bonds to residents of the United States,
the Philippines, Hawaii and the Canal Zone.
H.M.Jr:
Who is buying them now?
Sloan:
Very few abroad, but there were times last fall
just before the war broke out - they came in for
about six million dollars.
H.M.Jr:
Aliens?
Sloan:
Yes, It doesn't amount to anything, but the threat
is always there. We would like to get rid of
the threat.
H.W.Jr:
Well, cut that out. What else?
Bell:
If you want to go further and change the terms
of the bonds, such as the rate, the step-ups
and lengthen the maturity or what-not, that is
going to take a little more time, because you
have got to change all your forms, you have got
to reprint your bonds, then we had in about
16,000 offices at the present time bonds which
cost somewhere in the neighborhood of two or
three hundred thousand dollars to reproduce.
Broughton:
Well, the stock where the agents now are would
cost between fifty and sixty thousand to re-
produce.
Bell:
Then there was another expense there that was
involved.
Regraded Uclassified
141
- 6 -
H.M.Jr:
Well, Dan, I think if you and these gentlemen
agree, I would like to make this move for
20-25% reduction and then get the public re-
action and meet in a couple of weeks again
and see what happens.
Bloan:
And that way, Mr. Secretary, we can continue
to use that book and the only thing we will
have 8. loss on is B. few order forms that have
been printed where we will have to eliminate
the other forms of registration. We can get
them out quickly.
H.M.Jr:
You can use this book?
Sloan:
Yes, that wouldn't hurt the book at all.
H.M.Jr:
How much investment have you got in that book?
Sloan:
It is about a hundred thousand dollars. The
only statement made in there is the ten-year
term and the element of yield. As long as
that isn't disturbed, it is all right.
H.M.Jr:
When would these normally begin to be mailed?
Sloan:
They would be going out tomorrow. Half a
million of them a day would start to come
in right away.
H.M.Jr:
I would wait until I had a chance to see the
President.
Sloan:
Yes, sir, and then we will just re-order forms.
Bell:
Another day or two won't hurt.
Sloan:
We will hold it up until we write B. letter and
get a new order form with it.
H.W.JP:
This isn't the way it goes out, is it? That
is a dummy, isn't it?
Sloan:
Yes, sir.
Bell:
I think we ought to bear in mind in our dis-
cussion of the Savings bond program that if
we are going to change the terms of the bond,
Regraded Uclassifie
142
- 7 -
we ought to have at least three months.
H.M.Jr:
I agree on that. You might shade it a
couple of weeks - 1f we decided in the
middle of April to do it the first of
July, that would be all right, wouldn't
it?
Sloan:
They can print the bonds. The Bureau of
Printing and Engraving, I don't know about
them.
H.M.Jr:
I wouldn't have any more bonds printed for
a while.
Bell:
We ought to have time, anyhow, to use up that
stock that is in there.
H.M.Jr:
Well, two and a half months. You might have
ten thousand dollars worth of stock.
Bell:
In that time, yes.
H.M.Jr:
You might get stuck for ten thousand dollars
worth of stock if you had two and a half months.
Sloan:
We can use those. We always have re-issues
afterward.
Kilby:
Twenty thousand dollars worth would be a normal
amount to expect to lose on a change-over, any-
way.
H.M.Jr:
It is this thing here. That 13 a hundred
thousand dollars worth of stuff.
Bell:
Yes, that would be destroyed 1f we changed
the rate.
H.M.Jr:
I think he would be satisfied with that.
Bell:
Well now, this memorandum to the President
which is in response to those two, he didn't
ask for a memorandum. He asked you to speak
to him. One of them - one of them was pre-
pared by Eccles and the other was prepared
by Currie. This memorandum was intended to
Regraded Uclassifie
143
- 8 -
be in reply to those. What I said in the
last paragraph was, I am still studying
the matter and hope to have a decision with-
in the next few days as to what regulations
will be changed on April 1. That can be
changed to say I have decided, if you want
to. We have told him the history, that we
have had this thing under consideration.
H.M.Jr:
May I see that?
Bell:
Surely. You should read it 1f you have
time.
H.M.Jr:
I have time. Well, I think I would go on and
say, "I have decided to do it."
Bell:
That we will continue to study the other phases
of it.
H.W.Jr:
That is right. I want to ask for an appoint-
ment for 9:30 tomorrow morning, so if I get
it I could stop by here at 9:00 and pick it
up.
Bell:
Well, we can have it ready.
H.N.Jr:
All right, will you proceed to change the regu-
lations, then?
Broughton: Yes. We won't lose any time on it, on those
two things.
Bloan:
We will plan to make them effective the first
of April.
H.M.Jr:
That is right. That 1s 8 good day, that is
a Monday. You see, if I give you clearance,
you are going to have two full weeks to work
on it.
Bell:
That is plenty of time.
H.M.Jr:
You will have two full weeks to get out your
stuff, which ought to be plenty.
Kilby:
I would like to have that much on financing
some time.
Regraded Uclassified
144
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE
March 15, 1940
TO
Secretary Morgenthau
FROM
Mr. Cochran
CONFIDENTIAL
The foreign exchange market was quieter today and the reported sterling turn-
over WAS considerably smaller than that which prevailed during the earlier part
of this week. In contrast to the wide fluctuations which took place in the sterl-
ing rate during the past few days, the quotation moved within a much narrower
range today. As shown in the turnover figures below, offerings of sterling were
about evenly balanced by orders to purchase. In Amaterdam, sterling reached 3.69-5/16,
its lowest point since the current decline began. After opening at 3.71 in New York,
the rate moved off gradually to 3.70 just before noontime, then returned to 3.70-1/2,
where it remained until mid-afternoon. Just before the close, a firmer tendency ap-
peared and the final quotation was 3.71.
Sales of spot sterling by the six reporting banks totaled L533,000, from the
following sources:
By commercial concerns
In 137,000
By foreign banks (Europe. South America and Far East)L 396,000
Total
I 533.000
Purchases of spot sterling amounted to L554.000. as indicated below:
By commercial concerns
: 310,000
By foreign banks (Europe and Far East)
L 244,000
Total
L 554,000
The forward quotations for sterling were quoted at a discount of 7/84 and 34
per pound for one-month and three-months deliveries respectively.
The National City Bank reported that it had sold cotton bills totaling 19,000
to the British Control on the basis of the official rate of 4.02-1/2.
Purther improvement was registered in the rate for the belga, which rose today
to a high of .1702 at noontime. It closed at .1698.
The other important currencies closed ES follows:
French francs
.0210-1/4
Guilders
.5311
Swiss francs
.2242
Canadian dollars
18-3/8% discount
The discount for the Cuban peso widened further to 10-3/16. The Mexican
peso was unchanged at .1672.
Regraded Uclassified
145
- 2 -
We sold $100,000 in gold to the National Bank of Belgium, to be added to ite
carmarked account.
The Federal Reserve Bank of New York reported that the following shipments of
gold were being made to it by the banks indicated below:
$7,500,000 from Italy. shipped by the Bank of Italy for ite own account, for sale
to the U. S. Assay Office.
1,665,000 from South Africa, shipped by the South African Reserve Bank, to be ear-
marked for account of the Netherlands Bank.
$9,165,000 Total
The Bombay silver quotation worked out to the equivalent of 40.51$. off 1/16#.
In London, the spot and forward silver prices were both fixed at 20-15/16d, up
1/4d. The U. S. equivalents were 34.80$ and 34.614.
Handy and Harman's price for foreign silver was unchanged at 343/44, and the
Treasury's price vas also unchanged at 35¢.
We made ten purchases of silver totaling 1,293,000 ounces under the Silver Pur-
chase Act. Of this amount 750,000 ounces represented sales from inventory and 16,000
ounces were trading silver. The remaining 527,000 ounces consisted of new production
from foreign countries, for forward delivery.
We also purchased 25,000 ounces of silver from the Bank of Canada under our
regular monthly agreement.
CONFIDENTIAL
Regraded Uclassified
146
March 15, 1940.
9:46 a.m.
Operator:
Go ahead.
H.M.Jr:
Hello.
Congressman
Snyder:
Hello, Mr. Morgenthau?
H.".Jr:
Talking.
5:
Congressman Snyder of Pennsylvania, Chairman
of the House Committee Appropriations for Army and
National Defense.
H.Y.Jr:
Right.
S:
I want to see you about five minutes some time
today.
E.M.Jr:
At your convenience, as long 8.8 it doesn't come at
Cabinet time.
S:
When's Cabinet time?
K.M.Jr:
Two to four.
3:
Well suppose - what time do you go to lunch?
H.M.Jr:
Well, I 20 out around one o'clock.
S:
Well I've got hearings,
at ten,
and running until twelve. of course I'd break
them un to see you but then -
H.".Jr:
Could you do it after four?
S:
After four o'clock?
H.M.Jp:
Yes.
S:
Yes sir. Would that be better?
H.M.Jr:
It would be better for me, If it's time enough
for you.
S:
Yes, that's all right.
H.M.Jr:
What?
S:
I'll be there then -
H.V.Jr:
Well let's say - four-fifteen.
Regraded Uclassified
147
- 2 -
Four-fifteen?
H.M.Jr:
Yes.
Thank you Mr. Morgenthau.
H.M.Jr:
Thank you 80 much.
Yes sir.
Regraded Uclassified
148
March 15, 1940.
9:50 a.m.
H.M.Jr:
Hello.
Operator:
Secretary Edison.
H.M.Jr:
Thank you. Hello.
Secy.
Edison:
Yes,
H.M.Jr:
Henry Morgenthau.
E:
Oh yes, hello Henry.
H.M.Jr:
How are you?
is
Well I think I'll live.
H.M.Jr:
Good. Did you - no indigestion from my lunch.
E:
No what?
H.M.Jr:
You've no indigestion?
E:
Oh no, no, I can hand that one a good one.
H.M.Jr:
Did you hear from Pa Watson?
E:
Yes I did. He said that the President said that
it was O. K. to release that six hundred thousand
- yes - six hundred thousand nounds of powder to
the British.
H.M.Jr:
Yes.
E:
Is that right?
H.M.Jr:
That's right. I went over and saw Pa and explained
it to him and then he seid he'd call you and he
saw the President.
E:
All right. Well then we're all scuared away again.
H.M.Jr:
(laughs) Now I want to ask you if you'd do me a
little favor.
E:
Yes sir.
H.M.Jr:
I wonder if you could get your navel attache in
London to give me a little cable which the Treasury
will be glad to pay for interpreting the significance
- 2 -
149
of this English-German-Italian coal business, see?
3:
Yes, the naval attache in London.
R.M.Jr:
Yes.
E:
You want him to send you a cable.
H.Y.Jr:
Well send it to you for me, which we'll pay for.
in
Send it to me, giving his interpretation of the
English-Italian-German coal agreements.
H.Y.Jr:
Yes.
is
I see. All right, we'll get that for you.
H.V.Jr:
You know, I mean that no more German coal going
by sea, you know.
E:
Yes. I know.
H.V.Jr:
And how are the Italians going to get the coal,
and the whole business. I mean T don't care how
many words he uses.
E:
I see.
H.Y.Jr:
I'd like a detailed explanation of the significance
of it.
E:
All right sir.
H.M.Jr:
And the Treasury will be glad to pay for it.
is
All right fine. I'll get that for you sir.
H.M.Jr:
Thank you. Thank you.
in
Coodbye.
H.M.Jr:
Goodbye.
Regraded Uclassified
150
March 15, 1940.
10:21 8.m.
H.M.Jr:
Hello.
Senetor
Magner:
Hello.
S.M.Jr:
What's the price of silver today Senator?
V:
Hello Henry, how are you?
E.".Jr:
Well I've not B lot of silver for sale.
W:
Have you? You're not buying. You're selling
now are you?
R.M.Jr:
Well I an now with your help and Key Pittman.
V:
Say Henry, I'm damned sorry about the situation
but, you're coming un aren't you, on Tuesday?
H.M.Jr:
Why no.
V:
Well the committee has asked me to ask you to
come up. I told Barkley to do it but he hean't
done it yet, to tell you about it.
F.V.Jr:
Well I saw in the paper, but I thought it was a
misorint.
V:
No it wasn't. on I said that we were zoing to have
B representative at the Treasury Department and
they said, "Why we wanted - we want to know where
the Secretary stands and all that sort of business".
H.M.Jr:
Well now look -
W:
So both Barkley and I agreed to get in touch with
you. I thought Barkley would do it because he
started all this trouble. I thought I had it -
H.V.Jr:
Now Bob.
W:
Some way, but yet it's hard to handle.
H.M.Jr:
On the night'of the 21st, which is Thursday, I'm
taking the family away for Easter, can't you
postpone it until after that?
W:
God, we're nostponing it so often that
they're hollering murder you know.
H.V.Jr:
I know.
Regraded Uclassified
151
- 2 -
V:
Between you and me I took & little leave myself
over R couple of weeks.
H.N.Jr:
I know. But supposing - couldn't they postpone
it -
V':
I don't think so although I tell you it'll be
awfully hard to do Henry in view of the feet that
we postponed it for E month now, and he's
hollering for a vote, and the only thing that'll
keep it in will be if, if we get something from
the Administration -
H.M.Dr:
Well how would this be. Supposing Harry White
comes 120 Tuesday.
M:
Yes.
H.V.Jr:
And if they're not satisfied then you can send
for me.
Y:
Well Henry, I'd like to say it's all right, but
I know they're going to complain. They're going
to say that I didn't really follow out the wishes
of the committee. Let me talk - I'll get word to
you later on.
H.V.Jr:
I'll tell you what I'll do.
Y:
Let me talk 10 out a little.
Talk it out and -
V:
You know what I'd like to do. I wouldn't like to
have you come UD at all, you know, because I
don't see any mense in it, but here's this
committee and they're all hollering.
R.M.Jr:
Well I'll tell you this. If you want me I'll be
there.
V:
Yes.
H.Y.Jr:
If you can keep me from cosing I'd appreciate it.
W:
Well -
H.V.Jr:
If you want me I'll be there.
V:
Yes. Well I don't want you.
Regraded Uclassified
152
- 3 -
H.M.Jr:
I know, but I mean -
V:
Yes, oh they - all right.
H.M.Jr:
If you can't wangle it 80 that I can't be down,
I'll be there.
W:
Yes.
H.M.Jr:
But I'll not out it down on my calendar until I
hear from you again.
V:
All right Henry.
M.M.Jr:
How's that?
W:
Yes.
H.M.Jr:
Is that fair enough?
V:
That's - oh well. Well you know what my feelings
are? It's only that you can't always do what you
want with these guys.
H.M.Jr:
Well you know I went over -
W:
That's 8 ticklish thing. Listen Henry -
H.M.Jr:
Yes.
W:
I wish to hell the President would forget it and
let it go, you know, but he won't and that's the
end of that.
H.V.Jr:
Well now we went over -
W:
And I'm moing to stand by him.
H.M.Jr:
We went over to see Mr. Hull and Hull won't make
any fight for this.
W:
He won't. He told me so. He said he was going
to leave it all in your hands. I called him up
yesterday.
H.M.Jr:
Well that's nice.
W:
I said the committee would like to get his views.
He said, "I have no views I'm leaving it all in
the hands of Henry Morgenthau".
Regraded Uclassified
153
- If -
M.M.Jr:
V100 fellow.
V:
Yes, well that's it you know. I mean every fellow
should take a little, take his share but too many
Presidential condidates around now.
E.M.Jr:
Couldn't - just let me drop this in your mind.
V:
Yes.
R.M.Jr:
Because I'm not running for anything except for -
%:
Yes, I understand.
K.".Jr:
NOW, Sheriff in Dutchess County, I do want that
some day.
M:
Well I've been wanting to be alderman in New York
and I never got it, when they abolished it.
H.M.Jr:
I see. Well anyway, I'll leave it in your good
hands and I just wanted to -
V:
Well Henry here's what - why I think that I can't
change it because I, myself, said"At the next
meeting we'll have a representative of the
Secretary here"and they said "No, we don't want
n representative ve want the Secretary. We want
somebody that speaks with authority." So there
it 1s.
H.M.Jr:
Well may I make one other suggestion?
W:
Yes, certainly.
H.M.Jr:
See, the day I come up, that you can't out
Key Pittman on first.
V:
Yes, well we'll try to do that.
H.M.Jr:
See?
11:
Yes, I don't Bee any objection to that.
F.M.Jr:
Well now if you out Key on first.
V:
Yes.
E.M.Jr:
Muddy the waters so that nobody will know where we
stand.
Regraded Uclassified
154
- 5 -
W:
Yes.
H.M.Jr:
See?
V:
Yes. All right. I'll do that.
H.M.Jr:
Put him on first. He'll talk his head off and
I'll never get a chance.
W:
All right. All right Henry.
H.M.Jr:
How would that be?
W:
All right, I'll do that.
H.M.Jr:
Okey doke.
V:
Yes.
Regraded Uclassified
155
March 15, 1940.
10:31 a.m.
H.M.Jr:
Hello
Operator:
Justice Douglas.
H.M.Jr:
Hello
0:
Go ahead.
H.M.Jr:
Hello.
Justice
Douglas:
Hello Henry.
H.M.Jr:
Well I just want to tell you Bill, I kept faith
on the Bank of America.
D:
oh, I'd lost track of it.
H.M.Jr:
Well they've agreed, with no - unconditional
agreement - to out in thirty million dollars worth
of capital.
D:
Oh swell.
H.M.Jr:
And they announced it yesterday.
D:
Yes.
H.M.Jr:
And last week, when they tried to put heat on me
to only take this agreement subject to an agreement
with SEC, I threw it out the window.
D:
Swell.
H.M.Jr:
And so I've written a letter this morning to
Jones. to out UD the thirty million.
D:
Yes.
H.M.Jr:
And I understand as soon as that's in and subscribed,
then SEC 18 going to RO ahead.
D:
Yes.
H.M.Jr:
But the other day when they tried to get me to
agree to this thing - subject to SEC coming
to agreement, I told them I got a blood brother
agreement with Bill Douglas.
D:
(laughs) Well that's grand Henry.
156
- 2 -
E.V.Jr:
I just wanted to let you know I kept it, and
the SEC knows it.
D:
Yes.
H.".Jr:
Because they out the heat on them end they would
have been sunk.
D:
Yes.
H.M.Jr:
If I had taken an agreement subject to their
settlement with SEC.
D:
Yes.
H.V.Jr:
Which I refused to do, last Friday.
D:
That's grand of you.
H.".Jr:
And our end of the story is true and I think
that once Jones puts the money in, then it's un
to the SEC to 70 shead.
D:
Sure. Well that's grand of you Henry.
H.W.Jr:
Well I started this.
D:
Perfectly swell.
E.".Jr:
It's the biggest financial fight that's taken place
in Washington.
D:
Yes, that's right.
M.M.Jr:
It's the biggest one.
D:
You betche.
H.M.Jr:
O.K.
D:
Fine. Congratulations Henry.
H.M.Jr:
Goodbye.
D:
Goodbye.
Regraded Uclassifi
157
March 15, 1940.
11:35 8.m.
H.N.Jr:
Hello.
Operator: Cantain Collins. Go shead.
H.M.Jr:
Hello.
Cantain
Collins:
Good morning sir.
H.M.Jr:
Hello.
C:
This is Collins.
H.M.Jr:
Yes Mr. Collins. Go shead, Morgenthau talking.
C:
Yes sir. Mr. Secretary, yesterday afternoon I
wanted to just pase along one piece of information
which I'm passing along by a memorandum later on
today ns soon PB I can get it out of here. At the
meeting yesterday why they told their program
pretty much along the lines It was told in your
office, the French. After the meeting I had a
talk with Towers, Chief of Aeronautics, 88 you
know, Admiral Towers.
H.V.Jr:
Yes I know him.
C:
And he's very - was very favorably impressed with
1t, and he said that he saw no reason why they
should not be given access to any plans or
specifications for any model existent or proposed
as far 88 the Navy was going and he vas agreeable
to that.
H.M.Jr:
Good.
C:
We talked for probably half hour or 80 on it.
He saw Stark last night and then also Secretary Edison
phoned me at the house last evening and said that
they had agreed thoroughly to letting these
people have access to all plans and specifications
of any models that they could use.
H.M.Jr:
Wonderful.
0:
So that's the Navy end of it. The Army end of
it I think will be entirely different.
H.M.Jr:
I see.
Regraded
158
- 2 -
C:
It yesterday. was so indicated in their line of cuestioning
H.V.Jr:
Well -
0:
That will be tied in with the meeting we had
yesterday morning which I think will probably be
pursued 8. little further tomorrow.
H.K.Jr:
I see. Well Woodring was here, ES you know for
lunch.
C:
Yes sir.
H.Y.Jr:
And he's coming back Tuesday morning with
Edison.
:
Yes sir.
H.M.Jr:
And I think he'll have some kind of a proposal
at that time.
C:
Well I may have it for you Monday.
H.M.Jr:
I see. Now what happened to Purvis. Has he left
town?
C:
He went back on the five o'clock and I talked
with him last evening in New York and told 71m
the good news and he is sending down Jaccuin plus
an Englishmen due in New York today. They are
expected here tomorrow morning and I told him
that I would see that they were properly presented
to Towers.
H.M.Jr:
Well what they can do 18, I mean if the Army
doesn't come across, they could ret a look at the
Navy stuff can't they?
C:
Oh that's what they're going to do.
H.M.Jr:
What?
C:
That's what I want them to do.
H.M.Jr:
They can begin to look -
C:
Right away. Right away.
159
- 3 -
R.M.Jr:
If the Navy sets the precedent it's going to be
awfully hard for the Army.
C:
Very hard indeed.
R.M.Jr:
What?
C:
Very hard indeed.
H.N.Jr:
Yes, Well I think that's - wasn't Purvis pleased?
0:
Oh he was tickled to death when I phoned him
last ovening.
H.W.Jr:
Good. Now I finally got that damned six hundred
thousand powder thing cleaned up.
C:
Yes sir.
H.M.Jr:
I had to go over and see Watson. He saw the
President. The President ordered it to be done
and I spoke to Edison this morning, 80 they're
going to release it. Now I wonder if Purvis
knows that.
0:
No he doesn't.
H.M.Jr:
He doesn't.
C:
He doesn't know, because he spoke to me again last
night and I told him that I had been talking with
you just shortly before we'd gone into & ression
before our fellows saw him yesterday.
H.M.Jr:
It's all clean and that Navy nowder which 18 on
order from Dupont, isn't it?
C:
That's right.
R.M.Jr:
Well it's his
C:
All right fine.
H.M.Jr:
So you let him know that.
0:
I'll do that and then also, what about the
million two for the War Department?
H.M.Jr:
That's all released.
Regraded Uclassifie
160
- 4 -
C:
All right fine.
H.M.Jr:
What?
C:
All right fine.
H.M.Jr:
And if he has any trouble, if there's any
trouble on it let me know, but gosh it's been so
hard to get that and tell him that.
C:
Yes sir. Oh, I told him that yesterday. I didn't
tell him why but I told him that there had been
extremely great difficulties put in your path
in connection with this deal and that you were
personally handling it and I had talked with you
about it, and you told me that you were personally
handling it.
H.M.Jr:
It's all clear and he ought to be able to get that
million two and six, he ought to get it at once.
There's no more difficulties there and if there
are let us know.
C:
Well then I think if he just simply applied to the
Companies immediately for that -
H.M.Jr:
At once.
C:
At once. I'll tell him that.
H.M.Jr:
At once.
C:
Goodbye.
H.M.Jr:
Coodbye.
C:
Thank you.
Regraded Uclassified
161
March 15, 1940.
11:55 a.m.
Operator:
Mr. Foley.
Ed.
Foley:
Yes, Mr. Secretary.
H.M.Jr:
Did Cushing say anything after he left here?
F:
No.
H.M.Jr:
I just wondered.
F:
No. He just said, 8.8 we walked down the hall,
that he hoped if there were any criticisms or
suggestions that we had from examinations in the
future that we could discuss the matter with the
people in the bank and not get it in the record
making stare again, because he thought that
harmonious relationships could be continued on
that basis.
H.M.Jr:
I don't think it did any harm to say that.
F:
Oh I think it was very good, Mr. Secretary, and
I think he went away with a lot better taste in
his mouth.
H.M.Jr:
O.K.
F:
Thank you sir.
Regraded Uclassified
EE2
IN THDIANA INVESTIGATIONS
March 15, 1940.
3:45 p.m.
Present:
Mr. Graves
Mr. Helvering
Mr. Irey
Mrs Klotz
Kr. Thompson
Mr. Cairns
6.M.Jr:
At your service, gentlemen.
Holvering:
Well, I don't know just - I suppose maybe we
could discuss a little farther about --
H.M.Jr:
What I call the Indiana matter.
Relvering:
Yes. First, I want to say that in the memo-
randum Mr. Irey wrote you and enclosed was a
copy of Sullivan's statement --
H.M.Jr:
Yes,
Walvering:
I want you to understand Irey didn't do that
voluntarily of his our accord. He thought it
would be well for you to see It and I okayed
that.
0.M.Jr:
Yes.
Belvering:
I am approaching this from an entirely different
angle from what seems to be the approach of the
attorneys. I am approaching it from an angle
of securing evidence. They seem to approach it
from the angle of having enough evidence to
secure a conviction. In all our practice over
here and in other cases, the orders have been
issued, the testimony secured and the day after
it was done it was all over with. This may take
on & significance that we ought to be more care-
ful about, that is true, but when I read the
testimony, the fact that Mr. Elder had sub-
mitted a statement of the books of the Hoosier
Democratic Club showing so much money going to
the State Democratic Committee, the Democratic
Committee's books not showing 1t, then he admits
that he didn't give it to them, that he took
it himself in cash and we have got photostatic
copies of the checks he cashed and those are
ranging to 250 to several $10,000 checks. I
think it is inconceivable for a man to handle
that much in one check, cash, and not be able
to tell a thing about what became of it.
163
- 2 -
Therefore, I say, in my opinion, his answer
that it was given for the general benefit of
the Democratic Party or good purposes, is
exceedingly vague and I think proper grounds
for an order. Now, evidently the Attorney
General and Mr. Foley disagree with that premise.
They want more --
H.M.Jr:
Well, as I understand it, and mind you, I handle
a. lot of these things every day Just the way
you do - you men have got to check my memory.
I read Bob Jackson's letter only once and as I
read the letter it was a very carefully written
letter, and you check my memory, and the letter
said that he didn't think as the matter stood
we had enough evidence, but If we wanted him
to go ahead, he would. Now, wasn't that about
the purport of the letter?
|(elvering:
Yes, and it had other additional facts.
H.M.Jr:
But wasn't that about what he said? Am I right?
Graves:
That is right.
I.M.Jr:
I only read it once. It was B, very short letter,
as I remember it.
Nelvering:
Yes, it was.
Graves:
He said, "In concluding, if, after consideration
of the foregoing, your Department feels that your
investigation might be furthered by the filing
of the petition and you so advise, this Department
is willing to take that action and to cooperate
with you to the fullest extent possible."
H.M.Jr:
I love to check my memory. It is fun to just
check it.
Klotz:
It is wonderful.
H.M.Jr:
Now look, let's just for & minute talk person-
alities on this thing. Elmer is 8. sick man.
We have been through tougher things than this.
I don't consider this B. particularly tough one.
It is unpleasant to have B pipeline somewhere
in the Treasury and every time we make & move,
it is known and therefore it appears in the
columns. It is a pipeline, definitely. There
Regraded Uclassified
64
- 3 -
is a lesk somewhere which I don't know and I -
some day it will turn up. Now, as to the
personal side, Elmer is so wrought up about
this thing that I think he ought to go down
to Florida and do a little coordinating down
there. Do you agree on that?
Helvering:
Yes, I think SO,
H.M.Jr:
Because this is no job for a sick man.
Helvering: No.
H.N.Jr:
And what I an ready to do any time you people
are ready to talk, if you are ready today, you
say you want & court order, I won't ask anybody
except you two people. If you think it is
ready for a court order, let me know and I will
ask for one, and that answers it.
Belvering:
I think there is a little preliminary work we
want to do before that.
4.9.Jr:
Do you care to tell me?
Helvering:
Yes. I think we ought to have a further analysis
of this report for two purposes. One, to find
out if there is anything in there that Mr. Sulli-
van has misrepresented and another is whether or
not we have evidence sufficient to ask for this
court order. I myself think any judge would
say 1f & man has cash In the amount of $10,000
and said he doesn't remember or - it was just for
the general good of the Democratic Party, I can't
conceive of it.
H.M.Jr:
Let me get this thing straight. What does a
court order accomplish? I am not familiar with
that procedure. You are & lawyer, aren't you?
Helvering:
Yes,
H.M.Jr:
Sure.
Belvering:
At least, I passed through the stages at one time.
E.N.Jr:
Just what happens when we go through that process?
Regraded Uclassified
185
- 4 -
Helvering:
The District Attorney advises the court that
they haven't been able to secure from the
witness an answer to the questions that they
want answers to, that he is either evasive or
in contempt, that is, contemptuous, as the
lawyers call it, or refuses to answer. Now,
we can't say that Elder refused to answer. We
can say very distinctly that he was evasive.
He wasn't contemptuous about it. He was very
affable, as E. matter of fact.
H.N.Jr:
Too affable.
Helvering:
Yes, but gave us no information. I am of the
opinion that if the court 18 advised that this
man had $117,500 and which we have photostatic
copies of the checks endorsed by him, on which
he admits that he - & great many of them he got
cashed - he doesn't remember some of them.
$85,000, I think the figure is, in the other
fund.
H.H.Jr:
The slush fund?
Helvering:
Yes.
H.N.Jr:
Which he also pocketed, as far as we know?
Helvering:
Well, he doesn't explain where it went or for
what purpose it was used. $235,000 there - no,
not quite that much.
Graves:
A little over two hundred.
Helvering:
If that is presented to the court and 1f the court
did request us as to why we want this order, all
I think we would have to do in the world is to
read the question and his answer.
H.M.Jr:
Well now, look. We have worked - when will you
be ready to make a recommendation to me?
Helvering:
Well, there is another matter which maybe you
(Graves) had better suggest to him now, about
what we think is necessary here.
Graves:
Mr. Helvering and I spent a long time this morning
going over this thing and we concluded that we
Regraded Uclassified
165
- 5 -
would like, ourselves, to make an analysis of
the evidence in this case to see what we have
got against each of these principal figures
and what our investigation gives promise of
getting in addition to what we have got. Now,
that is something where we will need some help.
Mr. Helvering and I can't take two tons of
material and go over it ourselves, so we thought
that we should have B. lawyer to help us on that
job, or two lawyers. You mentioned Sam Klaus
yesterday. I thought perhaps you were joking,
but you recognize yourself that - the need for
people of that kind. The man that we think
would be most useful is & man named Carpenter
in the Penal Division of the Chief Counsel's
Office in the Bureau of Internal Revenue. I
say that because I have worked with him myself
on these motion picture cases and other cases,
the California --
H.M.Jr:
Schenck?
Graves:
And others and on the Annenberg case and I have
seen the men work and I know he 18 capable and
straightforward and quick, so Mr. Helvering
quite agreed that he would be & serviceable
man. He called Mr. Venchel to inquire if
Mr. Venchel would be willing to loan that man
to him - let's put 1t that way - to loan him
to Mr. Helvering and Mr. Wenchel said he would
have to get the clearance of Mr. Foley and
Mr. Foley declined to give his approval to
that loan of this lawyer.
H.M.Jr:
Why?
Graves:
Well, I think this is the reason. The man was
one of the two lawyers who were sent to Andiana
on this very case.
H.M.Jr:
Yes?
Craves:
And I think - I am speculating somewhat - but I
think this lawyer, Carpenter is his name, WES
not is sympathy with Mr. Leming, who was the
fellow who was in here before you in this
objection, in proceeding with this court order,
Regraded Uclassified
167
- 6 -
and I think Mr. Foley had that reason. He
gave & different reason to Mr. Helvering.
I think you (Mr. Helvering) ought to tell
Mr. Morgenthau that. Mr. Foley already called
Mr. Helvering and talked with him about it.
Helvering:
Well, when I called Phil Wenchel I said I
would like to have mr. Carpenter detailed
absolutely to me for 8. week or maybe more.
Re said, "Of course." He said, "Of course,
I want to clear it with Foley. He called
me back and said he would like to come down
and see me and he came down and said he had
talked to Foley and Foley didn't approve of
it, but he would talk to me, so while Mr. Wen-
chel was in there, Foley called me, so while
I did have an intimation from your talk yes-
terday and also from what Harold says, that
we were just going into this and the whole
thing would be decided by we three here, I
did tell him, because I knew he would find
out anyhow, that what I wanted Mr. Carpenter
to do was to analyze the file and evidence
in the Indiana case and I can read you now
Mr. Poley's direct answer. I had my secretary
take it down.
He said, "I might be put in B. position of
being responsible for what Carpenter does,
not knowing what he is doing or what might
develop. I would be uncomfortable about it.
When you got E. division of responsibility and
cut across division lines, you have a bad
situation in the organization. However, I
will be glad to let you have Ben Leming."
of course, that is rather contradictory in
itself. I motioned my secretary to take
this down. I then made it plain to him
that I didn't want Carpenter in any other
capacity except B full detail to me and re-
porting to me or such man as I designate.
Of course, I didn't mention Harold in it at
all. Well, he said he wouldn't feel like
doing that.
H.M.Jr:
Well, what I told Harold yesterday, and this
goes, is that you and Harold can have anybody
that you want.
Regraded Uclassified
68
- 7 -
Draves:
I told Mr. Helvering that.
P.V.Jr:
I am going to have Carpenter detailed to me.
Foley isn't in town. Does it have to be
Carpenter?
Graves:
Carpenter is the very best man we can get
our hands on. We want a quick job on this
and he knows all about this.
H.S.Jr:
You mean you think Foley ought to have 8.
chance?
Xlotz:
Well, you want to have good feeling all around.
S.K.Jr:
You won't have good feeling in this, Mrs. Klotz.
It isn't going to be good.
Elotz:
Well, I am all in sympathy with you (Helvering)
and I agree with you a hundred percent --
U.M.Jr:
He can talk to me tomorrow if he wants to about
it. When do you want Carpenter?
Helvering:
The first thing in the morning, 15 we can get
him.
(Mr. Thompson entered the conference)
E.M.Jr:
Norman, I have got a special case here and I
want Nr. Helvering and Mr. Graves to handle it
and I told them they could have anybody they
want. They want 8 man by the name of Carpenter.
For some reason or other which I don't know,
Mr. Foley doesn't want them to have Carpenter.
Foley 1s on his way to New York and I have asked
the man to come in, whoever is acting. I will
give Foley & chance to talk to me tomorrow.
But I want Carpenter detailed to me, personally,
you see. I want him - and detached - we will
ask Foley to tell us why, to give us a reason
before I do it, but I want him before I do it.
I am coming in here tomorrow morning and I
want Mr. Carpenter here at 10:30 tomorrow
morning. We can send for him. And I want him
attached to me and I will - he is working for
me. Then I can do anything I want with him.
Is that legal and proper?
Regraded Uclassified
169
- 8 -
Thompson:
It surely is, absolutely.
(Mr. Cairns entered the conference)
H.M.Jr:
Huntington, sit down and pull up a chair.
I have given these two gentlemen B. task to
do for me and I told them they could have
anybody they wanted in the Treasury. They
want a lawyer by the name of Carpenter. I
understand that Mr. Foley has some objections.
Now, you get Foley when he gets to New York
tonight, see, and tell him that if his ob-
jections are serious, he can talk to me in
the morning. What I want is, I want Carpenter
assigned to me personally and he is working
for me personally, see.
Cairns:
Yes.
H.M.Jr:
Do you know about this?
Cairns:
No.
B.M.Jr:
Well, it is in connection with the Indiana
cases.
Cairns:
Yes.
H.M.Jr:
Then I will assign him to do whatever work I
want, but 1f - before we go through with it,
Foley, if he wants to, can call me up tomorrow
morning and tell me why, and I won't move until
he has a chance to talk to me, but the proposal
I make is, I want Carpenter assigned to me
personally and what I am going to do with him
then is assign him to Harold Graves.
Cairns:
Well, if Ed has no objection when I talk to him,
shall I just tell Mr. Graves and Carpenter?
H.M.Jr:
That is it. As I understand it, he doesn't want
the responsibility, and so forth. Well, I am
releasing him of all responsibility but he is
being assigned to me and Harold Graves, in his
capacity as Assistant to the Secretary of the
Treasury, is doing B. special job for me and he
needs legal - he needs a lawyer.
Regraded Uclassified
170
- 9 -
Cairns:
Yes.
H.M.Jr:
I don't want to go outside of the Treasury,
so I want this fellow.
Cairna:
I understand.
I am not going to rush Foley and if he wants
his day in court, he can have his day in court
on the phone with me tomorrow morning.
Cairna:
I have it. And if he has no objection, I won't
bother you any more, I will just tell Mr. Graves.
8.2.Jr:
But I told Harold when he went into this job
he could have anybody in the Treasury he wanted.
For reasons I don't know, he has picked Carpenter.
I don't even know what the fellow looks like. I
can't have Harold doing this difficult task when
he says he wants Carpenter - if there is some
good reason and Foley wants to talk to me to-
morrow, he can talk to me.
Cairns:
I will make that clear to him.
And if you want to talk to Harold afterwards
to get additional explanation, he will be
available when he leaves this office.
graves:
I will come around.
P.R.Jr:
If there is B. good reason, my God, after these
years that Foley has been in there, he will
have his day in court.
Cairns:
or course,
H.M.Jr:
But you talk the thing over with Harold. Is
there any other lawyer you (Graves) want while
I am at it?
Graves:
No, not at the moment.
B.M.Jr:
You just want this one lawyer?
Graves:
For the time being.
E.V.Jr:
The suggestion of Leming was made. He doesn't
want Leming. I don't know why. He wants
Regraded Uclassified
171
- 10 -
Carpenter. All right, I told him as a bribe
when he did this job, that whoever he wanted,
he could have. Now, I am not going to fall
down on him. See what there is to it, will
you?
Cairns:
Yes, indeed.
H.M.Jr:
Just the same way as when I want "heutrality"
I want you and I don't want somebody else.
Cairns:
All right.
H.M.Jr:
But I want to make it very, very clear if
Foley has his doubts he can have his day in
court over the telephone, but if Harold can
sell you a bill of goods and you can sell it
to Foley, don't come back, but if there are
any doubts in Foley's mind, he talks to me
tomorrow. Is that fair?
Cairns:
Absolutely.
H.M.Jr:
And Norman Thompson will draw up the papers
and the man will be detached until further
notice to me personally, not to the office -
whatever the way is.
Thompson:
Yes, sir, that is easy enough.
H.M.Jr:
O.K.?
Cairns:
Fine.
H.M.Jr:
And you (Graves) go back and see this man
afterwards.
How is neutrality, anyway? We are not too
neutral, I hope, are we?
Cairns:
Well, we just got a telegram from Norway that
we are to be put in jail.
H.M.Jr:
You and I both?
Cairns:
You and Herbert and myself.
H.M.Jr:
You supply the books and I will supply the food.
Regraded Uclassified
172
- 11 -
Cuirns:
Fine.
Klotz:
The books he would recommend are too highbrow.
H.M.Jr:
oh, he has got some others.
Klotz:
I remember the last ones he recommended.
B.W.Jr:
What else?
Graves:
I assume you intend that I am to stay with
this case until we get to the end, either one
way or the other.
H.M.Jr:
That is right.
Craves:
And you mentioned Mr. Klaus.
H.M.Jr:
I think Klaus is just going to trial out there.
You had better not pick him up.
Craves:
I was just going to say again, if you were
serious it would be entirely suitable to me.
B.M.Jr:
No, you had better leave Klaus alone. Let me
make another suggestion, with the exception
of this man here who only makes one copy, don't
write any more memoranda about this. When you
want to see me, come over in this room and talk
it over. Don't write any memoranda, because
somewhere along the line, in all this memoranda
stuff, somebody is getting it, so no more memo-
randa.
Selvering:
I won't.
See, and I am interested and I have got all the
time that you gentlemen need. Now, supposing
you get Carpenter tomorrow. When do you think
you will be ready to see me again?
Draves:
I would guess before the middle of next week.
Tomorrow is Saturday.
H.M.Jr:
Remember, I am going away on the night of the
21st.
Elots:
Thursday.
Regraded Uclassified
173
- 12 -
Draves:
Yes, we will have the recommendation for you
before that, won't we?
Helvering:
Oh yes, yes.
H.M.Jr:
And you had better clean up whether Agent Sull1-
van is or isn't.
Iraves:
Yes, sir. I would like to say now that I have
examined since last night this statement made
by Bo Elder and the analysis or criticism of it
by Sullivan, and while there are discrepancies
between Sullivan's statement and the questions
and answers things from Bo Elder, in my opinion
there is nothing there for which anybody could
attach any blame to Sullivan. There was no
intention on his part to misrepresent or to
deceive anyone with reference to any part of this
business.
H.M.Jr:
But now, no more memoranda. Somewhere in these
memoranda going around somebody is getting them.
Between now and the 21st, Thursday night, you
ought to be able to give me an answer.
Belvering:
Yes.
H.M.Jr:
Who else do you want?
Graves:
Well, I am not sure. I thought it best to stay
away from Irey's people, not bring in any of
Irey's people, that is, to help me. We have
got to talk with Irey's people.
H.M.Jr:
All right.
Graves:
Not that I myself have any lack of confidence
in Irey's people, but I think perhaps it would
look better 1f I just used other people than
the people who have been in this picture,
Helvering:
You will have to get certain information from
Mr. Sullivan.
H.M.Jr:
And you and the Commissioner are going to do
this thing together and it is Just between the
three of us and the only thing I wanted out
of you, Norman, was an order and Harold will
let you know.
174
- 13 -
Thompson:
Do you want Carpenter to see you tomorrow?
H.M.Jr:
No, the point is this. I can sense this thing.
It is this old fight between the General Coun-
sel's office and dividing the authority. Isn't
that what it 1s?
Colvering:
That is right.
H.M.Jr:
Therefore, I cut across all lines and the fellow
is assigned to me personally.
hoouson:
Yes, All right.
(Mr. Thompson left the conference)
...Jr:
Isn't that what is the matter? 80 then I cut
everything loose and I can pick up a lawyer
and assign him to me personally and then lend
him to this fellow. Is that right?
!olvering:
Yes.
uraves:
That is what we supposed when Hr. Helvering called
and Hr. Wenchel said yes, just like that. There
would be no question about it.
E.V.Jr:
What will we do about Elmer?
Traves:
I understood you wanted to tell him of your wish
that he 60 away and take A rest.
Klotz:
I thought he got that impression from you last
night.
H.K.Jr:
He did, but I want to tell him.
(Nr. Irey entered the conference)
Elmer, amongst your friends here, we think that
this is B. nice time of the year to do a little
coordinating.
Trey:
So I have been told.
M.M.Jr:
And this is an order, see, and I don't want any
argument.
Regraded Uclassified
175
- 14 -
Irey:
Like you have, generally?
H.M.Jr:
And so between Norman Thompson and Herbert
Gaston, they will fix you up a nice coordinating
order. I don't think he ought to go down to
Florida, because Mr. J. Edgar Hoover has ad-
vertised that too much. I think somewhere
around Biloxi. Haven't you got a job down
there?
Trey:
I can find one anywhere in the country.
E.M.Jr:
I am perfectly serious about it. What is the
next district west?
Trey:
West of here?
H.M.Jr:
No, what is the next district, the Mississippi
district?
Trey:
Houston, Texas.
H.M.Jr:
There isn't anything down along Biloxi?
Trey:
Nothing around Biloxi. There are plenty in
New Orleans. There are plenty of places of
the type you have in mind.
S.M.Jr:
I wouldn't go to Miami.
Trey:
All right. We are having a meeting there
Tuesday.
Helvering:
They are having a regular meeting at Miami
Tuesday.
Irey:
There is 2. pistol match they have been trying
to get me to come to, Herbert Gaston and I
have been talking about going to it.
B.N.Jr:
You and Herbert Caston fix it up and you get
your papers fixed up and by the time you come
back you will have some health and your friends
will look after you.
Irey:
Maybe a better disposition.
H.M.Jr:
Your disposition is all right. This is simply
because for years and years of hard work you
Regraded Uclassified
176
- 15 -
have earned a vacation, see, and your friends
here, we here, will take care of the situation
by the time you come back and it will be all
right.
Irey:
All right.
H.M.Jr:
This is simply a vacation, because you need it
for your health's sake and it has nothing to
do with any cases pending. Get it?
Irey:
Yes.
H.M.Jr:
Because you need a vacation and we all think
you need & vacation.
Irey:
I appreciate that.
H.M.Jr:
Guy, I am waiting to hear from you and when
you are ready, you phone me.
Helvering:
Do I understand we will have a meeting here
Monday morning about this?
H.M.Jr:
All meetings, all bets are off until I hear
from you.
Helvering:
All right.
H.M.Jr:
This was before we decided that Elmer was to
go south. When you are ready --
Helvering:
I have & note to be in your office on Monday
morning.
H.M.Jr:
When you are ready, you communicate with me
and then I will see you and Harold. But no
more memoranda.
Regraded Uclassified
177
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO
Secretary Morgenthau
March 18, 1940
FROM
E. H. Foley, Jr.
Attached is a memorandum containing the statute governing the
disclosure of income tax information and the penalties for its
violation.
In the absence of knowledge of information purposed to be
discussed with newspapermen, it is impossible to give you more specific
advice at this time.
9.1.7L.
Attachment
Regraded Uclassified
79
COPY
1. The provision of law prohibiting the divulging
of information concerning a person's income tax return
ls 25 follows:
"It shall be unlawful for any collector,
deputy collector, agent, clerk, or other officer
or employee of the United States to divulge or
to make known in any manner whatever not provided
by law to any person the amount or source of income,
profits, losses, expenditures, or any particular
thereof, set forth or disclosed in any Income return,
or to permit any income return or copy thereof or
any book containing any abstract or particulars
thereof to be seen or examined by any person except es
provided by law; and it shall be unlawful for any
person to print or publish in any manner whatever
not provided by law any Income return, or any part
thereof or source of income, profits, losses, or
expenditures appearing in any Income return; and any
offense against the foregoing provision shall be a
misdemeanor and be punished by a fine not exceeding
$1,000 or by imprisonment not exceeding one year, or
both, at the discretion of the court; and if the
offender be an officer or employee of the United States
he shall be dismissed from office or discharged from
employment." (R. S. 3167, I. R. C. sec. 55(f) (1)
underlining supplied).
2. Violation of this provision is E misdemeanor punishable
by fine or imprisonment or both, and also by dismissal from
office. The prosecution could be instituted either by the
Attorney General or by the United States District Attorney in
whose jurisdiction the offense might occur, or by 8 Grand Jury
returning a true bill.
Regraded Uclassifie
179
TREASURY DEPARTMENT
WASHINGTON
March 19, 1940.
MEMORANDUM FOR THE secretary:
Following 1s a summary of the record relative to the
inquiry into the taxable status of the Hoosier Democratic
Club:
(1) On November 7, 1938, Hon. James 7.
Morris, Assistant Attorney General, for the
Attorney General, addressed a letter to the
Commissioner of Internal Revenue, referring
to him for appropriate action a communication
which the Department of Justice had received
from one George R. Jeffrey, relative to
charges of possible tax evasion by the Hoosier
Democratic Club.
(2) The Commissioner had himself received
a similar letter direct from Jeffrey, and, on
October 20, 1938, had, through the Chief of the
Intelligence Unit, referred this matter for in-
vestigation to Mr. A. P. Madden, Special Agent
in Charge, Chicago Division. Madden essigned
the case for investigation to Special Agent 2.
E. Vaughn.
(3) During November, 1938, Special Agent
Vaughn interviewed Bowman Elder, Treasurer of
the Club, with a view to eliciting information
necessary to & determination or the taxable
status of the organization.
(4) On November 30, 1938, Elder addressed a
communication to Special Agent Vaughn, giving
certain information asked by Vaughn, and stating
grounds upon which the Club claimed exemption
from taxation.
(5) On December 2, 1938, Special Agent Vaughn
transmitted Elder's communication to the Bureau of
Regraded Uclassified
180
Memorandum for the Secretary--2.
Internal Revenue at Washington with the request
that on the basis of the facts submitted the Bu-
reau make a ruling as to the taxable status of
the Club.
(6) On January 13, 1939, the Bureau addressed
a letter to the Club, calling upon it for certain
supplemental information concerning the Club's ac-
tivities and finances.
(7) On February 6, 1939, Elder, in response
to this request, transmitted to the Bureau a sworn
statement concerning the scope of the Club's activi-
ties, incorporating tabular statements of receipts
and expenditures.
(8) Since that time, an investigation by offi-
cers of the Bureau of Internal Revenue has been pro-
ceeding, to secure accurate information regarding
the Club's receipts and expenditures and to verify
the statements made by Elder with a view to secur-
ing a tax-exempt status for the Club.
The pending investigation has developed, beyond a doubt,
that the statements filed by Elder with the Bureau, under
oath, were false and misleading. Moreover, Elder has con-
sistently refused to disclose the information which is
essential to P. determination of the question raised by
Jeffrey and subsequently referred to the Bureau by the De-
partment of Justice, as above stated. The petition for a
court order now under consideration is for the purpose of
compelling Elder to supply this information.
GRAVES.
Regraded Uclassified
181
Rio de Janeiro, March 15, 1940.
No. 2730
Subject: Pending Brazilian Banking
Legislation.
ORIGINAL & THREE COPIES BY AIR MAIL -- CONFIRMATION COPY BY STEAMER.
Strictly Confidential
The Honorable
The Secretary of State,
Washington, D. C.
Sir:
With reference to my despatch No. 2691 of March 9. 1940 concerning
the status of foreign banks vis-s-vis the proposed new banking legislation
in this country, I have the honor to report, for the Treasury Department
also, that a member of my staff discussed this subject informally with
Dr. Francisco Campos, the Minister of Justice, to whom the project of
law has been referred for report. The Minister stated that the "projecto"
was on his desk but that as yet he had only given it superficial attention.
He stated, however, that he had already informed the Minister of Finance
of his opinion verbally on the general subject of foreign banks, namely
that the Government should allow this matter to remain in status quo for
an indefinite period. He added that he told the Minister of Finance that,
as
Regraded Uclassified
182
- 2 -
as time went on, it was becoming more evident every day that foreign
capital vas vital for Brazil's development and that every effort should
be made to attract it and restore confidence and Brazil's credit abroad
which has been shaky for so many years. He stated also that his final
report on the banking law project to President Vargas would be along
the above-mentioned lines, This attitude of the Minister of Justice
has also been confirmed by Sr. Boucas, Secretary of the Technical Council
on Economy and Finance, in a discussion of the subject today.
The Minister of Justice was also questioned concerning the proposed
law covering corporations (sociedades anonymas) which is also in his
hands for report. When asked whether there was any truth to the report
that this law would make obligatory the control by Brazilians of all
corporations in this country, he answered emphatically in the negative,
He reiterated that it was high time for Brazil to recede from the
antagonistic attitude toward foreign capital which has been prevalent
in Government circles here as this policy was only serving to impede
Brazil's progress.
Respectfully yours,
For the Ambassador:
Ware Adams,
Second Secretary of Embassy.
File No. 851.6
TAX:LEF.
183
PARAPHRASE OF TELEGRAM SENT
TO:
American Embassy, Rio de Janeiro
NO.: 73
DATE: March 15, 1940
Although the Department has taken note of the
comment with reference to Grade VIII which is contained
in your telegram no. 97 of March 8, there is trans-
mitted the following inquiry from the Foreign Bondholders
Protective Council: Does Article IV of the decree-law
obviate the possibility of any payments being made to
State of Ceará bonds during the next four years? The
Bondholders Council mentions the promotion of Bahía
bonds through the June 28, 1934 decree which is men-
tioned in Article I.
EA:EB
Regraded Uclassified
STRICTLY CONFIDENTIAL
84
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 15, 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
At the suggestion of Commander Thompson, 1 received this morning at
10:30 Mr. Victor Velasques, an attorney from Mexico City who had come to
Trahington with introductions from our Embassy officials, and who has been
received by Mr. Duggan in the Department of State.
Vr. Velasquez is not in the Government but is a strong supporter of
Senor Almazan, who is opposing the candidate of President Cardenas, likely
to be Machado, in the presidential elections which are to take place July
7. 1940. Velasquez is not at all sure that Cardenas may not continue in
office beyond his legal tenure, following the example of certain sister
republics to the south. If the election contemplated by Mexican law takes
place, Velasques expects Machado to be the Cardenas candidate. If elected,
however, Machado would have little power. It is the plan of Cardenas to
take over the presidency of the powerful political organization which now
embraces the workmen, peons and soldiers, and through this organization have
a strangle hold on the Government. Velasquez said this organization ia now
under 8 radical leader from Vera Cruz, and that many of his lieutenants are
communist refugees from Spain.
Velasquez is a Chepultaped graduate, cavalry, and is not of the Mexican
popular front. He stressed the extent to which the present Government and
Its supporters play up American purchasing of Mexican silver. He stated that
Vericans could not understand why the United States should be buying Mexican
silver at an excessively high price, except that it has been explained to
them by the Government that the sympathetic Administration in the United States
desired to support and perpetuate the Cardenas regime, and chose this manner
of getting funds to their friends. Velasquez feels that if our purchase of
Mexican silver should stop prior to July 7. the Mexican people would interpret
this as & withdrawal of support by the American Government of the Cardenas
regime. Re is convinced that this would help tremendously in the election of
a Government which would come into office with the intention of restoring order
in Mexico and establishing respect for property rights, both domestic and
foreign. Such a regime would welcome the influx of foreign capital as well as
settlers.
foreign silver must necessarily depend upon the decision which will probably
I told Mr. Velasquez that the question of our continuing purchases of
be taken in Congress within the next few days. I mentioned specifically
Senator Townsend's bill. I reminded him that the question of our purchasing
foreign silver did not revolve solely about the point as to whether the Treasury
requires more of this metal to back its currency. Ee realized various factors
were involved. He hoped, however, that the Townsend bill would pass and he in-
sisted that this would be to the benefit of Mexico, not only politically but
Regraded Uclassified
185
- 2 -
sconomically. He said that 80 long as we continue to pay a fictitious price
for Mexican silver the foundation of Mexican money and economy will be un-
stable. He thinks it better that a normal silver situation be reverted to,
even though this may result temporarily in a weakening of the Mexican peso.
He emphasized the diversity of products of Mexico and realized that markets
for copper and other Mexican exports might so improve during the var that
this would be the ideal time for the transition of Mexican economy from the
unstable silver basis to a firm and solid one.
15.M.S.
Regraded Uclassified
STRICTLY CONFIDENTIAL
TREASURY DEPARTMENT
186
INTER OFFICE COMMUNICATION
DATE March 15, 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
Captain Puleston told me this morning that the Secretary desired appoint-
ments for him with Messrs. Ashton-Gwatkin and Rist. I accordingly arranged
through Mr. Pinsent for Mr. Ashton-Gwatkin to receive Captain Puleston at the
British Embassy at 11:30 this forenoon.
I talked directly with Professor Rist at 11:25. I had not been able to
find him earlier since he was at neither his hotel nor Embassy, but in the
State Department. Since the Professor is leaving this afternoon for New York,
he agreed to telephone Captain Puleston at once at the British Embassy to try
to arrange for a 12:30 appointment today.
Professor Rist told me that he will be in New York at the Waldorf-Astoria
until he returns to Washington for a dinner on Wednesday evening. He could be
reached at the Waldorf or at the office of Mr. Purvis. He stated that he had
& number of questions to take up with Purvis. He mentioned particularly his
concern over what he considers enormous exports of copper which are now going
to Russia. In answer to my inquiry, he stated that he was not accompanying
Ashton-Gwatkin to Ottawa. He said the principal point to be discussed there by
Ashton-Gmatkin will be that of a naval control base. Rist may later go to
Ottawa with Ashton-Gwatkin when they are discussing economic problems.
BMR.
Regraded Uclassified
STRICTLY CONFIDENTIAL
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 15, 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
Xr. Arthur Fisher, who stated that he is a lawyer from Chicago, presently
stopping at the Hotel Martinique in Washington, called on me this afternoon.
Ex stated that it had been suggested at the State Department that he see me
in rigard to the Treasury's attitude toward a proposition which he 1s working
on. i. Fisher was not willing to disclose his principals, either in the
United States or in China. He talked rather hazily of an idea for the sale of
dollar securities directly to investors in this country, without the inter-
mediation of underwriters. The securities would be issued by the Chinese
Government and guaranteed by B. bank, presumably in China. No amounts were
centioned. No indication was given 8.6 to whether revenues would be pleaged
or the bonds liquidated through exports from China to the United States.
I told the visitor that it W36 the Department of State which passed on
the policy of foreign borrowing in the United States, and that the S.E.O. had
formalities to be met, The visitor told me that he had already visited the
3.2.0. end found that his idea was welcomed there. In the State Department
he tad seen Messrs. McKay, Adams, Feis, Livesey and Hiss. Be has also talked
with k. Whittemore, Vice President of the Export-Import Bank.
I told Mr. Fisher that the Treasury's contact on Chinese finances had
been -ith Mr. Chen, and that we were aware that the Export-Import Bank WBS
granting 8. new credit, following satisfactory experience with the credit already
outstanding.
I told the visitor that the State Department bad not consulted the Treasury
Department on the proposition which he so vaguely outlined, and that I heat-
tated to mention the matter to the Secretary in the absence of some concrete
information. I refused to indicate any Treasury position, except to say that
our relations on official financial matters with Mr. Chen were entirely gatis-
factory. Xr. Fisher then remarked that he hoped the Treasury would not. in its
conversations with Mr. Chen or the Chinese Embassy here, take any position
vis-s-vig his proposition which might result in these officials cabling a report
11 China which might hurt chances for the ENCOSS of his undertaking.
After the visitor left, I telephoned Mr. Livesey who confirmed that Fisher
hat called at the State Department but had not presented enough information to
service indication as to what the attitude of the State Department would be
ha vss little astonished that anyone should be thinking of a new issue of
La the premises. any Livesey thought this man was in the business for a profit, and
Chinese a bonds in the United States with present issues now in default and quoted
DO low.
B.W.R
Regraded Uclassified
_BB
PARAPHRASE OF TELEGRAM SENT
TO:
American Embassy, Rio de Janeiro
NO.: 72
DATE: March 15, 1940
Due to the fact that the details of the Brazilian
debt servicing decree of March 8 are not widely known,
considerable uncertainty 1s reported in financial circles
in this country regarding its actual effect. The text
of the decree and of Aranha's letter, as cabled by you,
have been sent to the Council by the Department. As
yet no public statement with reference to the matter
has been made by the Bondholders Council.
It would be of assistance if you could tell us
exactly what coupons the Brazilian Government intends
to service (Article III of the new decree-law) and what
procedure will be set up in order to make the funds
available in New York. When will the various paying
agents of the individual loans receive instructions from
the Government of Brazil?
HULL (HF)
EA:EB
Regraded Uclassified
189
TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON
March 15, 1940
MEMORANDUM FOR THE SECRETARY
After the meeting of the President's Liaison Committee yesterday afternoon
I had B. conversation with Admiral Towers in which the principle of releas-
ing restricted aviation equipment materiel was discussed at length. He
stated that, after the presentation which had been made of the Allied
situation by M. Plevan, he realized thoroughly their desire for the latest
aviation materiel; that he felt that there should be made available to the
Allies all information concerning plans and specifications of any existing
or proposed planes and engines; and that he was going to discuss this matter
with the Chief of Operations upon his return to the Navy Department.
Last evening he called me at home and stated that he had discussed the matter
with Admiral Stark, a.5 well as with Secretary Edison, and that they both
agreed with him. He asked me to transmit to the Anglo-French Purchasing Board
the information that the Navy would be very happy to sit down with any tech-
nical representative or representatives they desire to send to Washington and
discuss any aviation materiel in existence or in development which they felt
might be of use to them in their proposed program.
I talked by phone with Mr. Purvis at New York and transmitted this information
to him, and he advised me of his appreciation of the action taken by the Navy
and stated that he would have a technicist from the English and French Army
in Washington tomorrow morning for consultation with representatives of the
Bureau of Aeronautics of the Navy Department. I promised to put his represen-
tative in touch with Admiral Towers upon his arrival here tomorrow.
Chairman, President's Liaison Committee
190
TREASURY DEPARTMENT
WASHINGTON
OFFICE OF
COMMISSIONER OF INTERNAL REVENUE
ADDRESS REPLY TO
COMMISSIONER OF INTERNAL REVENUE
AND REFER TO
IT:P:CA
March 15, 1940.
CAA
REPORT FOR SECRETARY MORGENTHAU:
In regard to closing agreements under the Vinson-Trammell
Act, the developments during the week were as follows:
Bridgeport Brass Company
On March 13, 1940, received a request for a closing agreement
involving special facilities costing $107,600.00, provided the
contractor is awarded a certain Navy contract.
Walter Kidde and Company
On March 14, 1940, received B. letter from the Navy Department
requesting that consideration be given to contractor's request for
B. closing agreement.
On March 15, 1940, conference were held, forenoon and after-
noon, with contractor's representatives.
Commissioner.
Regraded Uclassified
191
IT:P:CA
March 15, 1940.
CAA
REPORT FOR SECRETARY MORGENTHAU.
In regard to closing agreements under the Vinson-Trummell
Act, the developments during the week were as follows:
Bridgeport Braes Company
On March 13, 1940, received a request for a closing agreement
involving special facilities costing $107,600.00, provided the
contractor is awarded a certain Navy contract.
Walter Kidde and Company
On March 14, 1940, received a letter from the Havy Department
requesting that consideration be given to contractor's request for
a closing agreement.
On March 15, 1940, conference were held, forenoon and after-
noon, with contractor's representatives.
(Signed) Guy T.
Commissioner.
CAA/MEA
Regraded Uclassified
132
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: March 15, 1940, 7 p.m.
NO.: 348
FOR THE TREASURY DEPARTMENT FROM MATTHEWS.
This afternoon Pennachio of the Bank of Italy came
to see me for a chat. The commercial and clearing agreement
between Italy and France concluded recently (reference:
telegram of March 7, No. 301 from the Embassy) he said
had provided for a balanced import and export trade between
the two countries which was estimated to reach 900,000, 00
francs for the year. For the year 1937 exports to Italy
from France totaled 531,000,000 france, and for 1938 they
were 485,000,000. In 1937 Italian exports to France
totaled 571,000,000, and in 1938 they were 577,000,000.
Pennachio said that France had been "more reasonable"
regarding agricultural products from Italy than had previously
been the case, especially in lemons and oranges, and that
Italian exports to France will include about 40 percent
agricultural products. Important items of the remainder
will be various textiles and hats - reference, telegram
of February 8, No. 185 from the Embassy; the scope of this
agreement does not include French armament purchases,
although Pennachio intimated today that such purchases are
not as great 8.8 had been the expectation. Under the
agreement, payments are to be made at the official franc
rate
Regraded Uclassified
193
- 2 -
frate for the lira. Pennachio said he thought that the
outcome of the agreement was satisfactory to both sides;
he took part in the negotiations.
Pennachio remarked that he thought officials of the
Bank of France were at heart somewhat concerned at the
important drop during the last few days in the free market
rate for sterling and the franc at New York, although
the official attitude 1s one of indifference. He expressed
the belief that there is no deliberate move to stimulate
exports as a result.
It seems to be the feeling of American bankers here
that as far 86 the franc itself has been a factor in the
recent decline, rather than merely sterling's partner,
the drop 1s due in part to the French Government's recent
practice of feeding the free market supply of francs
through insisting that imports from the United States be
invoiced in francs; references: telegrams of February 14,
No. 213 and February 20, No. 237, from the Embassy.
On exchange control, Pennachio is a firm believer in
"going the whole way". He said that as time goes on the
French will find a growing need to close all doors, as
did the Italians, which would include a tighter prohibition
on the export of French banknotes and prohibiting the
import of such banknotes, which latter 1s not restricted
at present. In the latter regard, his view 18 quite
Regraded Uclassified
194
- 3 -
different from that of Rueff and Tyler, who believe that
a useful escape valve 1s offered by the importation of
franc banknotes, and that it prevents a runaway market.
Pennachio went on to say that the rate on French
banknotes in Switzerland 1s only slightly lower than that
on checks, indicating a large supply of such notes, and
a substantial traffic therein with France which 18 relatively
unhampered. of course, he said that in Belgium there
formerly was a large supply of French bank notes which may
in part account for the existing volume of traffic in
bank notes rather (omission) and that new exports may not
be the source.
As for the general French situation, Pennachio seemed
to foresee no early difficulties. He said that the flow
of subscriptions to armament bonds really impressed him,
8.8 well as the fact that the trend 1s upward in such
subscriptions. As for the wages question, he has views
similar to those of Ardant, 1.0., that while in heavy industry
they are more than adequate, in manufacturing and services
which are not directly connected with the war and not
operating full time, they are probably unduly low.
Pennachio said that he enjoyed his meeting with
the BIS President, McKittrick and other officials of the
Bank at Zurich recently - reference: telegram of February 14,
Regraded Uclassified
195
- 4 -
No. 213, from the Embassy - though he regretted the
difficulties of operating in wartime. He said that the
1939 accounts must be approved and the BIS must hold its
general meeting; this could be done, he said, without the
presence of belligerent representatives by proxy but
the proxy regulations under the statutes must first be
sent around and the Board members must do this. He
remarked that the main thing was to keep the Bank alive
and adhere strictly to its statutes. He again expressed
enthusiastic praise for the President, McKittrick.
The Paris securities market closed the week with
an active and firm session. Advances in part due to
favorable technical position of 3 to 5 percent were fairly
general. The fortnightly settlement passed off easily.
Rente issues were up fractionally the dollar exchange
guarantee issue of 1937 rose 1.70 francs.
END OF MESSAGE.
MURPHY.
EA:LWW
Regraded Uclassified
196
HSM
PLAIN
London
Dated March 15, 1940
Rec'd 12:15 P. m.
Secretary of State,
Washington.
655, March 15.
FOR TREASURY FROM BUTTERWORTH.
1. There is no official news on the result of the
£300 million war loan but the general Expectation is
that it will bE fully subscribed.
2. I gather that it was through the censorship
that the British authorities first obtained EVIDENCE
indicating that securities are being sold here on behalf
of Germany contrary to the Trading with the Enemy Act.
Such securities were no doubt obtained mainly from the
Czechs and Poles. Despite the strongly worded warning
to members of the stock Exchange not to act on EVIDENCE
of ownership from a neutral source which is not thoroughly
WEll known to them it will bE very difficult to prevent
liquidation of bearer shares.
KENNEDY
WWC
Regraded Uclassified
TREASURY DEPARTMENT
197
INTER-OFFICE COMMUNICATION
DATE March 16, 1940
TO
Secretary Morgenthau
FROM
Mr. Cochran
confidential
The foreign exchange market was very dull today. After opening in Amsterdam
at 3.70-5/8, the rate for sterling strengthened to close at 3-73-3/16 in that
market. In New York, the initial quotation was 3.72-1/4 and shortly thereafter
it receded to 3.71-1/2. It then recovered to 3.73 and moved in a narrow range
until about noontime when some emall buying came into the market. The closing
quotation vas 3.73-1/2.
Sales of spot sterling by the six reporting banks totaled L296,000, from the
following sources:
By commercial concerns
I 114,000
By foreign banks (Far East, South America and Europe) 1 182,000
Total
L 296,000
Purchases of spot sterling amounted to L166,000, as indicated below:
By commercial concerns
1 40,000
By foreign banks (Far East and Europe)
I 126,000
Total
I 166,000
The Quaranty Trust Co. reported that it sold cotton bille totaling L24,000 to
the British Control on the basis of the official rate of 4.02-1/2.
The other important currencies closed as follows:
French francs
.0211-3/4
Guilders
.5312
Swiss france
.2242-1/2
Belgas
.1699-1/2
Canadian dollars
18-1/8% discount
We purchased $24,000,000 in gold from the earmarked account of the Bank of
Sweden.
The Federal Reserve Bank of New York received cables from the B.I.S. end the
Netherlands Bank requesting it to apply for a license to transfer approximately
48,200 ounces of gold ($1,687,000) from B.I.S. Account 2 to the account of the
Netherlands Bank at the Federal Reserve Bank of New York. B.I.S. Account He is
gold owned by that Institution. The Treasury granted permission to the Federal
to nake this transfer.
Regraded Uclassified
- 2 -
198
The Federal Reserve Bank of New York reported the following gold shipments
which will be sold to the U. S. Assay Office at New York:
$4,301,000 from Switzerland, shipped by the Swiss Bank Corporation, Zurich, to
its New York office.
525,000 from England, shipped by Samuel Montagu & Co., to the Bankers Trust Co.,
New York.
$4,826,000 Total
The equivalent of the Bombay silver quotation was 40.25$, off 1/4/-
In B. report from the Federal Reserve Bank of New York showing deposits for
account of Asia as reported by the New York agencies of Japanese banks on March 13,
such deposits totaled $41,163,000. an increase of $2,112,000 since the last report
as of March 6. Of this amount, $27,990,000 represented deposits with the Yokohama
Specie Bank by its branches in China. The overdraft on the books of the Yokohama
Specie Bank in New York for account of its head office in Japan was $79,017,000.
1. decrease of $6,034,000 since March 6.
B.M.S.
confidential
Regraded Uclassified
199
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Rio de Janeiro
NO.: 114
DATE: March 16, 1940
Reference is made to the Department's telegram
no. 72 of March 15, 1940, noon.
For the purpose of discussing with the Minister
of Finance the exact interpretation to be placed upon
Article III of the decree-law, an official of the
Finance Ministry is going to Pocos de Caldas by airplane
this morning. I expect that by late afternoon on Monday
I shall be able to send to the Department a full report
on the question.
CAFFERY
EA:EB
Regraded Uclassified
200
TREASURY DEPARTMENT
Washington
FOR REIEASE, MORNING NEWSPAPERS
Press Service
Saturday, March 16, 1940.
No. 20-51
OF/SI/S
Secretary of the Treasury Morgenthau announced last evening that additional
amounts of 2-1/4 percent Treasury Bonds of 1951-53 have been allotted to
Government investment accounts, bringing the total up to the full 100,000,000
reservation contained in the offering circular and his press release of
December 12, 1939. The allotment of 73,006,000 of these bonds was announced
in the press release of December 20, and since that time an additional
$26,994,000 have been sold to the accounts.
-----
Regraded Uclassified
TO:
3:11-4A
W
Secretary Morgenthan
cl believe this
201
attempted change of
position on the part
of the havy will be
of interest to you. the
retreat is so rapid
we might suggest
from chang Anchors And their Aweigh song
to "Anchors This Away !
From: MR. SULLIVAN
202
TREASURY DEPARTMENT
BUREAU OF INTERNAL REVENUE
IT:P:CA
CAA
Memorandum of Vinson Act Conference
In ret
Walter Kidde and Company, application for
closing agreement under Press Release 18-79.
Place of meeting:
Room 5234, Internal Revenue Building,
Washington, D. C.
Time of meeting:
9:30 to 10:30 A.M., Saturday, March 16, 1940.
Present at meeting:
Treasury Interdepartmental Committeemen:
C. A. Appel and H. T. Reiling.
Navy Representatives:
Admiral I. E. Bass.
Commander Richardson
Mr. Warren McLaine.
This conference was held at the request of the Navy representa-
tives. Such request arose from a telephone conversation on the
afternoon of the 15th between Mr. Appel, Mr. McLaine and Commander
McCann. Mr. Appel called Mr. McLaine and stated to him that the
letter dated March 9, 1940 from the Secretary of the Navy in regard
to the application of Walter Kidde and Company for a closing agree-
ment did not follow the formula agreed upon as set out in Press
Release 18-79 and did not contain all of the information material
to the entering into of a closing agreement. Mr. McLaine said that
he would refer Appel to Commander McCann who was at that time stand-
ing along side of him. Commander McCann asked what additional
information the Treasury Department desired and Appel explained to
him that it was desired to know whether the estimated cost of the
facilities was considered reasonable by the Navy Department; whether,
in the opinion of the Navy Department, the cost should be amortized
against the product, and, if so, what was the percentage properly
chargeable in the opinion of the Navy Department. Commander McCann
said that he had looked back to the letter the Navy Department wrote
in the case of the Consolidated Aircraft Corporation and he had
thought in drafting the letter in regard to the Kidde Company's
facilities that he had covered the matter. Appel assured him that
not only was there a failure to follow the formula agreed upon but,
in addition, the letter of March 9th failed to convey to the Treasury
Department vital information which is obtainable nowhere but from
the Navy Department, that is, whether the purchase of the cylinders
represented all of such product that will be purchased or whether
there is a present prospect of additional purchases. Commander
McCann stated that he would look into the matter at once. Later
in the day, as stated above, the Navy phoned over, asking for a
conference for Saturday morning and the request was granted.
Mr. McLaine opened the conference by stating it was not under-
stood what further information the Treasury desired. In answer to
this, it was explained that Press Release 18-79 is understood by the
Treasury representatives of the Interdepartmental Committee to con-
stitute a statement of what it should obtain from the Navy Department
before entering into a closing agreement coming within the proposition
that the closing agreement be entered into at the time the Navy con-
tract is signed. It was pointed out that under the formula laid down
in the Press Release the Navy has agreed to (1) certify its opinion
concerning the proper percentage of cost to be allowed as a deduction,
(2) certify that installation of the special facilities is necessary
for the National Defense Program, and (3) that due to technical
considerations such facilities will be partially or totally useless
after completion of the contract. It was pointed out to Mr. McLaine
that the Navy letter of March 9th does not make these statements in
full. It was further explained to Mr. McLaine that there was one
material consideration information as to which is only obtainable
from the Navy Department and the letter of March 9th does not contain
this information, that is, the prospect of further contracts from
the Navy Department for the production of the article under con-
sideration. Accompanying this memorandum is a copy showing the full
text of the Navy letter of March 9, 1940, and it will be noted that
it conveys very little information except that the facilities will
be required to meet the proposed production, that the Navy is in
urgent need of the cylinders, that Kidde is the only bidder, and
the Navy requests that the Treasury Department give early con-
sideration to the request of the company for a closing agreement.
Vr. Vclaine stated that he had been under the impression that
in some previous conference the formula had been modified by an
agreement that the Navy would not be expected to certify as to the
cost of the needed facilities and it would not be asked to state
its opinion as to the percentage of the cost properly chargeable
to the contract, and he understood that if the Treasury made its
determination then the Navy Department would agree to it. In reply
to this, the Treasury representatives stated that they did not
have any present recollection of any such understanding.
Commander Richardson stated that he would be prepared to certify
as to the machinery and equipment required for the contract but
that as he was in the aeronautical branch he would not be equipped
to certify as to the reasonableness of the proposed cost of the
Regraded Uclassified
C04
- 3 -
building to be erected. Admiral Bass intervened at this moment
to state to Commander Richardson that the Bureau of Construction
and Papairs would be qualified to give an opinion relative to
the building.
In general, the Navy representatives were advised that the
Treasury Department is in need of their cooperation and help if
thase arrangements are to be made with the contractors; that it
La the understanding of the Treasury Department that the Havy has
frequent docess to the manufacturing plants involved and, therefore,
- first-hand information relative to their condition, capacity
ron sll other relevant details. It was further stated that it was
the understandine of the Treasury Department representatives that
proposition of making agreements with the contractors such as
marced by the Kidde Company was 5. matter of cooperation between
time Departments, in consideration of the fact that the whole
was lesigned to assist the Navy Department in procuring
needel supplies and equipment.
The conference closed with the understanding that the Navy
will draft en additional letter to the Treasury, in which it will
conform to the formula, as nearly as may be in consideration of
The fact that the extra facilities have not yet been acquired by
the contractor and the exact cost of them is not yet in evidence.
The lavy representatives were advised that the Treasury represent-
atives would go ahead with the case in the interim and there would
be no delay due to waiting for the promised letter from the Navy,
unless the letter was delayed, it being understood that complete
action was to await receipt of such letter.
Comment by Reporter (Appel):
The above report, of course, contains marely a brief digest
of the discussion lasting about an hour, but it is believed that
it will be evident that the failure of the Mary to follow the
formula was intentional. It was quite evident to the reporter
That the Havy is excéedingly reluctant to assume a definite posi-
tion In regard to such catters 28 the cost of additional equipment
and the proportion thereof that should be charged to the contract.
This reluctance appears to reside in having to definitely take a
nosition before the Treasury Department has acted. It was re-
(bitted that to aune extent the discussion had to involve the
question of policy but it was unaveidable in order to endeavor
to get over to the Kavy representatives what the Treasury repre-
acristives believe they are required to do and the reason for it.
Regraded Uclassified
205
- 4 -
During the course of the discussion, Mr. McLaine said that it
was regrettable that Press Release 18-79 had ever been issued.
!
The Treasury representatives are in need of instructions from
the office of the Secretary in regard to the matter of policy.
It will, of course, be appreciated that if the formula is
abandoned and the Navy Department merely makes a request that
a determination be made by the Treasury Department and a closing
agreement be entered into, entire responsibility for whatever
action is taken will be shifted to the shoulders of the Treasury
Department standing alone.
Regraded Uclassified
206
March 16, 1940.
10:35 8.m.
E.M.Jr:
- anything about your lawyer.
Harold
Graves:
I've heard nothing.
H.N.Jr:
You don't know whether you'll get him or not.
C:
I don't know. I assumed that Mr. Foley wanted to
talk with you because Mr. Cairns promised me that
Mr. Foley - when he talked with him last night had
no objection, he'd let me know first thing this
.
morning, and I've heard nothing from him.
H.M.Jr:
I'll esk him
G:
Yes. Yes sir.
E.V.Jr:
You want to see me later though, don't you?
C:
Well I am very anxious if this can be arrenged,
Mr. Morgenthau, to have this man this morning,
because we have only a few days, end we want to
work this afternoon and tomorrow.
B.M.Jr:
I'll see what I can for you.
G:
Yes, thank you very much.
Regraded Uclassified
207
March 16, 1940.
10:40 a.m.
Operator:
Operator.
H.M.Jr:
Huntington Cairns.
0:
Right. Mr. Cairns.
Huntington
Cairns:
Hello.
H.M.Jr:
Hello Huntington.
C:
Yes.
H.V.Jr:
Morgenthau.
C:
Yes, Mr. Secretary.
H.V.Jr:
How about that lawyer?
C:
That's perfectly all right. I've told Norman
and he's outting it right through. Ed wanted to
make sure that you knew all about it and since
you do why he's satisfied.
H.M.Jr:
Well, know all about what?
C:
That the lawyer was to be taken.
H.M.Jr:
Yes.
C:
So on.
H.M.Jr:
But I mean Ed is satisfied.
0:
Yes.
H.M.Jr:
Well now, how can I met that lawyer over here?
C:
I'll have him over here immediately.
H.M.Jr:
Will you have him over and bring him to my office
at eleven o'clock?
0:
Yes indeed.
H.M.Jr:
And introduce him to me please.
C:
Yes indeed.
H.M.Jr:
And have him here at eleven will you?
Regraded Uclassified
208
- 2 -
C:
Yes, I'll do that. He'll be here at eleven.
H.M.Jr:
Did Ed have any particular objection?
C:
No, when I talked to him last night he said that
he thought he would talk to you about it but he
called me a few minutes ago and said that he
decided that he would not.
H.M.Jr:
I see. You don' know why, why he changed his
mind?
C:
Well he just didn't think it was important enough
for him to register an objection.
H.M.Jr:
O.K.
C:
That's all.
H.M.Jr:
Well let's go. Have him here at eleven.
0:
I will.
H.M.Jr:
Thank you.
0:
Fine.
Regraded Uclassified
209
March 16, 1940.
11:30 a.m.
H.M.Jr:
Hello.
Operator:
All right.
H.M.Jr:
Go shead.
0:
Go shead.
H.M.Jr:
Hello.
Congressman
Snyder:
Hello.
H.M.Jr:
Hello Mr. Snyder.
S:
Mr. Morgenthau?
H.M.Jr:
Talking.
S:
Yes. I just wanted to know if it would be con-
venient, next Tuesday morning, at nine o'clock, -
H.M.Jr:
Well here's the thing, that's the morning I'm
supposed to RO un and testify on silver.
S:
Where at?
H.M.Jr:
Before Senator Wagner's committee.
S:
Oh!
H.M.Jr:
See. I mean Senator Wagner has asked me to come
at ten.
S:
Well then, in the afternoon?
H.M.Jr:
That'll be fine.
S:
Well you can name an hour so I won't get tied up here.
H.M.Jr:
Well, 18 three o'clock 8 good time?
S:
Yes.
H.M.Jr:
Is that a good time?
S:
Yes.
H.M.Jr:
What?
Regraded Uclassified
210
- 2 -
S:
Yes, that'll be e good time Mr. Morgenthau.
H.M.Jr:
That isn't too late, I mean, you're not having any
hearings?
S:
No, well 1f I do, I'd dispense with them, you see.
H.M.Jr:
Well -
S:
And I'll tell you the place to come, it'll be some
particular place up around here.
H.M.Jr:
Some hide out.
S:
Hide out, yes, very much 80.
H.M.Jr:
Right.
S:
All right.
H.M.Jr:
Well you let me know, I'll out it down for three
o'clock.
S:
You out It down for three o'clock and I'll let you
know the place.
H.M.Jr:
On Tuesday.
8:
On Tuesday next.
H.M.Jr:
Thank you.
S:
Yes sir.
M.M.Jr;
And that cuestion of that attorney is all in motion,
and we'll have an answer for you by that - not
later than Monday.
S:
Well of course, 88 I said, there's a lot of agencies
out there, and some in your own department there
that don't want him.
H.V.Jr:
Well -
S:
I know it's all right, so I out it un to you.
H.V.Jr:
Well I'll have an answer for you some time Monday.
S:
Well, if I may suggest this to you, there's one
Regraded Uclassified
211
- -
place that I wish you'd insist that that thing be
done.
H.M.Jr:
Well I have, but Mr. Foley is out of town, that's
why there's a delay.
S:
oh I see, thank you.
H.M.Jr:
If he Was in town I could have had the answer now,
but he left town to 70 1177 to a St. Patrick's
dinner.
S:
Hurrah for Pat.
H.V.Jr:
And so I can't move until he gets back.
S:
Well I thank you in advance.
H.M.Jr:
There is some resistance against him, but I'll -
S:
Well you know, Itelian, see?
H.M.Jr:
Italian?
S:
An Italian.
H.M.Jr:
Oh!
S:
See?
H.M.Jr:
Yes.
S:
But then we've got twenty thousand Italians in my
district, and we've not five Italian lawyers, and
we've got the finest Italian people in the country,
you know. Well you can't just discriminate.
H.M.Jr:
Well -
S:
Because he's an Italian.
H.M.Jr:
Well I don't care whether he's Italian or Greek,
he's a friend of yours and that's all I want to
know.
S:
Thank you. Well this is it, he's endorsed -
we have four judges, one of them 8. Republican
and three Democrats, in the county, and he's
endorsed by the courts. That's enough.
212
- 4 -
H.M.Jr:
Well just as long as he's a friend of yours,
that's all that counts.
S:
Thank you Mr. Morgenthau. Thank you very much.
H.M.Jr:
Goodbye.
-
Regraded Uclassified
213
March 16, 1940.
11:30 a.m.
Onerstor:
Operator.
H.M.Jr:
Harold Graves.
0:
Right. Yes.
H.M.Jr:
Harold Graves.
0:
Right. Here he is. Go ahead.
Harold
Graves:
Hello.
H.M.Jr:
Harold?
G:
Yes sir.
H.V.Jr:
Huntington Cairns just heard 8 few minutes ago.
from Foley.
G:
Yes.
H.H.Jr:
Withdrawn his objections.
G:
Oh, that's fine.
H.M.Jr:
And the man will be here at my office at eleven.
I'll introduce him.
G:
Yes.
H.M.Jr:
And if you'll be outside of my room and have
Norman Thompson there too, at eleven.
3:
We'll be there.
H.M.Jr:
If you.please.
G:
Yes, thank you very much.
H.M.Jr:
Is that fast enough?
G:
I beg pardon.
H.M.Jr:
Is that fast enough?
G:
on that's, that's fine. That eases my mind 8 great
deal. Thank you.
Regraded Uclassified
214
- 2 -
H.M.Jr:
You're welcome.
G:
I'll be out there at eleven.
H.M.Jr:
O.K.
STRICTLY CONFIDENTIAL
TREASURY DEPARTMENT
215
INTER OFFICE COMMUNICATION
DATE March 18, 1940
TO Secretary Morgenthau
FROM Mr. Cochran
To relieve the Secretary from unnecessary reading. the practice will
hereafter be followed of providing summaries of or excerpts from reports
where the entire subject matter is not of interest, but where there are
certain points to be noted. Only mossages requiring action, or of very
special interest in their entirety will be submitted to the Secretary.
Summary of Incoming Reports - March 18, 1940.
From Matthews, Paris, #348, dated March 15, 1940.
Pennachio of Bank of Italy believes no deliberate move has been made
by British or French to stimulate exports through lowering free market rate
for sterling and franc at New York. Pennachio had met President of B.I.S.
at Zurich recently. He said B.I.S. must hold its general meeting to approve
1939 accounts. This could be done, he mid, without the presence of bellig-
crent representatives by proxy, but the proxy regulations under the statutes
must first be sent around to the board members. The B.I.S. annual meeting is
ordinarily in May.
From Heath, Berlin, #641, dated March 14, 1940.
Reporting a conversation with Publ, the active head of the Reichsbank,
Heath ended his message:
"Puhl told me in conclusion that the Reichsbank WSB working
on studies as to future German and international monetary arrange-
ments after the war is over. The present direction of the Bank
held the view that the mark would have to be devalued and again be-
come an international currency, and as soon as peace made such
action possible, exchange control would have to be abolished.
However, until there we confidence on the part of the public in &
stable peace, this could not take place. It might be essential,
even then, to continue the moratorium on debte and the standstill
arrangements for a time. It would of course be necessary that gold
be lent to Germany to bolster the confidence of the public in the
currency and to act as a cushion if, as would probably be the case,
the new parities which the governments selected should prove to be
incorrect in view of unforessen developments in the post-war economic
situation. Publ thought that after peace is declared the international
monetary arrangements should be concluded as quickly as possible. He
believed that such arrangements could for the most part be worked out
at meetings of heads of central banks at the BIS, which the Reichsbank,
he mid, was giving its full support."
p.m.?
Regraded Uclassified
STRICTLY CONFIDENTIAL
216
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 18, 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
Official sales of British owned dollar securities under the vesting
order effective February 19:
No. of Shares
$ Proceeds of
Nominal Value
$ Proceeds of
Sold
Shares Sold
of Bonds Sold
Bonds Sold
March
11
17,700
695,622
Nil
Nil
12
19,400
804,734
Nil
Nil
13
5.700
311,474
Nil
Nil
14
20,300
676,714
Nil
Nil
15
4,100
217,877
Nil
Nil
16
1,100
13,540
Nil
Nil
TOTAL FOR WEEK
68,300
2,719,961
Nil
Nil
Sales from
February 22 to
March 9. incl.
172,890
6,573,366
Nil
Nil
TOTAL FEBRUARY 22
to MARCH 16, INCL.
241,190
9,293,327
Nil
Nil
Mr. Pinsent informed me that he had received from Mr. Gifford the report
that sales of non-vested securities for the week ended March 9 totaled $4,000,000.
Gifford thinks there is & lag of about one week between the figures which he re-
ceived from London and those which we may be able to pick up on the New York
market, that is, the figures gathered by the Securities and Exchange Commission.
Mr. Pinsent has again told me that Gifford is distributing his business in
New York BE widely as possible with a view to keeping good relations with the
market.
At 11:30 this forenoon I telephoned Pinsent end read to him the letter from
Mr. Frank in regard to our providing the Securities and Exchange Commission with
the data which the British are giving us each day concerning security sales.
Pinsent agreed that the original arrangement was that such figures could be given
to Mr. Frank provided he met the secrecy requirements of the Secretary of the
Treasury. I told Pinsent that I would draw up our letter at carefully as possible.
Regraded Uclassified
217
- 2 -
He reserved the right to communicate with us and to raise the question
of this policy, if it should come to his attention that the press or
market may have more knowledge in the future as to what is going on than
it has had in the past, since the vesting order took place. Incidentally,
Pinsent stated that he had already received one or two cablegrams from
his people in London inquiring whether the information which the Federal
Reserve Board has published on the matter of securities might possibly
have contained some material provided this Government in confidence.
Without even questioning the Treasury, Pinsent stated that he had assured
his people that there had been absolutely no leak from the Treasury. He
simply hopes that the Securities and Exchange Commission will guard the
figures with much care, not only refraining from publishing these figures,
but also refraining from utilizing them in any way to correct or supple-
ment figures which they already publish.
Pinsent stated that discussions were now going on with the view to
deciding whether a further vesting order should take place toward the end
of this month. This would be not greater than the original order, but
might possibly include some preferential shares and bonds in order that no
particular type of investor would feel inequality of treatment.
B.M.P.
Regraded Uclassified
218
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE
March 18, 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
In the foreign exchange market, the sterling quotation moved in an erratic
manner. Although the reported volume of sterling transactions was slightly
greater than Friday's turnover, it was far below the average volume which pre-
vailed earlier last weak. In Amsterdam, the rate advanced from an initial
quotation of 3-74-7/8 to 3.77-1/2 just before our opening: it was reported that
peace rumors associated with the Hitler-Mussolini meeting actively influenced
the quotations abroad. After opening at 3.77 in New York, sterling declined to
3.75 in the first hour of trading, principally on offerings by Japanese banks.
The rate returned to 3.75-3/4 by noontime. During the afternoon, sterling moved
off to a low of 3.74-1/2, then strengthened in a thin market to reach a high of
3.77-7/8 just before the close. The final quotation was 3.77-1/2.
Sales of spot sterling by the six reporting banks and the Federal Reserve
Bank of New York totaled 1702,000, from the following sources:
By commercial concerns
I 188,000
By foreign banks (South America, Far East and Europe)
1 494,000
By Federal Reserve Bank of New York (for Yugoslavia)
I 20,000
Total
1 702,000
Purchases of spot sterling amounted to L492,000, as indicated below:
By commercial concerns
1 113,000
By foreign banks (Far East, Europe and South America)
1 379,000
Total
1 492,000
The Chase National Bank reported that it had sold cotton bills totaling
24,000 to the British Control on the basis of the official rate of 4.02-1/2.
After reaching .1702-1/2, the high for the current movement. the belga
closed at .1702. The other important currencies closed as follows:
French francs
.0214
Guilders
.5310
Swiss france
2242-1/2
Canadian dollars
13% discount
The Federal Reserve Bank purchased 50,000 belgas and 30,000 Italian lire
for account of the Bank of Latvis.
CONFIDENTIAL
Regraded Uclassified
219
- 2 -
We sold $5,000,000 in gold to the Bank of Portugal, to be added to its ear-
marked account.
We purchased $15,000,000 in gold from the earmarked account of the Bank of
Prance.
The Federal Reserve Bank of New York reported that the following shipments of
gold were being consigned to it by the banks indicated below:
$3,527,000 from South Africa, shipped by the South African Reserve Bank, to be
earmarked for account of the Bank of Java.
3,473,000 from Canada, shipped by the Bank of Canada, Ottawa, for sale to the
United States Assay Office.
$7,000,000 Total
The State Department forwarded to us cables stating that the following gold
shipments would be made:
$11,818,000 from Sweden, representing three shipments by the Bank of Sweden for
its own account to the Federal Reserve Bank of New York, the dis-
position of which is unknown at the present time,
1,300,000 from Switzerland, shipped by the Credit Suisse, Zurich, to the
Guaranty Trust Co., New York, for sale to the United States Assay
Office.
$13,116,000 Total
The Bombay silver quotation declined the equivalent of 3/44 to 39.51#.
In London, a price of 20-13/16d was fixed for both spot and forward silver,
off 1/8d. The United States equivalents were 35.28# and 35.09$ respectively.
Handy and Harman's and the Treasury prices for foreign silver were unchanged
at 34-3/44 and 35# respectively.
We made eight purchases of silver totaling 1,025,000 ounces under the Silver
Purchase Act. Of this amount 600,000 ounces represented sales from inventory by
an American refining company and the remaining 425,000 ounces consisted of new
production from foreign countries, for forward delivery.
We also purchased 400,000 ounces of silver from the Bank of Canada. So far
this month, we have bought 625,000 ounces from Canada under our regular monthly
agreement to purchase up to 1,200,000 ounces.
confidential
Regraded Uclassified
220
- 3 -
By telephone this afternoon I inquired of Mr. Knoke, and was informed
that as recently as March 4 he had spoken with the State Banking Superintendent
in regard to investigating the overdraft of the Yokohama Specie Bank. He was
informed that the last examination of the New York branch took place in May,
1939. end that another examination will be "coming along soon." Mr. Knoke will
keep us informed on this subject.
I brought to Mr. Knoke's attention the letter of March 15 from Assistant
Tice President Roelse of the New York Bank to the Board of Governors of the
Federal Reserve System, on page 5 whereof there was listed under gold movements
an item of $25,007,000 from England. I reminded Mr. Knoke that this was a
shipment of gold that entered the United States from Canada, even though England
was the original source, and that this amount was carried on all official
reports as an entry from Canada. He agreed that the item should BO have been
carried in the letter under reference, and will take appropriate steps to avoid
any recurrence of this error.
B.M.R.
CONFIDENTIAL
Regraded Uclassified
221
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 18, 1940
TO
Secretary Morgenthau
FROM
Mr. Haas HOA
Subject:
Wheat export sales and other market data from the
Federal Surplus Commodities Corporation.
Mar. 5:
Germany is reported to have purchased about 6,000
tons of Boy beans from Manchuria. This was the first
Manchurian business in a long while. Evidently it
is planned to transport the BOY beane by highways.
Mar. 6: A bullish construction was placed by speculators
on the private crop estimates for winter wheat, as
reports failed to indicate the rather general
improvement over the December report that was anti-
cipated. The only crop expert to give bushels
indicated an estimated yield of 434,000,000 bushels
which, while being the smallest since 1924 and below
domestic requirements, 16 still 35,000,000 bushele
more than the Government report of December.
There was one cargo of American corn sold to Denmark
but it WAB sold at 1t cents per bushel under the re-
placement price. Exporters have some American corn
along the American coast and do not hesitate to sac-
rifice it if they can find a buyer. They realize
that it will be impossible to sell American corn
after the next 10 days because of heavy offerings of
Argentine corn at very low prices.
Mar. 7: There was one report that Ruseia had purchased
250,000 bushels of Pacific Coast wheat for shipment
to Vladivostok. The facts are that Russia purchased
336,000 bushels.
Export sales of 350,000 bushels of Canadian wheat
were made for shipment to Europe.
With the Export-Import Bank granting loans to China
and Scandinavian countries to the extent of
$66,000,000, it was almost certain to have some
strengthening effect, particularly on oats, rye, and
Regraded Uclassified
222
Secretary Morgenthau - 2
BOY beane, especially the latter because the
Scandinavian countries are in dire need of these
grains and soy-bean oil.
Mar. 8:
Oats were very strong, advancing into new high
ground for the year and the highest price since
1937. Small amounts of oats continue to come in
from Argentina.
There were 50 loads of freight booked out of New
York yesterday for shipment from the Atlantic coast
to Scandinavian countries, which will for the most
part consist of Canadian wheat.
The first ocean freight carrying Australian wheat
from Sydney, Australia to American Atlantic ports
was booked Thursday and there had been two boats
booked for Philadelphia and four boats for Halifax.
The business to Philadelphia was booked at 47 cents
per bushel.
Mar. 9: There was no export business in wheat reported,
although there was some interest from Scandinavian
countries in Canadian wheat for May shipment from
Montreal.
Mar. 11: Export business was very light here and in Canada.
Argentina has sold about all the wheat that will be
sold this year for export, due to a very short crop.
Exports of soy beans from October 1 to January 31
totaled in excess of 10,000,000 bushels. This 1s
the largest business in Boy beans to date.
Mar. 12: Peace news coupled with good moisture throughout
almost the entire country had considerable effect
on the market yesterday. Occasional reports con-
tinue to come in from the Southwest that wheat 18
not looking favorable, but all feel that there will
be improvement from now on and that there 18 every
indication that the spring wheat acreage will be
large.
At the present time the visible supply of wheat in
the United States is 98,000,000 bushels as against
82,000,000 bushels last year.
Regraded Uclassified
223
Secretary Morgenthau - 3
Mar. 13: Export business in American grain continues slow.
Today Europe bought 112,000 bushels of Northern
Pacific Coast wheat on the new subsidy export
program which became effective yesterday.
At the present time, the British Government is
absorbing 44 cents of the cost of Canadian wheat
to the millers for the purpose of keeping the cost
of bread down to 31 cents per pound.
Note:
The Journal of Commerce of March 15 reports that
Great Britain has purchased upward of 10,000,000
bushels of wheat from Canada, the largest single
day's business since the extremely heavy takings
early last January.
Regraded Uclassified
224
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 18, 1940.
TO
Secretary Morgenthau
FROM
Mr. Haas HA.
During the week ended March 6, 1940, 2,323,000 persons
were reported employed by the Work Projects Administration,
a decline of 3,000 persons from the figure given for the
previous week. This slight decrease 1s the first one since
the beginning of September 1939.
Attachments
Regraded Uclassified
225
WORK PROJECTS ADMINISTRATION
Number of Workers Employed - Weekly
United States
Week Ending
Number of Workers
1939-40
(In thousands)
July 5
2,388
July 12
2,290
July 19
2,250
July 26
2,200
August 2
2,082
August 9
2,054
August 16
1,977
August 23
1,898
August 30
1,842
September 6
1,662
September 13
1,696
September 20
1,735
September 27
1,790
October 4
1,834
October 11
1,875
October 18
1,898
October 25
1,901
November 1
1,901
November 8
1,929
November 15
1,961
November 22
1,987
November 29
2,024
December 6
2,075
December 13
2,123
December 20
2,144
December 27
2,152
January 3
2,160
January 10
2,190
January 17
2,222
January 24
2,244
January 31
2,265
February 7
2,288
February 14
2,306
February 21
2,319
February 28
2,326
March 6
2,323
Source: Work Projects Administration
Regraded Uclassified
226
WORK PROJECTS ADMINISTRATION
Number of Workers Employed - Monthly
United States
Number of Workers
1937
(In thousands)
July
1,569
August
1,480
September
1,451
October
1,476
November
1,520
December
1,629
1938
January
1,901
February
2,075
March
2,395
April
2,582
May
2,678
June
2,767
July
3,053
August
3,153
September
3,219
October
3,346
November
3,319
December
3,094
1939
January
2,986
February
3,043
March
2,980
April
2,751
May
2,600
June
2,551
July
2,200
August
1,842
September
1,790
October
1,901
November
2,024
December
2,152
1940
January
2,265
February
2,326
Source: Work Projects Administration.
Monthly figures are weekly figures for the latest
week of the month.
They include certified and noncertified workers.
Regraded Uclassified
WORK PROJECTS ADMINISTRATION
Number of Workers Employed
United States
Monthly W.P.A. Employment
Weekly W.P.A. Employment
1937
1938
1939
1540
41
1939
1940
1981
of
MILLIONS
MILLICES
MAR.
MAY
ALL
un.
BRY.
(MM)
NAME
MAY
MT
MFT.
-
MAR.
warn
or
OF
WILLIONS
WORKERS
WIRENS
or
MISSING
3,4
3.4
1-2
3.3
3.2
3.3
3.2
3.2
3.1
2.0
3.1
2.0
3.0
3.0
2.9
2.9
1,4
2.4
2.8
2.6
2.7
1.7
2.0
2.0
2.6
2.6
2,5
1.5
1.4
1.6
2,4
2.4
2.3
2.3
1.2
2.2
2.2
1.2
2.1
2.1
2.0
2.0
48
in
1.9
1.9
1,8
1.8
A
-
1.7
1.7
1.6
1.6
0
L
-
,
-
M
.
F
1
.
.
0
-
-
-
.
-
1.5
1.5
-
e
=
L
a
.
=
.
-
1935
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
JAM,
MAS.
WAY
JULY
SEPT.
NOV.
JAB.
ME.
1936
1937
1934
1939
1940
'41
1939
1940
1941
SOURCE: MINE PROJECTS ADMINISTRATION
- di the Secretary of the Treasury
- - - - -
I - 221 - 12 B2
229
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
CONFIDENTIAL
DATE March 18, 1940
10
Secretary Morgenthau
FROM
Mr. Haae OH
Subject:
The Business Situation,
Week ending March 16, 1940.
Conclusions
(1) As the period for normal seasonal expansion in busi-
ness gets under way, there is still lacking any real evidence
of 8 marked increase in new orders, which must precede any
important rise in industrial production. The volume of new
orders for steel in particular has not yet improved enough to
offeet & rapidly diminishing backlog of unfilled orders. Al-
though the decline in steel activity has recently slowed up,
and last week's production rate showed a slight increase, steel
production has been supported by a building up of mill inven-
tories rather than by increased orders. Unless new buying
increases rapidly in the near future, 8 further deoline in
steel activity appears likely.
(2) Thus the major question at the moment is the timing
of the next upturn in new industrial buying. There is 8.B yet
no definite indication that such an upturn is imminent, although
the recent marked expansion in buying of nonferrous metals may
Doint in that direction. Our weekly new orders index in the
second week of March dropped back to the February average level,
following a sharp gain in the previous week.
(3) Business news of the week has, on the whole, been
somewhat less favorable:
(a) Weekly business indices show further moderate de-
clines, largely because the trends of production in various
industries have not reflected the normal seasonal gains.
(b) The ending of the Russian-Finnish war, rumors of
D general peace move, and renewed declines in British and
French exchange rates, have had a weakening influence on
nommodity prices. The net effect has been to induce a
period of hesitation in current business progress.
Regraded Uclassified
229
Secretary Morgenthau - 2
(c) On the other hand, residential construction
data of the F. H. A. show a noticeable improvement, both
in mortgages selected for appraisal and in new homes
started.
New orders not increasing
There 18 as yet no evidence in our new orders figures
of any expansion in industrial buying such as must precede
a renewed upturn in general business activity. Our weekly
new orders index declined in the week ended March 9 (see
Chart 1), after rising rather sharply during the previous
week on an increase in textile orders.
The steel situation
The present outlook in the steel industry 18 clouded by
the fact that, in spite of recent optimism in the steel trade
and some pick-up in orders, the volume of new business has
not yet improved sufficiently to maintain current operating
rates. Our confidential report from the U. S. Steel Corpora-
tion for the week ended March 7 showed new orders at a low
level for the third week in succession, at approximately
36 per cent of capacity. Trade reports do not indicate that
new orders for the industry as 8. whole are materially above
this level, though some improvement recently has been noted.
The volume of unfilled orders, which heretofore has supported
steel output well above the level of new orders, has now been
worked down to a rather low level.
An appraisal of the current position of the steel indus-
try 1e provided by an analysis of confidential data and pub-
lished data of the U. S. Steel Corporation, which accounts for
30 to 35 per cent of the total production of steel in this
country. Information from trade sources does not indicate
that the situation for the industry as a whole differs mater-
ially from that for U. S. Steel.
The rate of steel production has been maintained for
several months considerably above the level of new orders, on
account of work being done on the huge volume of orders booked
last September and October. (See Chart 2, upper section) The
falling off of new orders has caused a sharp curtailment in
Regraded Uclassified
7
280
Secretary Morgenthau - 3
steel production since November, however, which has brought
the operating rate down nearly to the level prevailing before
the outbreak of the war. In recent weeks the decline in steel
activity has slackened, and last week's rate of 64.7 per cent
showed & very slight gain over the week before.
It is doubtful if the recent slackening in the steel
deoline has been justified on the basis of new orders. The
recent moderate improvement in orders noted in the steel trade
seems not to have been sufficient to offset the diminishing
backloge of unfilled orders; and orders reported by the U. S.
Steel Corporation show no real evidence of improvement
Steel inventories increasing
There 1s some evidence that the steel companies have
recently been maintaining their operating rates by building
up mill inventories in anticipation of increased business.
The American Metal Market this week says that "more recently,
mills have been increasing their own stocks of finished and
semifinished steel, which has helped to hold up operations,
but now with unfilled orders reduced further, additional
justments have been made to bring production into better
alignment with incoming tonnage."
An analysis of U. S. Steel Corporation data shows (1) that
unfilled orders have apparently been reduced nearly to their
pre-war level, and (2) that production recently has apparently
been maintained by accumulating inventories at the mills. These
indicate the importance of a substantial increase in new orders
soon, if a further reduction in output is to be avoided.
In Chart 3. upper section it will be noted that new orders
of the U. S. Steel Corporation in recent months have been run-
ning much below shipments, which has meant 8. rapid depletion
of the backlog of unfilled orders accumulated during the buying
boom of last September and October. Our estimate of unfilled
orders derived from the difference between new orders and ship-
ments (see lower section of chart) indicates that at the end
of February the backlog had been reduced to about a "normal"
level.
In Chart 4, upper section, it will be noted that the esti-
mated output of the U. S. Steel Corporation in recent months has
been somewhat above the level of shipments, thus indicating an
Regraded Uclassified
231
Secretary Morgenthau - 4
accumulation of steel in various forms at the mills. The
relative amount of inventory accumulation 18 indicated by our
estimate of inventories shown in the lower section of the
chart. This estimate 18 an approximation based on the differ-
ence between monthly U. S, Steel shipments and our estimate
of the Corporation's monthly production of finished steel.
The outlook for an upturn in steel orders is favored by
the high level of activity in the automobile industry, by
continued reports of an expanding volume of export business,
and by some diversion of war orders from Canadian steel plants
to mills in this country. The current 1ssue of the Iron Age
mentions that the greater part of recent heavy purchases of
steel plates, to be used in filling orders for war materials
recently placed in Canada, have gone to mills in the United
States because of the congestion of orders at Canadian mills.
It 1s of interest that the index of industrial production for
Canada rose from 138 in December to 145 in January.
Commodity prices lower
Sensitive price indices weakened somewhat last week both
in this country and in England (see Chart 5) owing to the
combined effects of the ending of the Russian-Finnish war,
rumors of a move toward general peace negotiations, and (as &
weakening influence on prices in this country) a renewed de-
cline in sterling exchange following the new British regula-
tions regarding payments for imports. While the price weakness
has been rather general prices of industrial materials on the
whole have held steadier than prices of agricultural products.
Residential building improves
Mortgages selected for appraisal by the Federal Housing
Administration increased sharply in February, while residen-
tial contract awards reported by the F. W. Dodge Corporation
showed a further slight decline, apparently of a seasonal
nature. (See Chart 6, upper section)
Recent weekly data on F. H. A. mortgages show a further
decided improvement. (See lower section of chart)
Regraded Uclassified
732
Secretary Morgenthau - 5
The recent improvement is also reflected in the number of
new homes started under F.H.A. inspection, which has risen
steeply in the first two weeks of March to a level well above
the early March figures for last year. (See Chart 7) These
projects, as indicated on the chart, have followed rather
closely the trend of awards for residential projects reported
by the F. W. Dodge Corporation.
New York Times index lower
A decline of .8 point to 96.0 was recorded by the New
York Times in the week ended March 9, reflecting moderate
downturns in the adjusted indices of automobile, steel, and
lumber production and "all other" carloadings.
In the week ended March 16, steel output was increased
very slightly, and automobile production was stepped up to
105,720 units from 103,560 the previous week. Both increases
were less than the seasonal average, however, and the adjusted
indices will therefore be lower.
Regraded Uclassified
233
Chart 1
INDICES OF NEW ORDERS
Combined Index of New Orders and Selected Components
1938
1939
1940
A
M.
A
N
D
a
M
A
5
o
-
D
J
a
PERGENTAGE
PERCENTAGE
POINTS
POINTS
(60
160
150
(50
140
140
130
130
120
120
TOTAL (COMBINED INDEX)
1936 - 100
110
110
100
80
W
100
90
90
80
70
70
60
60
TOTAL EXCLUDING STEEL AND TEXTILES
50
50
40
40
STEEL ORDERS
30
30
20
20
10
10
TEXTILE ORDERS
o
2
J
J
A
$
o
N
a
A
M
of
J
A
$
o
N
D
J
F
M
A
M
D
-
F
1938
1939
1940
The of 14 impretary of the Treasury
I - 85 - B
- - - and Statestics
Regrade Uclassified
VET
STEEL INGOT PRODUCTION AND U.S. STEEL CORPORATION ORDERS
Da Shiet
CORE IDENS
1938
1939
1940
-
MAY
JULY
SEPT.
NOV.
JAN,
MAR.
MAY
JULY
SERV.
AND
NOV.
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
PER
PLI
CENT
sent
U.S. Steel Orders and Total Steel Output
160
100
(EXPRESSED IN PERCENT or CAPACITY)
140
140
120
1,0
ORDERS, U.S. STEEL CORPORATION
IN TERMS OF U.S. STELL CAPACITY
100
100
BO
no
TOTAL STEEL OUTPUT
60
60
40
40
20
20
JULY
SEPT.
NOV.
-
MAR.
MAY
JULY
SEPT.
NOV.
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
JAN.
MAR.
MAY
1938
1939
1940
100
too
Steel Output
(EXPRESSED IN PERCENT or CAPACITY)
BO
-
INDEPDIDENT COMPANIES
00
40
U.S. STEEL CORPORATION
20
19
MAN,
DAY
JULY
LEPT.
40%
JM.
MAR,
SEPT.
NOV.
JAN.
MARK
MAY
JULY
,Ext.
NOV.
MAY
JULY
1940
1938
1939
# -
- - Service
Regraded Uclassified
Chart 3
CONFIDENTIAL
NBW ORDERS, SHIPMENTS AND ESTIMATED UNFILLED ORDERS
OF THE U.S. STEEL CORPORATION
235
TONS
TONS
THOUSAND
THOUSANDS
2000
2000
NEW ORDERS "
1600
1600
1200
1200
SHIPMENTS
800
800
400
400
o
0
1935
1936
1937
1938
1939
1940
TONS
TONS
WILLIONS
MILLIONS
4.0
4.0
3.5
3.5
3,0
3.0
ESTIMATED UNFILLED ORDERS
1,5
2.5
..0
2.0
1.5
1.5
1.0
1.0
-5
.5
o
0
1935
1936
1937
1938
1939
1940
CORRECTED TO TAKE ACCOUNT or CANCELLED ORDERS
- - The Secretary of the Treasury
I-100
/ 1 1 I I
Regraded Uclassified
STEEL SHIPMENTS, PRODUCTION AND ESTIMATED INVENTORIES
U.S. Steel Corporation
1935
1936
1937
1938
1939
1940
TONS
TOMS
THOUSANDS
THOUSANDS
Shipments and Production
1600
1600
SHIPMENTS OF FINISHED STEEL
1400
1400
1200
1200
1000
1000
800
800
600
600
ESTIMATED STEEL PRODUCTION
400
400
200
200
o
o
1935
1936
1937
1938
1939
1940
TORS
TONS
THOUSANDS
THOUSANDS
Batimated Inventories
2600
2600
2400
2400
2200
2200
2000
2000
1800
1800
1600
1600
1400
1400
1200
1200
1935
1936
1937
1938
1939
1940
236
Office of the Secretary of the Treasury
C 309
Division of Search and Statistics
Regraded Uclassified
COMMODITY PRICE INDEXES IN U.S. AND U.K.
Delly
1939
JULY
AUGUST
SEPTEMBER
1940
y
23
30
OCTUBER
is
6
13
20
NOVEMBER
27
à
DECEMBER
10
17
24
JANUARY
-
FEBRUARY
144
e
15
J2
5
MARCH
29
12
19
25
à
10
17
24
31
7
14
21
JB
4
"
18
25
J
10
17
24
31
HAVE
PER
- -
CENT
DOB-VONES
(9)
45
IW
54
191
63
-
62
101
61
160
60
177
59
COMMODITY FUTURES (DOB-JONES)
1924 - 126 = 100
(74
se
171
57
160
56
165
$5
162
54.
159
53
MODDY INDEX IN Vila
2
DEC. 31, 1931 1 100
52
IN
51
-
50
REUTER'S INDEX IN 0,5,
147
SEPT. 15, 1931 . 100
49
é
&
HAI
47
N
1 le
46
165
45
-
:
43
1
24
31
7
14
21
28
4
11
ID
25
3
10
17
24
31
9
16
23
30
6
13
20
27
3
10
17
24
I
e
15
22
29
5
12
19
26
3
10
17
JULY
DECEMBER
JANUARY
FERRUARY
MARCH
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
1940
1939
- - - el - Treasury
P-181-1
1 I 1
Regraded Uclassified
RESIDENTIAL CONTRACT AWARDS AND F.H.A. MORTGAGES
1938
1939
1940
J
F
M
A
M
,
J.
A
5.
9
-
D
J
F
M
A
M
J
J
A
3
o
N
D
J.
Γ
M
A
M
A
1
9
N.
DOLLARS
DOLLARS
MILLIONS
WILLIONS
(MORTGAGES)
(AWARDS)
Mortgages Selected for Appraisal
130
138
and F.W. Dodge Awards
Monthly
120
126
110
114
100
102
90
90
80
78
F.#. Doost AMARDS
70
66
MORTGAGES SELECTED FOR
APPRAISAL. F. H.A.
60
54
50
42
40
30
30
18
M
M
A
5
o
M
DI
J
F
-
A
M
J
J
A
$
o
M
D
J
F
M
A
M
J
J
A
5
0
a
D
J
F
A
,
J
1938
1939
1940
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
DOLLARS
DOLLARS
MILLIONS
MILLIONS
Mortgages Selected
40
40
for Appraisal, F.H.A.
Weekly
35
35
30
30
1939
25
25
20
20
is
15
1940
1938
10
10
5
5
o
o
JAIL.
MAR.
MAY
JULY
SEPT.
NOV.
38
Office of the Secretary of the Treasury
Regraded.ld class fied
Chart 6
RESIDENTIAL AWARDS AND F.H.A. HOMES STARTED
1939
1940
J F M A M J. J A 5 o N D J F M A M J J A % o N D
HOMES
HOMES
(F.W.DODGE)
(F.H.A.)
22,000
3,250
20,000
3,000
18,000
2,750
16,000
2,500
14,000
2,250
12,000
2,000
NEW HOMES STARTED UNDER
F.H.A. INSPECTION
(WEEKLY)
10,000
1,750
NUMBER OF RESIDENTIAL PROJECTS
(F.W.DoDGE, MONTHLY)
8,000
1,500
6,000
1,250
4,000
1,000
J F M A M J J A S o N D J F M A M J J A S o N D
1939
1940
Chart 7
239
Office of the Secretary of the Treasury
Division of Research and Statistics
C - 307
Regraded Uclassified
240
March 18, 1940
CONFIDENTIAL
To:
The Secretary
From:
Mr. Young
Re: Finland
I talked with Ernest Swift this morning on the Finnish
situation. The League of Red Cross Societies reports an-
proximately 600,000 refugees in Finland, made un of 300,000
children, 270,000 women and 30,000 men. This number is
constantly increasing. Of the 600,000 refugees, 470,000
are without homes and need immediate help.
Word received by the Red Cross from Finland March 16th
indicated that thousands of children are war orphans and
that about 200,000 Finns are abandoning their homes in the
property ceded to Russia, There are already 10,000 Finnish
refugees in Sweden and 6,000 in Norway.
At the present time there are over 50,000 wounded who
mist be taken care of and the hospital demands are constantly
increasing. The most pressing problem is the evacuation of
refugees from the territory given up by Finland. There is
an urgent need for shelter, medical attention, food, clothing
and building materials.
As of March 2nd, the total expenditures and commitments
by the American Red Cross for relief in Finland, exclusive of
the estimated value of materials in chapter produced supplies,
amounted to $328,000. The estimated value of chapter produced
supplies was about $66,300.
Reports received from the League of Red Cross Societies
indicate that voluntary non-governmental contributions from
other countries, including Sweden, Norway, England, Denmark,
the Netherlands, Iceland, France, and Spain, for Finnish relief
have amounted to several million dollars.
Mr. Swift voluntarily offered to send me copies of some of
the telegrams which had been received by the Red Cross if I wished
them.
Py. Regraded Uclassified
TO:
241
Please return this attached
bulletin to Mr. Young, Room 196.
bj
MR. YOUNG
Form 2131-B
TREASURY DEPARTMENT
OFFICE OF THE SECRETARY 242
EXPEDITE
Mrs. Jones,
Room 196.
Please return to R & S
after this bulletin has served
its purpose. Thanks.
Harrell
3-18-40
as & BOYERWEET PROTING R-463,19774 Vence -
TO:
Miss La Camb
3.19.40
243
Can this b the thing
in question? Only Rd hos
pub. her Acne or I hour
kachd seen Reintly. This one just
MISS DIAMOND
Br. 2069 - Room 352
Treasury Library
<<
MR. MORGENTHAU'S OFFICE TO--
Mr. Bell
Mr. Thompson
Mr. Gaston
Mr. Foley
Mr. Sullivan
Mr. Graves 44
Mr. Alexander
Mr. Haas
Mr. Allen
Mr. Hall
Mr. Bartelt
Mr. Hanna
Mr. Batchelder
Mr. Harper
Mr. C. S. Bell
Mr. Harris
Mr. Berkshire
Mr. Helvering
Mr. Bernard
Mr. Irey
Mrs. Betts
Mr. Julian
Mr. Birgfeld
Mr. Kilby
Mr. Blough
Miss Lonigan
Mr. Broughton
Mr. Rose
Mr. Bryan
Mrs. Ross
Mr. Cochran
Mr. Schwarz
Mr. Collie
Mr. Sloan
Capt. Collins
Mr. Spangler
Mr. Delano
Mr. Tarleau
Miss Diamond
Mr. Upham
Miss Flanagan
Mr. White
Mr. Wilson
Mr. Young
PUBLIC INFORMATION SERVICE
245
AMERICAN RED CROSS
WASHINGTON, D. C.
Bulletin No. 7 on War Relief
(Pr use in Chapter publicity)
March 15, 1940
American Red Cross War Relief in Europe
September 1 - March 15
After six months of war Europe now looks apprehensively to the beginning of
apring. March aná the approach of warmweather always has been a critical time in
Europe's conflicts.
Whether or not spring will bring offensives end counter-offensives is still
a matter of speculation; the mere fact that such A possibility exists has been en
nãded factor in placing new and severe strains on social and economic life in the war-
affected nations. The mase movement of populations, the necessity for commodity
retioning and other rigid control measures have resulted in urgent relief problems.
Shortage of food, clothing and shelter have combined to create an appalling dis-
organization of national life. Medical emergencies are being reported daily.
With the end of the Finnish-Sovist conflict, Finland's relief needs have not
been curtailed. According to communications from the League of Red Cross Societies, a
survey completed just prior to the peace treaty revealed that 600,000 Finns had been
evacuated from danger zones. After living in crowded, temporary quarters for weeks.
they must now return to their homes end resume their normal lives. Among them will
be thousands who previously lived in sections of Finland which have been ceded to
Russia. For them, there will be not only the tesk of rehabilitation, but the problem
of finding new homes end re-adjusting their lives to meet new conditions.
The League survey also states tbst the number of Poles who have fled to the
sanctuary of neighboring neutrals has risen to 120,000, Most of the Polish refugees
are now in Hungary, Rumania, Lithuania and Latvia, where the majority are dependent
on charity for shelter, food and clothing. In France, hostilities have forced a
million persons from the Maginot Line area. Carrying with them meager belongings,
refugees were taken to quarters in central France to remain for the duration of the WAT.
Since September 1, European headquarters of Red Cross Societies have been
operating under the most difficult emergency schedules, To aid the international Red
Cross, has come assistance from the entire world, through sister societies of the
organization located in 63 nations.
Acting promptly on the first day of the German-Polish conflict, the American
Red Cross has been engaged in war relief operations ever since. Expenditures up to
March 2nd totel $1,174,639. This figure does not take into account either the cost
of the materials or the estimated finished value of garmente and surgical dressings
produced by chapters.
Red Crose chapters throughout the United States, noved by the plight of
Europe's war suffering, have mobilized B. mercy corps of 250,000 women volunteers. At
this writing they are engaged in the production of hundreds of thousands of garments
and surgical dressings, with shipments arriving daily in New York for trensmittal to
Europe. Already large cargoes have reached the war zones end are being distributed
at points where greatest needs are reported. To date more then 166,000 articles of
clothing and nearly 400,000 surgical dressings have reached Europe and are being con-
Regraded Uclassified
- 2 -
246
signed to cooperating agencies through the American Red Cross foreign delegation.
FINLAND
To assist Finland's 600,000 refugees and to aid in meeting urgent medical
problems, the American Red Cross has spent more than $328,000 in cash for relief
mindles including 10 ambulances, hospital equipment, surgical instruments, tents,
Nankete and x-ray machines. In addition, chapter volunteers throughout the country
GAVE shipped 64,128 articles of clothing and 168,925 surgical dressings.
Latest purchases for Finnish relief were made following reports of tragic
was from Dr. H. A. Spencer, U. 8. Public Health Service official who is in Finland
on special duty for the American Red Oross. Dr. Spencer's cable described refugees
18 being "very poorly clothed and undernourished. He added that many were suffering
from respiratory diseases, exposure, mental anxiety and fright from daily air-raid
glarms or bombings.
Immediately following receipt of Dr. Spencer's cable, Red Cross officials
equited shipment of 10,000 blankets, 10 x-ray machines and 40 basic sets of
megical instruments.
POLAND
Wayne Chatfield-Taylor and James T. Nicholson, members of the American
Réd Cross delegation in Europe, arrived at Cracow, March 4th to arrange distribu-
tion of eight shipments of warm clothing end medical supplies, valued at $126,181.
The supplies had reached Cracow via & Mediterranean port and overland from Genos.
The two islegates will remain in Cracow to coordinate and observe the distri-
bitton of relief supplies to cooperating Polish agencies including Jewish, Catholic
and other organizations, working in the areas around Warsaw, Lublin, Cracow and
Redom,
À supplementary agreement with the German Government guarantees that Ameri-
can Red Cross relief supplies "will at no time be at the disposal of or claimed by the
German authorities."
To date A total of $397,206 has been spent by the American Red Cross for the
purchase of supplies for the relief of Poles in German-occupied Poland, and for Polish
refugees in neighboring countries. Chapter-produced supplies furnished up until this
time incluie more than 25,000 articles of clothing.
FRANCE
Heavy shipments in the past two weeks of blankets, underwear, surgical
dressings and other relief needs has brought American Red Cross expenditures for
French var relief to $80,334. Chapter-donated dresses, gloves, underwear, sweaters
And other articles of clothing exceeded 50,000, while the total number of surgical
dressings shipped exceeded 154,000. Value of chapter produced and donated articles
758 placed at $53,907.
GREAT BRITAIN
Evacuated civilians and the threat of aerial warfare continued to be the
major problems harassing Great Britain, At this writing, no count has bean mede of
the number of English who have been moved from population centers, but preliminary
returns from & survey being made indicate the figure may reach into the hundreds of
thousands. Relief shipments to Great Britain from the American Red Cross continued
to consist mostly of chapter-made clothing, surgical dressings and large supplies of
Firchased relief essentials. Relief expenditures amount to $108,764 in purchased
Regraded Uclassified
247
- 3 -
supplies, and $17,341 in chapter-produced garments and surgical dressings, Most
recent consignments to England included 18 x-ray machines, surgical instruments,
hospital supplies and clothing. Further assistance to Great Britain through the
American Red Cross has been made in the form of a designated contribution of $57,040
to the Canadian Red Cross hospital at Taplow.
AMERICAN RED CROSS DELEGATION
On October 4, the American Red Cross sent EL three-man delegation to Europe
to survey relief needs, Since that time, Ernest J. Swift, vice chairman in charge of
Foreign operations has returned to this country, leaving abroad, Wayne Chatfield-
Teylor and Jnmes T. Nicholson. These men have been working with the International Red
Cross Committee, League of Red Cross Societies and with individual Red Cross societies.
cooriinating and observing the distribution of Red Cross supplies sent from this
country.
On March 9, two additional Red Cross relief experts left by clipper plane
to join the delegation. They are H. Sherburne House and Raymond T. Schaeffer, of New
York and St. Louis, respectively.
INQUIRY AND INFORMATION SERVICE
The American Red Cross has completed plans with the International Red Cross
at Joneva to handle requests regarding the welfare of persons in Finland who have not
been heará from because of the war. This service will be conducted similarly to that
offered to Americans concerned with friends and relatives in Poland. Red Cross
compters in this country are receiving inquiries and clearing them through national
Red Cross headquarters in Washington. The Finnish Red Cross is sending back to this
country reports on the whereabouts and safety of those concerned. Inquiries handled
by the Red Cross in this country have totaled more than 21,000 cases since the service
Yes established early in September,
CHAPTER PRODUCTION
More than 250,000 women volunteers in chapters throughout the country are
ongaged in the production of warm clothing and surgical dressings for shipment to
Europe. Since the program got under way, 166,281 erticles of clothing and 399,017
vargical dressings have been shipped. Additional thousands of articles are now under
production and will be ready shortly for shipment as cargo space is available on
Surops-bound vessels.
CONTRIBUTIONS
Although the American Red Cross has not, as yet, found it necessary to
launch & major campaign for war relief funds, Chairman Davis has esked chapters
throughout the country to accept voluntary contributions. On March 9, $643,861.19 in
contributions had been received. Donors have been permitted to designate the country
in which they wish their contributions to be used,
60081
Regraded Uclassified
48
SUMMARY OF EXPENDITURES
AMERICAN RED CROSS WAR RELIEF
THROUGH MARCH 2ND
Expenditures by National Organization
$1,174,639.78
Chapter expenditures"
$166,171.38
FINLAND
Expenditures by National Organization
$ 328,082.13
Chapter expenditures'
$ 66,333.93
GERMAN-OCCUPIED POLAND & POLISH REFUGEES
Expenditures by National Organization
$ 397,206.47
Chapter expenditures
$ 28,589.08
FRANCE
Expenditures by National Organization
$ 80,234.43
Chapter expenditures
$ 53,907.15
GREAT BRITAIN
Expenditures by National Organization
$ 108,764.60
Chapter expenditures
8 17,341.22
CANADIAN RED CROSS
Transmitted through C.R.C. overseas relief,
$ 57,040.00
MISCELLANEOUS
Repatriation of American Citizens, Inquiry
and Information Service, assistance to
International Red Cross Committee, and other
expenditures not classified above
$ 105,446.03
For supplies purchased, but not designated as of March 2nd
$ 97,866.12
*Cost of materials for chapter-produced garments and surgical
dressings shipped to Europe. This figure does not include any
cash evaluation on the labor of Red Cross volunteers.
60081
Regraded Uclassified
4610
CONGRESSIONAL RECORD-HOUSE
MARCH 18
Mr. Speaker, I ask unanimous consent to extend my re-
marks in the RECORD at this point by incorporating a letter
tution. 8 quotation from the Washington Post and from the Consti-
from the Secretary of the Navy on this subject matter.
The SPEAKER. Is there objection to the request of the
The SPEAKER, Is there objection to the request of the
gentleman from Montana?
conforman from Georgia?
There was no objection.
There was no objection.
The letter referred to follows:
sent- Mr. TREADWAY. Mr. Speuker, I ask unanimous con-
DEPARTMENT OF THE NATE.
OFFICE OF THE SECURITARY,
Mr. RANKIN. Mr. Speaker, a point of order. We cannot
Washbagton, March 18. 1940.
said. hear these requests. We cannot hear à word that to being
Date CARD VINION.
Challman, House Navol Affairs Committee,
House of Representatives
The SPEAKER Does the gentleman from Mississippi
Mr DEAR Ma. VINSON: In response to your Inquiry, you are advised
desire request? that the gentleman from Montana should repeat his
Cal dre rule of aircraft to the Allied governments by domestic man-
has not interfered with the Navy Department's aircraft-
Mr. RANKIN. I would like to know what it is, Mr. Speaker.
program. In at least one instance sales of this nature
Amited in earlier deliveries to the Navy Department The con-
Mr. THORKELSON. I ask unanimous consent to extend
musur Tod DUTE up a large and efficient force and manufactured
my own remarks in the RECORD and to include a short quota-
The Name Department's order at a very high rate Except for prior
tion from the Washington Post and from the Constitution
will or the Allied governments, this large force would not have
of the United States
loan immoded Except for the availability of subrequent orders
fail the Allied governments, the contractor would have been one
Mr. RANKIN, What part of the Washington Post? IL is
strained greatly to reduce this force and extend the work for the
not that venal voice of Beloon on the utilities side?
May? Orpartment over & greater period.
Mr. THORKELSON No. no utilities.
Airther manufacturer, in connection with a sale to the Our-
Mr. RANKIN All right.
emment of Finland, offered to effect great Improvements in certain
of the Department's airplanes If the Department would accept a
The SPEAKER. Is there objection to the request of the
dispitated extrasion of delivery dates under the contract. The ex-
gentleman from Montana?
date was such no to meet the Navy's replacement program,
There was no objection.
and the improvements offered were precisely those previously under
measine between the contractor and the Department. Had the
The matter referred to appears in the Appendix.)
and to Finland not eventuated. the Navy Department could have
working the same betterment of Its equipment only of the COSE
Mr. TREADWAY. Mr. Speaker, I ask unanimous consent
of granter overwall delay and of a greatly enhanced expenditure of
to extend my own remarks In the RECORD und to Include
too
. naw DO extdence that the cost of aircraft to the Navy Depart-
therein a memorandum relative to the trade-treaty program.
mant has been shanced by sales of such equipment to the Allied
The SPEAKER, Is there objection to the request of the
Departments There is evidence that the cost has been reduced.
gentleman from Massachusetts?
In instruction, in the case of one particular contract, there Was a
There was no objection.
nouction of approximately 8575,000 in cost to the Department due
LP fise reduction of the overhead ratio on account of
[The matter referred to appears in the Appendix.]
MIP arratly enhanced volume of business due to export orders.
The enlarged volume of atroraft manufacture for export account
Mr. KNUTSON. Mr. Speaker, I ask unanimous consent to
- in funstimable value to our country economically and from the
extend my remarks in the RECORD by Inserting a letter re-
of national defense. Upon It is based. directly and In-
ceived by me this morning,
surectly the employment of working forces enlarged by many thon-
- These additional employers are, in a short period. trained in
The SPEAKER. Is there objection to the request of the
o Wetul Trade, with benefit to themselves and the Nation through-
gentleman from Minnesota?
mill Form industrial lives. Administrative, engineering. and super-
There was no objection.
Flatty forces are not only enlarged but are trained and experienced
m Mie organization and control of their industry operating un 5
(The matter referred to appears in the Appendis.
large senie not olberwise attainable. The enlarged volume of bust-
Doe furnishes the means and the Incentive upon which the industry
Mr. RICH. Mr. Speaker, I ask unanimous consumer to pro-
CAP truer a more extensive development program. Enlarged plant
ceed for 1 minute.
Authorize will assign the execution of any future program for our
02 unimag. The inefficiencies to be enticipated are minor and
The SPEAKER. Is there objection to the request of the
Directing, the benefits may be expected to endure for at least &
gentleman from Pennsylvania?
There was no objection.
that the above information se fully responsive to your inquiry.
Sincerely yours,
(Mr. RICH asked and was given permission to revise and
CHARLES EDITION.
extend his own remarks in the RECORD.)
EXTENSION OF REMARKS
THE CRAZY GAME OF BLIND-MAN'S BUFF
MY, COFFEE of Washington. Mr. Speaker, I nsk unan)-
Mr. RICH Mr. Speaker, when a businessman makes
mous consent to extend my own remarks in the RECORD on
money, the Federal Government takes a great part of IL In
TWO different topics, in the first extension to include a state-
taxes. When many large corporations or railroads lone money
ment by M. J. Robinson concerning a bill I have intruduced
and go broke, they borrow from some Federal lending agency
to the House, and in the other extension to include a state-
and keep going.
avol by George R. Hay, of Palagonia, Aris.
When a businessman goes broke, his assets are usually
The SPEAKER. Is there objection to the request of the
sold under the hammer for the benefit of his creditors.
gentleman from Washington?
When a farmer goes broke trying to make money out of
There was on objection.
the soil, he is run off the farm and onto the city relief rolls.
(The matters referred to appear in the Appendix.]
When a workingman in the city goes broke and la unable to
find employment so that he can feed and house his family, he
Mr. ROUTZOHN. Mr. Speaker, I ask unanlmous consent
is kicked around like a vagrant-on the relief rolls today
to extend my own remarks in the RECORD and include therein
and off tomorrow.
an article appearing this morning in the Washington Times-
But when the Federal Government goes broke, they just
Herald by Williard Edwards entitled "Senator WAGNER Joins
exchange I 0 U's with the money changers, and the crass
Demands for Drastic Shake-up in the N. L. R. B."
game of blind-man's buff goes on. Meanwhile the Nation
The SPEAKER, Is there objection to the request of the
tottera on the brink of despair. Porty-four billion debt and
Centleman from Ohio?
running in the red ten thousand a minute-where will you got
There was no objection.
the money?
(The matter referred to appears in the Appendix.]
However, let no one say Unat this in a Nation with an un-
charitable soul. Even if our own people are in want, we
Mr. THORKELSON, Mr. Spenker, I nak unanimons con-
still have millions to give away and loan to those who affer
sent to extend my own remarks to the RECORD and to include
and are oppressed in other lands.
Regraded Uclassified
250
March 18, 1940.
3:05 D.M.
H.M.Jr:
Hello.
Operator:
Secretary Woodring.
Go shead.
E.V.Jp:
Hello.
Secy.
Yoodring:
Henry?
Yes Herry.
W:
Say I've just gotten beak here, half en hour ago,
from the Hill, end I've - you know what it does,
it isn't time wasted, 11 certainly takes you away
from your desk.
R.N.Jr:
Yes.
V:
I wondered If we can't postpone this thing tomorrow
morning. I'm just simply un over my neck and 1f
it's agreeable to you I'd like to make it later or
else let it 20 next week to the usual luncheon
time.
E.M.Jr:
Vell I hone to leave town Thursday night.
V:
on do you?
S.V.Jr:
Yes.
V:
Well 11" I could out this off, over to Wednesday,
after Wednesday, but then of course he won't be
back vill he?
H. .Jr:
No, that's the trouble:
V:
Well all right, I'll try and run - we won't stay.
I'll run over there. Leave it the way it 1s then
and we won't stay. I'll make that but I'm just
snowed under here with getting ready to 20 un on
the Hill, you know.
R.M.Jr:
Well it's entirely agreeable to do it any way you
want.
W:
Well, it's just - I get down here and then I've not
to drive over there and take time out and I just
wondered if there was anything important that we
could, in this time, without escape, without -
would hurt to postpone it until the following week
Regraded Uclassified
251
- 2 -
H.M.Jr:
Might as well. I won't be here but it's all right
with me 1f you want to postpone it. because I have
nothing special.
W:
Well all right. Let's do postpone it then. It'll
help me so much this week.
H.M.Jr:
All right.
W:
All right. Thank you a lot. Goodbye.
H.M.Jr:
Goodbye.
Regraded Uclassified
March 18, 1340. 252
3:40 D.M.
H.M.Jr:
Hello.
Charles
Edison:
Hello Henry.
H.M.Jr:
Charlie? Hello.
E:
Yes.
H.Y.Jr:
Harry Woodring called me un to say that he was 80
busy he didn't think he could come around tomorrow
morning.
1:1
Oh! All right. Well then that's off isn't it?
W.W.Jr:
Yes. Did you read the Star tonight?
E:
No I haven't seen it yet.
B.M.Jr:
Well read Kintner and Alson's column and then maybe
you'll realize why he's 80 busy.
in
(laughs) He was up, he was un defending himself
in front of this Berlow UD here, this morning.
I was un at these hearings and there's - this
fellow that rot this new explosives -
H.K.Jr:
Oh!
E:
That's a joke.
E...Jr:
Send for Kintner end Alson's column and then you'll
find out maybe why he's so busy.
E:
(laughs) All right I will. Poor fellow seems to be
in trouble all around doesn't he?
H.V.Jr:
Yes. I thought your letter to
was very good.
E:
Which one?
R.V.Jr:
I don't know. You wrote them about the planes.
It was on the ticker.
E:
Oh yes. Well I'm glad you liked that one.
N.Y.Jr:
All right.
is
I tried not to confuse the situation.
Regraded Uclassified
253
- 2 -
H.M.Jr:
No.
E:
All right sir. Well I won't see you tomorrow.
H.M.Jr:
No.
E:
I'll buy my own breakfast.
H.M.Jr:
All right.
E:
Goodbye.
Regraded Uclassified
254
GROUP MEETING
March 18, 1940.
9:30 a.m.
Present:
Mr. Graves
Mr. Cotton
Mr. Sullivan
Mr. Cochran
Mr. Bell
Mr. Haas
Mr. White
Mr. Thompson
Mr. Schwarz
Mr. Foley
Mrs Klotz
H.M.Jr:
Good morning, everybody. I just talked with
Herbert Gaston. That is what delayed me.
He is going down to St. Petersburg until he
gets well. I am also having Dr. Daniels go
up and see him. He had that same thing
happen to him Saturday night that happened
down in Guatemala.
Thompson:
Mr. Foley has some papers on this Pennsylvania
attorney.
Foley:
I don't think you ought to appoint him.
H.M.Jr:
Well, unless he has been in jail --
Foley:
He came very close to it.
H.M.Jr:
How close?
Foley:
He was suspended from practicing in '37 for
unprofessional conduct.
H.M.Jr:
Well, I will tell you what is at stake. The
whole winning of the war is at stake. I will
work from that backward. If I don't get this
attorney, we lose the war and this is why,
because the English and French won't get the
planes they need, I have to go up on the H111
and testify, and the Congressman who is chairman
of the Subcommittee on Appropriations for war,
his whole election depends upon this. You
can go backwards or forward. That is how 1m-
portant it 1s,
Thompson:
Mr. Delano has already said he would go along.
Regraded Uclassified
255
- 2 -
H.M.Jr:
What is the matter with the fellow, Ed?
Foley:
Well, he is a member of the --
H.M.Jr:
Now, wait E minute. I never approved an
appointment like this before. This is a
new way of writing it,
Klotz:
There is a reason.
Foley:
Well, I don't see any reason, either, why
you should.
Thompson:
No, I shouldn't think 30.
H.M.Jr:
Now, let's be serious a minute. I have turned
down better fellows than this.
Foley:
Here is & summary of what has happened on
him.
White:
Isn't it possible if you give him his choice
of another man it will fill your requirements?
H.M.Jr:
Just so it isn't on the record. That was all
kidding, see. I will give you a chance to
take this back and destroy it.
What is this Congressman's name?
Foley:
J. Buell Snyder. He is on the House Military
Affairs Committee and the Subcommittee on
Appropriations. He sent in several telegrams.
H.M.Jr:
Well, supposing you give me - yes, I will ask
him for another, but that doesn't help him.
He has got this man on his hands. Is this
enough here to get him? Can't you tell me
what he did, why he was suspended?
Foley:
Yes, I can enlarge upon that.
H.M.Jr:
Make it look as - you know. Give it to me
80 I can have it after lunch and you just
destroy that other part. If we have got to
win the war that way, let's lose it.
Thompson:
I have nothing else.
Regraded Uclassified
256
- 3 -
Bell:
Mr. Taber has requested information as to the
cost of the West Point depository, silver
depository, source of the funds and the cost
of transporting all the silver that 1s stored
there. We are getting up all that information
today. I suppose we have got to furnish it to
him. He is a member of the Appropriations
Committee.
The Relief bill, I understand, is going to be
discussed with the President either tomorrow
or Wednesday, if you want to get that.
E.V.Jr:
I have got that in the baby bond thing. I
hope he sees me today. I haven't heard,
Bell:
I have still got & tag over in the Budget Bureau
on that mattershd they are holding it.
Mr. Ickes sent quite a long letter to the Presi-
dent on the use of Philippine funds of various
kinds, particularly the sugar tax, which covered - -
which comes into the Treasury and by the Sugar
Act is authorized to be appropriated. We sent
an estimate over to the Budget Bureau last May
and it was turned down or just held up. That
amounted to about nine million. Now, there 18
about 19 million in the fund and we are going
to send another estimate to the Bureau of the
Budget, appropriation of that fund for the bene-
fit of the Philippines. The President sent
Mr. Ickes' letter over to you for a report and
we are not commenting on Mr. Ickes' reco mendation
as to the use of these funds for national defense
and other purposes, but 10 are merely giving a
history of the fund and a statement of the account.
I think that is all we should do.
What else?
Bell:
That is all.
H.M.Jr:
If we get an approval on this baby bond thing,
are you all ready to shoot it out?
Bell:
Yes sir, that 18, ready with the printing. The
regulations haven't passed through all the
machinery yet, but they will be ready in a
few days.
Regraded Uclassified
257
- 4 -
H.M.Jr:
Then they are not waiting on me?
Bell:
Waiting on you on the printing. We held up
the printing on Friday and we told them we
hoped to have this settled by Tuesday. The
paper has all been dampened and it is just
being held.
H.W.Jr:
If I don't see the President, I think I will
decide it on my own.
Bell:
The regulations will take several days, yet.
H.V.Jr:
What we are talking about is this: By confining
the sales of baby bonds to individuals, we will
cut the gross sales down from 20 to 25 percent,
as of April let.
Write:
Are you considering setting a maximum for the
amount that anyone can hold?
H.M.Jr:
They have done a very exhaustive study of it
and I have got the memorandum for the President -
anything we can do on that, it will take three
months to put it in force, Harry. The boys have
been working on this thing since last December.
I have got a memorandum - I have got two things
from him, Currie and Eccles each sent him a
separate one and I have answered both of them,
but this thing we can do effective immediately
and it cuts the sales about 20 or 25 percent.
I want to get the public reaction to that.
Bell:
We can't cut the $10,000 and there is some
question whether we can confine the total
amount in the hands of one individual. I am
not sure yet. That hasn't been passed on by
the General Counsel.
White:
It was the latter point I was raising.
Bell:
We don't know about that.
White:
There is so much talk about this being used as
a device to get higher yield bonds than would
be available with people with very high in-
comes.
Regraded Uclassified
258
- 5 -
E.V.Jr:
By cutting out everything but individuals, we
cut the gross sales 20 to 25 percent.
Harold?
Graves:
Nothing.
J.M.Jr;
Harry?
Thite:
You are setting aside some time this afternoon
to go over this silver? We are preparing a
rather lengthy statement and one or two other
things.
H.M.Jr:
Who is going to give the statement?
White:
I thought you would read it. It gives them
the background, e. lot of factual data.
E.N.Jr:
Well, while I think about it, Gaston can't give
that talk Thursday, so either you go up or
anybody.
White:
It is B. very excellent talk, I think, but I
should like to have you read it.
H.M.Jr:
Well, I can't read it. I can't do any more,
Harry.
White:
Or give it to somebody to read. I don't know
whether anybody else has read it, but he gave
it to me last week and not knowing that he
wasn't going to 80, but merely asking for my
comments, I thought it was a very good state-
ment to make and it could easily go up and have
somebody there read it.
H.M.Jr:
Well, I tell you, in order to save me, supposing
Bell, you, end larry and Chick get hold of
Gaston's statement and read it and handle the
thing for me so that he doesn't have to go.
He can't go Thursday. Will you take it off my
hands? It is a speaking date he has in New York.
Bell:
In New York?
H.N.Jr:
Yes. Will you take it off my hands, you and
White and Chick?
Regraded Uclassified
259
- 6 -
Bell:
Yes,
H.K.Jr;
Now, silver, have you heard on the Hill what
is happening?
Poley:
No, I haven't any report this morning.
H.M.Jr:
Well, let me get hold of Senator Wagner.
Senator McNary was at the house Friday night
and we got kidding on silver. He told me
to forget it. He said he would see person-
ally that I didn't have to go up on the Hill.
White:
Fine.
H.M.Jr:
Because I told him that if I went up I would
say, "Now, as Senator McNary said to me in
1934 and as I said to Senator McNary --" Be
said, "You don't go up there." So we will
see what happens.
White:
Well, it will be quite possible that they are
satisfied for you not to go up but to send
your statement up and this statement 1s a
factual background and rather an interesting
one which in no way comments on the merits of
the bill, so you might send this prepared
statement up 1f you care to.
H.M.Jr:
We will give you tentatively 3:00 o'clock,
Harry.
White:
All right.
H.M.Jr:
Anything else?
White:
The capital inflows are shifting very rapidly
from week to week but the net outflow is -
still remains approximately zero for the year
and the expenditures are not increasing for
the Allies.
H.M.Jr:
While I am on that, you will have to begin to
cut down on these cables. I just can't read
all that stuff (speaking to Mr. Cochran). By
the time I read four or five pages to get one
sentence out of it, I - - that is all I did
yesterday, was to read cables for the last
Regraded Uclassified
260
- 7 -
four or five days, and when I get through -
because I had hoped to get away Thursday
night. If there is something important -
if you will confine it - not in your foreign
exchange letter which I get every night and
which I don't read, but I do read your
special memoranda. See what I mean?
Cochran:
Yes, sir. I could easily put two or three
lines on the outside of E cable 11 you pre-
ferred.
E.N.Jr:
Then if I want to read the whole thing - got
enough help in there?
Cochran:
Oh, I can do 1t, yes.
White:
I spoke to that chap from the Mutual Broad-
casting after having spoken with Chick. He
said he would be very glad to postpone It for
several weeks. He doesn't feel he could
eliminate it, but he said he would be very
glad to have me draw up the way we would
like it, 30 1t is still on ice.
R.M.Jr:
Would you get hold of today's Tribune? There
is a whole column devoted to B. meeting of 27
people that took place in New York. Rccles
and Currie, amongst the others. Evidently,
the whole account of it is in & Savings Bank
magazine. He quotes from that. It is in
today's Tribune.
Sell:
I think that was the meeting that took place
at the Metropolitan Club. We decided not to
have 8. representative there.
H.M.Jr:
Evidently a Savings Bank magazine has written
up the whole meeting --
Bell:
Well, it is conducted by the Savings Bank
magazine.
E.N.Jr:
Well, it 18 all in their issue. I think Chick
got it and circulated it. They decided the
gold problem for us.
George?
Regraded Uclassified
261
- 8 -
Haas:
(Handing report to Secretary) I have got
this other material.
H.M.Jr:
I am not going to see you right after the
meeting. You go back to the office and I
will call you.
Taas:
All right.
H.M.Jr:
And George, when you get back, send for the
United States Department of Agriculture - may-
be you have got it - forecast on business.
Evidently they have got another one out.
Haas:
Yes, I have already got it.
H.M.Jr:
It is pretty good, too.
Haas:
I sent for that. I will bring that in.
H.M.Jr:
Anything else?
Haas:
That is all.
H.M.Jr:
Chick?
Schwarz:
You may be asked this afternoon about some
purchases of gold by Argentina as reported
in the Tribune and it might be an opportunity
psychologically to make something of it, if
you wish.
H.M.Jr:
No. I think I would skip it, wouldn't you?
Cochran:
I believe I should. They have been buying
consistently since September.
H.M.Jr:
Anything else?
Schwarz:
No.
Cochran:
That conference at the Brenner Pass this morning
lasted two hours and twelve minutes. Then the
respective leaders went back to their capitals.
There is no communique out.
H.M.Jr:
As soon as this is over, will you E° over to
Regraded Uclassified
262
- 9 -
Mr. Hull's office and see if you can read the
Rome cables and see if they know anything?
Cochran:
Yes, sir. This morning the stock markets in
London and Paris are upset and heavy, but
sterling made quite a recovery in Amsterdam
and went from 3.73 to 3.772 this morning.
I have two things to take up when you have a
chance. One is Leroy-Beaulieu's phone call
about Customs. If you want me to take it up
with Basil Harris - he is here this morning.
E.M.Jr:
I have asked for it. Let's do it.
Cochran:
He has been asked to give his advice and he
wants to know how many agents you have got.
H.M.Jr:
How many did we ask for, three?
Cochran:
I suggested three. I am not sure --
H.M.Jr:
You and Basil talk it over and there is more
monkey business --
Cochran:
He said he was willing to recommend whatever
you wanted.
H.M.Jr:
After you and he talk, I will see,
Cochran:
All right, sir.
We have a letter from Jerome Frank which we
ought to answer.
H.M.Jr:
Get 8. clearance on it. We have got to give
him that information.
Cochran:
I think so, yes, sir.
E.M.Jr:
Get & clearance. He is entitled to that. Fix
up a letter for me.
Cochran:
You mean get a clearance with the other people?
H.M.Jr:
Get & clearance from the English so we can
give him that information. I would like to
do it today.
Regraded Uclassified
263
- 10 -
Cochran:
All right.
H.M.Jr:
But under the circumstances, I can't refuse
to give it to him.
Cochran:
No, you can't.
E.M.Jr:
That was Wagner on the phone. I don't know
why she sent me in there.
A quarter of 11:00 tomorrow morning, Banking and
Currency.
White:
Then that meeting for 3:00 o'clock is out?
H.M.Jr:
Yes.
Sullivan:
The Interior found the money to send that tax
man up to Alaska, but - they found the money
to send that tax man up to Alaska and pay his
expenses, but they also wanted a man who would
be familiar with State liquor legislation. We
anticipated that our fellow would do both.
Dr. Gruening had some sort of a promise of B.
man from Alexander and it seems to me that is
a needless duplication. The fellow we are
sending up there can familiarize himself com-
pletely on that. Now, I don't know just how
much control we have over Alexander. It seems
silly to send two men to Alaska.
H.M.Jr:
Who is going to pay for the other one?
Sullivan:
Alexander.
H.N.Jr:
I told Gruening not to 50 to Alexander.
Sullivan:
That is right, and Governor Gruening, I understand,
is very reluctant to take Alexander's man, because
of your remark to him.
Thompson:
I don't see why one man couldn't do the whole job.
H.M.Jr:
Will you tell that to Burlew?
Thompson:
I told Dr. Gruening that our man could take care
of the whole thing.
Regraded Uclassified
264
- 11 -
H.M.Jr:
Will you tell that to Burlew?
Thompson:
Yes. I told Dr. Gruening that our man could
take care of the whole thing.
H.N.Jr:
0. K., tell that to Burlew.
Sullivan:
You asked me to remind you this morning about
that name situation.
H.M.Jr:
I an not seeing him. Will you be here tomorrow?
Sullivan:
Yes, sir.
Foley:
You asked for a summary of the SEC Investment
Trust Bill.
H.M.Jr:
Yes.
Foley:
This statement (March 14) that they prepared
over at the SEC explains the purpose, and then
starting here, 16 gives the position of the bill.
It is a 105-page bill and it is kind of hard to
get it all the way you want it.
H.M.Jr:
Thank you.
Foley:
It may not be the way you want it.
H.M.Jr:
All right. Anything else?
Foley:
No.
Regraded Uclassified
265
March 18, 1340.
8:57 a.m.
H.V.Jr:
Hello.
Operator:
Dean Landis.
H.V.Jr:
Hello.
0:
Go ahead.
H.M.Jr:
Hello.
Dean
Landis:
Hello.
H.M.Jr:
Henry Morgenthau.
L:
Yes.
H.V.Jr:
How are you Jim?
1:
Fine thank you.
H.M.Jr:
Want - two purposes, one, I want to thank you for
the perfectly grand advice you gave me on Bank of
America which from our end has come to a successful -
L:
Yes, it has.
H.M.Jr:
Definitely.
1:
That's good.
H.V.Jr:
We rot everything that we wanted.
L:
Well fine.
H.M.Jr:
And I wrote my letter to the RFC and I think they'll
go through with it.
L:
Oh good.
H.M.Jr:
So that's that. Now the other thing is I have 8
decision to make in regard to the state of Indiana, it'
a question of whether we do or don't file &
petition with the judge to make a certain man
talk.
L:
Yes.
H.M.Jr:
And I - everything will be ready by Wednesday. I
wondered if you could spare me a day?
Regraded Uclassified
266
- 2 -
L:
I might Friday.
H.M.Jr:
Well the trouble is I'm going out - taking the
family away Thursday night.
L:
Yes.
H.M.Jr:
And I wanted to settle it before I left, but if you
can't do it, it's out of the cuestion is it?
L:
Well let me look over my schedule.
H.M.Jr:
Would you?
L:
I'm not in the office right now, and I -
H.M.Jr:
Well either - I want to try to get Lloyd Garrison
too.
L:
Yes.
H.N.Jr:
I think I'm going to leave it Mednesday, but if he
should say he could make it Thursday I'll call
you back.
L:
Yes.
H.M.Jr:
It won't take more than one day, they'll have
everything ready.
L:
Yes.
H.M.Jr:
And -
L:
I'll go over that schedule and see what I can do.
H.M.Jr:
And you'll call me back.
L:
Yes I will.
H.V.Jr:
Thank you so much.
L:
All right.
H.M.Jr:
Goodbye.
Regraded Uclassified
267
March 18, 1940.
11:30 a.m.
H.M.Jr:
Hello.
Lithgow
Osborne:
Good morning. How are you?
H.M.Jr:
Fine. How are you?
0:
Pretty good. I'm very anxious for Bill Howard to
talk to you about the gypsy moth situation
in New York State which effects this department
very closely, and it affects landowners in
Dutchess County.
H.M.Jr:
Yes.
0:
And I thought you might possibly be in B. position
to make some suggestions as to the accuisition of
more federal assistance because the situation is
pretty darned critical. It was critical when you
were here and it's gotten lot worse in the last
couple of years.
E.M.Jr:
Well I'm always glad -
0:
When it WPB - he could perhaps see you when you
come un to Dutchess County or whether he could
come down to Washington.
H.M.Jr:
Well I won't be coming 1113 to the County for a
couple of weeks, BO if he wants to see me it
would have to be Wednesday or Thursday.
0:
Wednesday or Thursday, this week.
H.V.Jr:
Yes.
0:
Well I think he might be able to get down on
Thursday.
H.M.Jr:
Well supposing he comes in and then gives me e
ring and we'll fix him un an appointment some time
in the morning.
0:
Right. Some time Thursday morning.
H.M.Jr:
Righto.
0:
And anybody particular he should get hold of.
H.M.Jr:
He'd better get hold of me.
Regraded Uclassified
268
- 2 -
0:
All right sir.
H.M.Jr:
I'll be glad to see him.
0:
Thank you very much.
H.M.Jr:
Thank you.
0:
Right.
H.M.Jr:
Goodbye.
Goodbye.
Regraded Uclassified
269
March 18, 1940.
11:37 a.m.
Operator:
Mr. Clapper.
H.M.Jr:
Hello.
Raymond
Clapper:
Hello. Mr. Secretary.
H.M.Jr:
How are you?
C:
I'm good. I was just thinking about calling you.
Like to come over and have B. chat with you.
H.M.Jr:
Well that's what I'm calling you for.
C:
Good.
H.M.Jr:
I like to see the press around four and after that
I'd be free.
C:
After four.
H.M.Jr:
Is that too late for you?
C:
No. No, that's all right.
H.M.Jr:
How about four-thirty?
C:
Four-thirty. All right. Are you going to have
anything to say at the press conference on this
McNutt case?
H.V.Jr:
No. I'll show you, that's one of the things I want
to show you the statute, what happens to me if I
talk.
O:
Huhhuh.
H.M.Jr:
You fellows got all the adventage. You can say
anything but I've got to go to jail if I talk.
0:
(laughs)
H.M.Jr:
I want to show you the statute.
C:
Well I - I just - I was wondering whether there
would be anything at the press conference bearing
on that.
H.M.Jr:
No, I've got it right before me. I want to give
you a copy of what happens if I confirm or deny.
Regraded Uclassified
270
- 2 -
C:
(laughs) All right.
H.M.Jr:
And I don't think you want me to 20 to jail yet.
C:
Oh no not yet. I've already paid my income tax 60
it's no use now you going to jail.
H.M.Jr:
Well, you come on over and I want just to have a
little chat with you.
C:
Yes, four-thirty.
H.M.Jr:
If you would.
C:
I'd be glad to.
H.M.Jr:
Swell.
C:
Thanks Mr. Secretary.
H.M.Jr:
Goodbye.
Regraded Uclassified
271
March 18, 1940.
5:00 p.m.
Operator:
Go ahead.
H.M.Jr:
Hello
Dean
Landis:
Hello.
H.M.Jr:
Henry Morgenthau.
L:
Yes.
H.M.Jr:
Do you know whether you can come?
L:
Oh yes, I just - about twenty minutes ago, why I
telephoned Ed Foley and I wanted to talk to him
about another matter 80 I asked him to let you
know that I'd be down Wednesday.
H.N.Jr:
Well he didn't.
L:
Yes. It would - will in a few minutes.
H.M.Jr:
Well then that's fine. Wednesday.
L:
Yes.
H.M.Jr:
Nine-fifteen at my office?
L:
I think I'll be down there. I've just gone over
the schedule and I think I'll be down there by
nine-fifteen.
H.M.Jr:
Well -
L:
I may be a little late, but -
H.M.Jr:
Well supposing we say ten o'clock.
L:
I think that - my plane will be in, ought to be
in by that time.
N.M.Jr:
Ten o'clock.
L:
Yes.
H.M.Jr:
Swell.
L:
All right.
H.M.Jr:
We'll have everything ready.
Regraded Uclassified
272
- 2 -
L:
Fine.
H.M.Jr:
Thank you.
L:
Fine.
Regraded Uclassified
273
March 18, 1940.
5:03 p.m.
Operator:
Go ahead.
H.M.Jr:
Hello.
Senator
Wagner:
Henry?
H.N.Jr:
Yes.
W:
This is Bob Wagner.
H.M.Jr:
How do you do?
W:
Why, how do you do? Say Henry, I - Pittman has
gone out on me. He's got some other important
things.
H.M.Jr:
Yes.
W:
So you'd better be here nt ten-thirty - eh - we'll
certainly try to help all we can. It's just one of
those silly things, you know.
H.M.Jr:
Pittman's run out on you.
W:
He's run out, yes. He not some other very important
meetings, but he'll come any other time but tomorrow.
I said, "Well to hell with any other time but
tomorrow".
H.M.Jr:
All right. Well if I'm there what the devil -
W:
Yes. Oh yes it isn't - be all right. Say listen,
you always accuit yourself and I don't know -
what all this concern 18 about.
H.M.Jr:
St. Patrick's day was on the 17th.
W:
Well it's true. I mean I'm not - you know that
yourself. I don't have to tell you.
H.M.Jr:
You know I'm going to come un -
W:
Whether you do or not.
H.M.Jr:
I'm not going to stulify myself. I've got a little
statement. I'm going to read it, so what?
W:
All right.
Regraded Uclassified
274
- 2 -
H.M.Jr:
O. K.
V:
Yes, fine. All right Henry.
H.M.Jr:
Thank you.
V:
Goodbye.
Regraded Uclassified
275
March 18, 1940.
10:20 a.m.
Operator:
Go ahead.
H.M.Jr:
Hello.
Robert
Doughton:
All right, Mr. Secretary.
H.M.Jr:
How are you Bob?
D:
All right Henry, how are you?
H.M.Jr:
Swell.
D:
How are your return receipts showing up?
H.M.Jr:
Why we're not making any announcement but they're
running Just 8 little bit shead of what we figured.
D:
Ahead of the estimates,
H.M.Jr:
Yes, & little bit.
D:
Yes, well I was in hopes they'd be considerably 80.
H.M.Jr:
No, just a little bit, not much.
D:
I see. Nothing new on taxes anyway.
H.M.Jr:
What's that?
D:
Nothing new on the tax situation.
H.M,Jr:
Not a word, no.
D:
Well -
H.V.Jr:
I don't know a word, but they're just running a
little bit shead.
D:
Well the thing that I regret to do the most of
anything in the world, to bother a man of your
duties and responsibilities about a little Job.
H.M.Jr:
Well I'm always - you never can bother me Bob.
D:
Well about two months ago I spoke to you about a
woman here that was in desperate situation in my
district, right near my home there, a Mrs. Gene
McKinne, and you got her appointed down at -
Regraded Uclassified
276
- 2 -
somewhere in the Treasury, Procurement Division.
H.M.Jr:
Yes.
D:
Now they've laid off a great number down there and
she zoes off, she's about
crazy, say she's done splendid work, I don't know
whether you can keep her any longer or not.
H.M.Jr:
Well the trouble with that 1e Bob, we've got, I
don't know, there's three or four hundred people
we're laying off.
D:
Yes.
H.M.Jr:
And I haven't made one exception yet, and if I do
I'm sunk.
D:
Yes.
H.M.Jr:
And -
D:
You have an 1dea you might find a place elsewhere
for her without making exception, I don't want to
ask you to make an exception and get yourself in
trouble, I don't do that.
H.M.Jr:
Yes.
D:
I understand your situation.
H.M.Jr:
What's her name?
D:
Gene McKinne for McKinne.
H.M.Jr:
McKinne.
D:
She goes off the last of this month. She's been un
here to see me several times, she's got some
dependents to take care of and her man's left her
some time ago and she's just in a terrible
situation, but I understand your situation too.
If you can't do anything -
H.M.Jr:
It's awfully hard.
D:
Her people down there have always been among my
most loyal and effective supporters.
Regraded Uclassified
277
- 3 -
H.M.Jr:
Yes.
D:
And they feel like I ought to be able to help her.
H.V.Jr:
Yes. Well I'll take a look but I don't hold out
much hope because it would just mean pressure from
every side and I haven't made an exception yet
so I can tell all my friends I treat them the
same.
D:
I see.
H.M.Jr:
That's the trouble.
D:
I see. Well -
H.M.Jr:
But I'll take a look at it Bob.
D:
I'll appreciate it Henry if you will.
H.M.Jr:
Thank you.
D:
Goodbye.
H.M.Jr:
Goodbye.
Regraded Uclassified
OFFICIAL COMMUNICATIONS TO
THE SECRETARY OF STATE
278
WASHINGTON, o.c.
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
March 18. 1940
RA
My dear Mr. Secretary:
I wish to acknowledge your recent letter in which
you state that in the opinion of the Treasury Department
the Inter-American Bank, as outlined in the proposed
Convention and By-Laws, has an opportunity for perform-
ing useful work on a cooperative basis towards the
improvement of economic and financial relations among
the American republics and that the proposal therefore
meets with the approval of the Treasury Department.
I wish also to take this opportunity of expressing
my appreciation for the great cooperation which the
Treasury Department has extended in the preparation
and discussion of the Inter-American Bank proposal.
Sincerely yours,
and Adolf A. Berle, Jr.
Assistant Secretary
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
Regraded Uclassified
8/18
79
Regraded Uclassified
As I understand it, this Committee is considering a bill proposed
by Senator Townsend, the effect of which would be to terminate all
power and authority of the President, the Secretary of the Treasury,
and any other agency in the Executive branch of the Government with
respect to the acquisition of silver (except newly-mined domestic sil-
ver acquired pursuant to section 4 of the Act of July 6, 1939), and also
to terminate any orders, regulations, and other action taken with respect
to silver. The bill would also terminate the existing 50% profits tax
imposed on transfers of silver.
I assume that the Committee, in determining what should be the
future policy of the United States with respect to silver, would want to
be fully informed as to what TO have been doing during the last six years
to carry out the duties and responsibilities that have been placed upon
us by the Silver Purchase Act. Accordingly, I have brought with me today
records of our acquisitions since 1933 of silver other than newly-mined
domestic silver. I have also brought with me the experts and technicians
from the Treasury and the Federal Reserve Bank of New York who will be
able to supply the Committee with any available information concerning
the administration of the Silver Purchase Act and the acquisition of sil-
ver.
- 2 -
280
I have had prepared for the convenience of the Committee susuary tables
Regraded Uclassified
showing the silver contracted for by the Treasury, the acquisitions of silver
by the Treasury, and the imports of silver into the United States since 1933.
I should like to mention that the difference between the figures of silver 000-
tracted for and the figures of silver acquisitions shown in the tables lies in
the fact that the first net of figures records the silver purchased regardless
of when delivery is to be made; and the acquisition figures record the actual
silver received by the sints and assay offices pursuant to such purchases. Is-
cidentally it is the latter figures which have been made public from time to
time and appear in the monthly Bulletin of the Treasury Department. I might
also sention that nose of these figures include acquisitions of newly-mined
domestic silver or silver which vas nationalized pursuant to the Executive Order
of August 9, 1934.
I would also like to leave with your Committee several statements which are
a consolidation of all silver purchases up to February 15, 1940. These sonsoli-
dated statements were prepared for the use of this Committee by our fiscal agent,
the Federal Reserve Bank of New York, at the direction of the Treasury Department.
These statements show the country which is the source of silver purchased by the
Treasury wherever such information was known to the Treasury.
I presume the Committee is also interested in figures showing the relative
proportions of gold and silver in the memetary stocks of the United States at
various dates. I have here & statement of such figures for the use of the Com-
mittee. You will note that notwithstanding continued acquisitions of silver,
- 3 -
281
both domestic and foreign, by the Treasury during the six year period,
the rationof silver to our total monetary stocks has not reached the
ratio stipulated in the Silver Purchase Act. The obvious reason for
this has been the increase in our gold acquisitions.
In order that the committee may have before it a complete picture of
the silver required by the United States since 1933 the Department has
also prepared a statement showing the amounts of duly-mined domestic silver
and nationalized silver acquired since 1933.
I have also prepared a statement showing the amounts collected each
year by virtue of the 50% eilver profits tax. You will note that the
amount of taxes collected in each of the first three years of the silver
profits tax 1a substantially greater than the amount of tax collected in
each year thereafter. The reason for this is that the yield of the tax is
higher during a period of rising silver prices than during a period of
stable or declining silver prices.
The Committee may have a number of questions which it would like to ask
in connection with these tables. The members of By staff, who are here with
me today, are available to answer such inquiries.
Regraded Uclassified
282
Regraded Uclassified
- 4
I should also like to explain how ve have been purchasing
silver. Firstly, 90 acquire silver for spot delivery. That seans
that the silver is delivered to us ne later than the working day
following the purchase of the silver. Generally speaking, silver
which TO purchase for spot delivery comes from the stocks or inventories
of refining compenies, or other dealers in silver such as banking in-
stitutions, etc. Secondly, we purchase for newly-mined silver production
of foreign countries for future delivery. Under our present practice
16 permit up to 5 months time for delivery thus purchased. Thirdly, the
Treasury eequires silver pursuant to special errangements with certain
foreign countries. The Treasury normally requires that the silver
which it purchases bear the stemp of a refinery located in the United
States. In carrying out its silver purchase program the Treasury has
sought also to divert to American refining companies a considerable
amount of business which otherwise would have gone to foreign refiners.
In all the instances where the Treasury purchased silver directly
from & foreign government the price which the Treasury paid for the silver
did not exceed the market price for silver prevailing at the time of the
arrangement. This was, of course, also true of all other purchases of
silver under the Silver Purchase Act,
is you know the Treasury has made special arrangements with withousions
foreign countries relating to the purchase of silver. The first, and perhaps
the most
283
- 5 -
importent of such arrangements was made with China. In June, 1936,
representatives of the Chinese Government came to me and requested me to
work out arrangements for the orderly sale by China of some of its large
silver holdings. At that time and from time to time thereafter the
Greasury entered into arrangements with China pursuant to which it acquired
approximately 565,855,000 ounces of Chinese silver. The arrangements by
which we have purchased this silver from China have been of inestimeble
assistance to China.
Beginning with January, 1936, and up to March 31, 1938, the Treasury
had 8 special arrangement with Mexico pursuant to which the Treasury pur-
chased directly from Mexico up to 5-million ounces a month of newly-mined
Mexican production. This special arrangement with Mexico lapsed on April 1,
1938, and has not been renewed since that date. Mexican newly-mined silver
has been imported into the United States and has been sold in American
markets. Some of it has been purchased by the Treasury. The silver when
acquired by the Treasury is acquired as any other silver in this country
and bears the stamp of an American refiner located in this country end
the purchases were usually made from American concerns. The third special
arrangement is the one which the Treasury has with Canada. Pursuant to
this arrangement we acquire up to 1,200,000 ounces of newly-mined Canadian
silver monthly. This arrangement is on a monthly basis end continues in
full operation and effect.
Regraded Uclassified
284
- 6 -
In every case where foreign silver has been purchased payment has,
of course. been in dollars. The foreign seller obtained dollars for the
silver that he sold in the United States. These dollars were used
chiefly for payment of goods purchased from the United States whether
by the country selling us the silver or by some third country. In
other words, our purchases of foreign silver have enabled foreign
countries to increase their purchases from the United States. This has
obviously increased the level of business activity and of employment in
the United States. These purchases of foreign silver have, of course.
not increased the public debt. It has been possible the to obtain
benefits for our economic life without increasing the public debt since,
as you know, the Treasury is paid for silver purchases through the insurance
of eilver certificates in an amount equal to the cost to the Treasury of
the silver thus purchased. To be sure the amounts involved are not
large the Treasury is nov buying about $5,000,000 worth of silver per
month 20 that the economic advantages of our purchases are not as great
as they vare during that period when our monthly purchases vere
However, though the economic advantages that flow from the progras of
foreign silver are not large they are sufficient to warrant continuing
that policy during these distribed economic and politionl periods.
I feel that the proposal at this time to discontinue purchases
of foreign silver 10 unsound. Pursuant to madate of Congress the Government
has sequired e very large stock of silver. In more recent years there has
been greater stability in silver then in prior years. Many countries with
when ve have friendly and intimate relations have, or produce, substantial
Regraded Uclassified
285
- 7 -
Regraded Uclassified
quantities of silver and it is of the greatest necessity to such
countries that they be able to use such silver in order to acquire
such needed dollars. If there vere to be a substantial decline in the
price of silver such countries would suffer a profound economic shock
and would of necessity curtail their purchases of commodities in this
country. We are trying to build up our economy and we are trying to
build up friendly and sound relations with foreign countries. 20
stop purchasing silver at this time would serve only to increase the
difficulty of obtaining such aims. Furthermore, this Committee has been
directed by the Senate to study and recommend a national nonetary and
banking pelicy and to consider and recommend the character of governmental
machinery best calculated to carry out such a policy. Such a study I
assume would be more comprehensive in its nature and would necessarily
include a study of the entire silver problem and the relation of silver
to the other problems in the monetary field. It seems to ne that it
cerves no good purpose to attempt to dispose of the silver problem
indpendently and prier to the completion of such & study. There is the
reason to believe that the Treasury acquisitions of silver during the
period of study will be of large enough quantities to change substantially
the silver situation as it exists today. Accordingly. 1 repeat the silver
situation should be dealt with as one part of the entire monetary policy
and should net be dealt with prior to the conclusion of such investigation.
286
3-18-40
optimion
As I understand it, this Committee is considering a bill proposed
by Senator Townsend, the effect of which would be to terminate all
power and authority of the President, the Secretary of the Treasury,
and any other agency in the Executive branch of the Government with
respect to the acquisition of silver (except newly-mined domestic sil-
ver acquired pursuant to section 4 of the Act of July 6, 1939), and also
to terminate any orders, regulations, and other action taken with respect
to silver. The bill would also terminate the existing 50% profits tax
imposed on transfers of silver.
I assume that the Committee, in determining what should be the
future policy of the United States with respect to silver, would want to
be fully informed as to what we have been doing during the last six years
to carry out the duties and responsibilities that have been placed upon
us by the Silver Purchase Act. Accordingly, I have brought with me today
records of our acquisitions since 1933. other than newly mined
of selver
members the stall of
domostic silver. I have also brought with me the experta and 14
who have worked
AMOUNT the Treasury and the Federal Receive Bank of How York who will be
able to supply the Committee with any available information concerning
the administration of the Silver Purchase Act and the acquisition of sil-
ver.
Regraded Uclassified
- 2 -
287
I have had prepared for the convenience of the Committee summary tables
showing the silver contracted for by the Treasury, the acquisitions of silver
by the Treasury, and the imports of silver into the United States since 1933.
I should like to mention that the difference between the figures of silver con-
tracted for and the figures of silver acquisitions shown in the tables lies in
the fect that the first set of figures records the silver purchased regardless
of when delivery is to be made; and the acquisition figures record the actual
silver received by the mints and assay offices pursuant to such purchases. In-
cidentelly it is the latter figures which have been made public from time to
time and appear in the monthly Bulletin of the Treasury Department. I might
also mention that none of these figures include acquisitions of newly-mined
domestic silver or silver which was nationalized pursuant to the Executive Order
of August 9, 1934.
I would also like to leave with your Committee several statements which are
C consolidation of all silver purchases up to February 15, 1940. These consoli-
dated statements were prepared for the use of this Committee by our fiscal agent,
the Federal Reserve Bank of New York, at the direction of the Treasury Department.
These statements show the country which is the source of silver purchased by the
Treasury wherever such information was known to the Treasury.
I presume the Committee is also interested in figures showing the relative
proportions of gold and silver in the monetery stocks of the United States at
various dates. I have here a statement of such figures for the use of the Com-
mittee. You will note that notwithstending continued acquisitions of silver,
Regraded Uclassified
- 3 -
288
both domestic and foreign, by the Treasury during the six year period,
the rationof silver to our total monetary stocks has not reached the
ratio stipulated in the Silver Purchase Act. The obvious reason for
this has been the increase in our gold acquisitions.
In order that the committee may have before it a complete picture of
the silver required by the United States since 1933 the Department has
also prepared a statement showing the amounts of Avay -mined domestic silver
and nationalized silver acquired since 1933.
I have also prepared a statement showing the amounts collected each
year by virtue of the 50% silver profits tax. You will note that the
amount of taxes collected in each of the first three years of the silver
profits tax is substantially greater than the amount of tax collected in
each year thereafter. The reason for this is that the yield of the tax is
higher during a period of rising silver prices than during a period of
stable or declining silver prices.
The Committee may have a number of questions which it would like to ask
in connection with these tables. The members of my staff, who are here with
me today, are available to answer such inquiries.
Regraded Uclassified
289
- 4 -
I should also like to explain how we have been purchasing silver.
Firstly, we acquire silver for spot delivery. That means that the
silver is delivered to us no later than the working day following
the purchase of the silver. Generally speaking, silver which we
purchase for spot delivery comes from the stocks or inventories of
refining companies, or other dealers in silver such as banking in-
stitutions, etc. Secondly, silver which is newly-mined silver pro-
duction of foreign countries is purchased by us for future delivery.
Under our present practice we permit up to 5 months' time for delivery
thus purchased. Thirdly, the Treasury acquires silver pursuant to
special arrengements with certain foreign countries. The Treasury
normally requires that the silver which it purchases bear the stamp
of e refinery located in the United States; and, carrying out the
silver purchase program, the Treasury has sought to divert to Ameri-
can refining companies & considerable amount of business which
otherwise would have gone to foreign refiners.
In all the instances in which the Treasury purchased silver
directly from 8. foreign government the price which the Treasury peid
for the silver did not exceed the market price for silver prevail-
ing at the time of the purchase. This was, of course, also true of
all other purchases of silver under the Silver Purchase Act.
As you know the Treasury has made special arrangements with various
foreign countries relating to the purchase of silver. The first, and perhaps.
Regraded Uclassified
290
- 5 -
importent of such arrangements was made with China. In June, 1936,
fand
representatives of the Chinese Government came to a end requested me to
work out errangements for the orderly sale by Chine of some of its Large
silver holdings that time and from time to time thereafter the
therefter,
Greasury entered into arrangements with China pursuant to which it acquired
approximately 565,855,000 ounces of Chinese silver. The arrengements by
which we have purchased this silver from China have been of inestimeble
assistance to Chine
Beginning with January, 1936, and up to March 31, 1938, the Treasury
mexico had the privilage s offeringto
had EL special arrangement with Mexico pursuent to which the Treasury pur-
chassed directly From MEICO up to 5-million ounces & month of newly-mined
silver
We permitted This
name
March
Mexican production. This/special arrangement with Hexico lepsed on Amil 1,
checkmark_ntt
Since then
1996, and has not been [renewed since that date. Mexican newly-mined silver
has been imported into the United States and has been sold in Amer ican
N
Such
merketer Some of 4t has been purchased by the Treasury. The silver when
acquired by the Treasury is acquired as any other silver in this country
end bears the stamp of an American refiner located in this country, and
the purchases Tope souply made from & The third special
arrangement is the one which the Treasury has with Canada. Pursuant to
this arrangement - acquire up to 1,200,000 ounces of newly-mined Canadian
silver monthly. This arrangement is on a monthly besis and continues in
full operation and effect.
Canada is given
offered for sale
the printige of
an The new York
they have offering To us
market.
Regraded Uclassified
291
ultimately)
- 6
In every case where foreign silver has been purchased payment has,
of course, been in dollars. the foreign seller obtained dollars for the
silver that he sold in the United States. These dollars were used
chiefly for payment of goóda purchased from the United States whether
by the country selling us the silver OF by some third country. In
other words, our purchases of foreign silver have enabled foreign
countries to increase their purchases from Line United States. This has
obviously increased the level of business activity and of employment in
the United States. These purchases of foreign silver have, of course,
not increased the public debt. It her been possible thus to obtain
benefits for our economic life without increasing the public debt since,
68 you know, the Treasury is paid for silver purchases through the issuance
of silver certificates in an Amount equal to the cost to the Treasury of
the silver thus burchased. To be sure the amounts involved are not
large, the Trensury is now buying about $5,000,000 worth of silver per
very
month so that the economic advantages of our purchases are not 20 great
B8 they/were during that period when our monthly purchases were
However, though the economic advantages that flow from the program of
foreign silver are not large they are sufficient to warrant continuing
that policy during these disturbed economic end political periods.
I feel that the proposal at this time to discontinue purchases
would we information
of
foreign
silver
Pursuant to mandate of Congress the Government
has acquired & large stock of silver. In more recent years there has
been greater stability in silver then in prior years. Many countries with
whom we have friendly
relations have, or produce, substantial
The pres d
Regraded Uclassified
dollar exchange
292
serry hippel
quantities of silver and it is of the greatest accounty to such
countries that they be able to use such silver in order to acquire
such needed dollars, If there were to be a substantial decline in the
suller,
price of silver such countries would suffer profound concento check
and would of necessity curtail their purchases of commodities in this
country, He are trying to build up our and no are trying to
build up friendly and relations with foreign countries. To
stop purchasing silver at this time would serve only to increase the
difficulty of obtaining such aims. Purthernoro, this Committee has been
authorized
directed by the Senate to study and recommend a national monetary and
banking policy and to consider and recommend the character of governmental
machinery best calculated to carry out such a policy. Such a study I
assume would be BURR comprehensive in its nature and would necessarily
include a study of the entire silver problem and the relation of silver
wold
to the other problems in the monetary field.
merqueñ DATE am TO авобятр 07 admaine 02 assisté poos ou BOAIRS
indpendently and prior to the completion of such a study. There is no
reason to believe that the Treasury acquisitions of silver during the
min
period of study will be of large enough quantities to change substantially
the silver situation as it exists today. Accordingly, I report the silver
situation should be doalt with as one part of the entire matery policy
and should not be doult with galas to in monturées of such stigntion,
In the That the loss is to
sur selon purchase 1
light the with monthing structure nother Them T11
Mapl to treat it
Regraded Uclassified
293
PARAPHRASE OF TELEGRAM SENT
TO:
American Embassy, R1o de Janeiro
NO.: 76
DATE: March 18, 1940
In its acknowledgment of receipt of Aranha's
letter to you regarding repatriation (your 102, March
9, 3 p.m.) Council inquires "whether the Brazilian
Government will advise bondholders in advance of pur-
chases for repatriation of bonds to be made under
Section 6 of Article I of the Aranha plan".
The following 1s confidential for Ambassador
Caffery: If the Foreign Bondholders Council should
wish to stress the importance of this question, it 18
obvious that there are potentialities of trouble in
this situation in view of the fact that the Council
definitely based its promise with regard to the public
statement which it W&B to issue on the understanding
that the offer of the Brazilian Government would dis-
close the whole picture to bondholders, including any
repatriation of bonds. (See the Department's telegram
no. 56 of March 6, 7 p.m.) It would therefore seem to
be desirable that the Brazilian Government give assurances
that it will make full disclosure in suitable detail. The
Department hopes that you will be able to make arrangements
for such a reply.
HULL (AAB)
EA:EB
Regraded Uclassified
TREASURY DEPARTMENT
294
INTER OFFICE COMMUNICATION
DATE March 18, 1940
TO
Secretary Morgenthau
FROM
Mr. Foley
I understand that Mr. Gaston informed you Saturday
night of the situation with respect to the refusal of a
Norwegian vessel and an Icelandic vessel to carry United States
mails.
Saturday afternoon the Norwegian Minister agreed to
permit the Norwegian vessel to carry the mails. After making
the agreement, he communicated with his government, but because
no one was at the foreign office over the weekend, he was
unable to put the agreement into effect. Permission was finally
given by the State Department to the vessel to clear with or
without the mail. It accordingly sailed this morning at
10:00 a.m. with some diplomatic pouches but with no regular
mail.
The Icelandic vessel consented to carry the mail and
cleared this morning at 10:30 a.m. with the regular consignment
of mail.
Another Norwegian vessel plans to sail on Wednesday,
March 20. Mail will be tendered to it, and the present inten-
tion is to hold the vessel in the event the mail 16 refused
unless something 1s worked out in the meantime. The British
are behind the refusal of the lines to carry the mail, and the
State Department is negotiating with them at the present time.
E.1v.7h
Regraded Uclassified
295
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 18, 1940
TO
Secretary Margenthau
FROM
Mr. Haae HA
Subject:
Railroad freight movement for export.
Export freight receipts lower
Carlot receipts of freight at New York routed for export
fell off somewhat during the second week of March, though
remaining within the previous month's range. (See Chart 1 and
table attached.) A preliminary estimate for the third week of
March, based on incomplete data, shows a slight upturn.
Receipts for export at nine other North Atlantic ports
(lower section of chart) remain at the high level reached dur-
ing the first week of March.
Decline in export freight stored at New York
Lighterage freight in storage and on hand for unloading
at New York Harbor (largely representing freight destined for
export) declined somewhat during the second week of March (see
Chart 2), partly because of the reduced volume of incoming
export freight previously mentioned.
There is no indication of a congestion of storage space
at New York. On March 12, space for 5,268 carload units was
occupied, of a total of 14,673 units (including covered piers,
open piers and ground storage). About 40 per cent of the
covered storage space 18 now in use.
The volume of freight actually exported from New York,
according to our estimates derived from these figures, reached
a new high for recent months during the first week of March,
but fell off somewhat in the following weeks. (See Chart 3.)
Regraded Uclassified
296
RECEIPTS OF FREIGHT FOR EXPORT AT NEW YORK
AND AT NINE OTHER NORTH ATLANTIC PORTS
Week ended
Nine other North
1939
New York 1
Atlantic ports 2/
(In carloads)
October 28
3,707
November 4
3,562
November 11
3,547
November 18
3,334
November 25
3,497
December 2
3,435
December 9
3,922
1,548
December 16
4,088
1,658
December 23
4,848
1,602
December 30
3,856
1,104
1940
January 6
4,000
1,251
January 13
4,056
1,433
January 20
4,060
1,557
January 27
4,389
1,825
February 3
4,274
1,498
February 10
4,617
1,590
February 17
3,974
1,637
February 24
4,550
1,667
March 2
4,577
2,388
March 9
4,059
2,448
March 16
4,1090
2,383p
1/ Source: General Managers' Association of New York, Daily
Report of Operating Conditions in New York Harbor.
2/ Source: Association of American Railroads, Car Service
Division, Report of Carload Freight for Export
and Coastal Vessel Movement.
Regraded Uclassified
RECEIPTS OF FREIGHT FOR EXPORT AT NEW YORK
AND AT 9 OTHER NORTH ATLANTIC PORTS
1939
1940
NOV.
DEC.
JAN.
FEB.
MAR.
APR.
MAY
JUNE
CARLOADS
CARLOADS
THOUSANDS
THOUSANDS
5.5
5.5
5.0
5.0
4.5
4.5
4.0
4.0
NEW York
3.5
3.5
3.0
3.0
2.5
2,5
9 OTHER PORTS
2.0
2.0
1.5
1.5
1.0
1.0
.5
.5
o
28
11
25
9
23
6
20
o
3
17
2
16
30
13
27
11
25
8
22
NOV.
DEC.
JAN.
FED.
MAR.
APR.
MAY
JUNE
1939
1940
29T
Chart 1
Office el the Secretary of the Treasury
Division of - and
C 304
Regraded Uclassifie
LIGHTERAGE FREIGHT IN STORAGE
AND ON HAND FOR UNLOADING IN NEW YORK HARBOR #
1939
1940
NOV.
DEC.
JAN.
FEB,
CARLOADS
MAR.
APR.
MAY
JUNE
THOUSANDS
CARLOADS
THOUSANDS
10
10
9
9
B
8
7
7
6
6
5
5
4
4
28
11
25
9
23
6
20
3
17
2
16
30
13
27
11
25
8
22
NOV.
DEC.
JAN.
FEB.
MAR.
APR.
MAY
JUNE
1939
1940
"98
.
LARGELY EXPORT FREIGHT, BUT ABOUT 10% REPRESENTS FREIGHT FOR LOCAL
AND COASTAL SHIPMENT. FIGURES EXCLUDE GRAIN.
fu Chart
Office of the Secretary of the Treasury
Division of Reserved - Stattime
C - 303
Regraded Uclassifie
CARLOADS OF FREIGHT EXPORTED FROM NEW YORK
+
1939
1940
MOV.
DEC.
JAN.
CARLOADS
FCB,
MAR.
APR.
MAY
JUNE
THOUSANDS
CARLOADS
THOUSANDS
5.5
5.5
5.0
5,0
4.5
will
4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
28
11
25
9
23
6
20
3
17
2
16
30
13
27
11
25
8
22
NOV.
DEC.
JAN.
FEB.
MAR.
APR.
MAY
JUNE
1939
1940
. AS ESTIMATED FROM DATA or GENERAL MANAGERS' ASSOCIATION OF NEW YORK,
299
Office of the Secretary of the Treasury
Chart 3
Division of Research and Statember
C- 308
Regraded Uclassifie
March 18, 1940
WEMORANDUM FOR THE SECRETARY:
Shipping Situation
The Pacific Coast freight and charter market was not
|erticularly active or exciting last week, although business to
Scandinavian countries, especially Sweden, had picked up considerably
from its slump of & month ago. There was no explanation for the im-
provement, other than that operatore imagined buying interest had been
stimulated by low inventories. There was a fair amount of citrus fruit
being booked, but lumber was quiet at rates ranging between $50 and
$55. Space conditions to the United Kingdom, of course, were exceed-
Lugiy tight and operations continued on & basis of secrecy where British
lines were concerned.
In the trade to the Orient there was more cargo offering than
snip space was available to accommodate it, especially in the Northwest
there trans-Pacific services have been cut more drastically. Berth
rates for most of bulk commodities such as lumber, wheat, pulp, flour,
and metals remained below the charter level. Most business out of the
Northwest was being cone on a charter basis. The situation was a little
cacler at California ports, although space was not begging. During the
seet week or 80 scrap offerings have been piling up and berth quotations
were suranced to about $12 for rails and between $14 and $15 for high
Grane metale. No scrap charters were reported closed, but it was believed
that any business in this direction could command up to between 213 and
(14 f.i.c. General cargo movement was only fair. B vessel was flxed to
lift el cargo of coal at Comox for Japan. Some increase in berth rates
were Announced by the Conference lines in the trans-Pacific route.
Intercoastal space conditions were stili menacing and no relief
WE apparent. Cargo offerings in both directions were more than the
Ilnes could handle. One line was sending ships eastward in tandem
fashion in order to accommodate as much cargo as possible.
It is interesting to note that Japan which is regarded AS a
first-rate power and & coal producing country who cleim to have gone into
China in order to secure more breathing space for her millions of population,
ie now importing coal from the United States because she does not have
sufficient man power to fully produce her mines. The freight rate on coal
from British Columbia to Japan is $9.25 per ton.
Banil tharris
Iclassifie
301
18
MEMORANDUM FOR THE SECRETARY:
MARCH 19, 1940
Shipping Situation.
While extreme confusion exists as to the future course
of business, due to the end of the war in Finland, the indices
show that the movement of export freight through the Port of
New York holds at a remarkably uniform level from week to week.
There is a trend however toward lower levels.
For the month of February the railroads lightered for
export an average of 739 cars per day.
On March 14th the
number was 668 cars.
In February the number of cars on hand to be delivered
averaged 3723; on March 1st there were 3506 and on March 14th 3268.
Export freight in railroad storage facilities on March 14th
were 5126 cars, with about one third of the available space occupied.
Railroad lighters on demurrage as of noon March 14th
numbered 59.
Grain on hand in railroad cars, elevators and barges at
New York is slightly over 2,000,000 bushels. There are large
quantities in store at Buffalo, from whence it is ordered out to
ships as required, so as to take advantage of the nominal storage
charges at Buffalo awaiting the establishment of special summer
rate of 10¢ per 100 lbs. from Buffalo to New York which will be put
in to enable the railroads to compete with the barge canal.
The export grain market is dormant, practically no business
being done in any direction this week. The rate on grain from the
River Plate to Antwerp dropped from $32.00 to $28.50 per ton.
Several American-flag ships were fixed for bulk grain from Australia
to the North Atlantic at $17.50 per ton.
Regraded Uclassified
302
-2-
March 15, 1940.
Net form and time charter rates are pointing higher.
The Black Diamond Line paid $8.00 per deadweight ton per month
for the Estonian steamer "MARET". North Atlantic to Havre
net form was done at 36¢, with 380 paid from the Gulf to Havre.
Another indication of shrinkage in current business
is carloadings which, while running strongly ahead of the same
week last year, declined from the previous week. All the major
classifications were off with the exception of a nominal increase
in the movement of ore.
England has banned the importation of fruits in cans and
glass. There are still large quantities of other types of canned
goods offering, such as tomatoes, pork and beans, etc., but unless
there is an intensification of war activities it is likely that
all types of canned goods will be barred as the stocks in storage
in Great Britain must be very large.
The French Government has just about completed the movement
of some 6000 motor trucks and no information is available in the
trade as to additional orders having been placed.
Banil Marris.
Regraded I Jclassified
TREASURY DEPARTMENT
303
INTER-OFFICE COMMUNICATION
DATE March 18, 1940
TO
Secretary Morgenthau
FROM
Mr. White
Subject: Shipments to U.S.S.R.
Following are details of the S.S. Texas which sailed
March 15th for Russia:
Domestic exports:
Industrial machinery
$1,718,636
Copper and products
710,883
Brass ingots, strips and
castings
701,448
Electrical machinery and
apparatus
156,914
Tin plate
85,498
Other ferro-alloys
68,305
Other metals and alloys
62,903
Motor trucks (over 21 tons)
48,700
Iron and steel pipe and
fittings
47,732
Stainless steel sheets
38,734
Wheels of artificial abrasives
26,661
Pure nickel scrap
16,168
Nichrome resistance wire
11,061
All other commodities
30,925
Total domestic exports
$3,724,568
Re-exports:
Standard T/N Shellac
21,252
Liquor
14,909
Motion picture film
5,426
Preserved mushrooms
552
Total re-exports
42,139
Total cargo
$3,766,707
CC:
Mr. Gaston
Mr. Basil Harrie
Mr. Cochran
Regraded Uclassified
304
March 18, 1940
Secretary Morgenthau
Mr. White
Subject: Shipments to U.S.S.R.
Following are details of the 8.8. Texas which sailed
March 15th for Ruesia:
Domestic exports:
Industrial machinery
$1,718,636
Copper and products
710,883
Brass ingots, strips and
castings
701,448
Electrical machinery and
apparatus
156,914
Tin plate
85,498
Other ferro-alloys
68,305
Other metals and alloys
62,903
Motor trucks (over 2t tons)
48,700
Iron and steel pipe and
fittings
47,732
Stainless steel sheets
38,734
Wheels of artificial abrasives
26,661
Pure nickel scrap
16,168
Nichrome resistance wire
11,061
All other commodities
30,925
Total domestic exports
$3,724,568
Re-exports:
Standard T/N Shellac
21,252
Liquor
14,909
Motion picture film
5,426
Preserved mushrooms
552
Total re-exports
42,139
Total cargo
$3,766,707
00:
Mr. Gaston
Mr. Basil Harris
Mr. Cochran
JMW:lrs
3/18/40
Regraded Uclassified
1
JOS
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: March 18, 1940, 7 p.m.
NO.: 357
FOR TREASURY FROM MATTHEWS.
I had lunch today with M. Henry Jahan, the managing
director of the Banque de Paris et des Pays Bas. Jahan
a number of years ago was the director of the Mouvement
General des Fonds.
Jahan told me that he understands the French authorities
are actively engaged at present in drafting legislation
to requisition French holdings of foreign exchange -
references, telegrams of February 9, No. 190, and of
February 27, No. 262, from the Embassy. In confidence
he told me that his bank holds about $23,000,000 of dollar
exchange for clients, and he considers a "fair estimate"
of total French private holdings of dollar exchange to
be $150,000,000 - reference, telegram of February 27,
No. 262, from the Embassy. With regard to dollar securities,
he does not anticipate any early similar move - which
confirms similar indications to me by Couve de Murville,
reference, telegrem of February 9, No. 190, from the
Embassy. He remarked that quite a substantial amount of
French owned dollar securities is in Switzerland, and
I have heard American bankers in Paris express similar
views. Such securities are held both by residents in
France
Regraded
306
- 2 -
France and by French individuals who live in Switzerland,
either in their own names or through Swise or other foreign
holding companies. He was in agreement with others with
whom I have talked that for the French authorities to
get their hands on such securities would be very difficult.
END SECTIONS ONE AND TWO.
MURPHY.
EA:LWW
Regraded Uclassified
207
PARAPHRASE, SECTIONS THREE TO NINE, INCLUSIVE,
NO. 357 OF MARCH 18, 1940, FROM PARIS
He believes that a sizeable amount of declared
French-owned American securities has already been disposed
of by means of "arbitrage operations" - for instance,
an American stock is sold and Canadian Pacific purchased
in New York with the proceeds; subsequently the Canadian
Pacific 1s sold at a profit of around 10 percent on the
Paris market.
Jahan also confirmed the definite reports I had been
given by Royall Tyler with regard to the recent practice
of banks in Italy authorized to deal in foreign exchange
which are purchasing dollar and other checke in foreign
currencies at negotiated rates above the official quotation
for the lira. Reference: telegram of March 13, No. 335
from the Embassy. Also reference: telegram of March
15, No. 348, from the Embassy - in which I reported that
Pennachio declined to admit that this "authorized" practice
exists.
The sterling and franc drop on the New York free market
did not seem to greatly disturb Jahan; he felt that "political"
considerations were partly to blame for the fall. There
will always be sizeable fluctuations on such B. market, he
feels, because of its thinness.
Jahan expressed some criticism of the way the exchange
control authorities have been handling the franc accounts
of
Regraded Uclassified
OH
- 2 -
of foreigners - that 18, nonresidents. In January, during
the fright of German invasion of Belgium, he said that many
Belgians who had substantial French franc holdings wanted
to transfer them to accounts in France quickly, but they
were not permitted to do this, the French exchange control
authorities stating that it was because of their subsequent
possible conversion into foreign exchange, even though
the Belgian owners expressed willingness to give undertakings
that they would not be converted. Such a "rigid" point
of view, he believed, had been a mistake and it constituted
a wasted opportunity to reduce the free market supply of
francs.
This year there may be difficulties for French agri-
culture, he believes, unless the Army would release more
agricultural labor than it has up to the present. He
expressed skepticism as to how useful the 200,000 colonial
agricultural laborers would be which were promised for
work in metropolitan France by the Labor Minister, reference,
telegram of March 7, No. 301, from the Embassy. However,
he finds that progress 18 being made by industry though
there 1s still a lag in exports, of which one of the
main reasons 18 the lack of transportation. He hoped
that the conversations between Mandel and MacDonald on
colonial trade would produce real results.
There
Regraded Uclassified
709
- 3 -
There is still prominent discussion of the question
of higher profits for industry and wages for labor. In
this morning's AGENCE ECONOMIQUE ET FINANCIERE, PARIS,
an article commenting on the encouraging sign when agreement
can be reached by a De Wendel and a Spinasse - reference,
telegram of March 13, No. 335, from the Embassy, third
paragraph - - states that in time of war they must put an
end to fatal demagogy, that every one employer or workman
must work according to his ability and be paid what 16
due him, with the result that production and consumption
will benefit thereby. It continues that if the peace-time
policy 18 continued, that 1s, the seeking to avoid criticism
of some fiscal measure affecting industrial (omission)
by the Extreme Left or of certain advantages granted to
labor by the Extreme Right, certain dissppointment will
come. It states that more than ever today the community's
interest 1s in not breaking the incentive of the profit
motive, and that the overtime work of the employer, A6
that of the workman, should not be penalized but should be
encouraged. This it says 1s the price of victory for
the democracies over autarchy regimes.
As time goes on, such criticism of the firm policy
of the Government in limiting both profits and wages will
probably increase - 800 the remarks of Ardant in telegram
of March 13, No. 335, from the Embassy. The AGENCE editor
Regraded
310
- 4 -
Bollack, in the above instance shows in stronger terms
than heretofore expressed his personal dislike of Reynaud
and his policies.
END SECTIONS THREE TO NINE, INCLUSIVE.
MURPHY.
EA:LWW
Regraded
311
REB
GRAY
Paris
Dated March 18, 1940
Rec'd 7 P. m.
Secretary of State,
Washington.
357, March 18, 7 p. m. (SECTION TEN)
The Chamber of DEPUTIES Friday Evening approved the
Bill submitted by Reynaud calling for the necessary
authorizations to contract national defense Expenditures
for the second quarter of 1940 (55,000,000,000 francs)
and the opening of the necessary financial credits (my
telegrans Nos. 335, March 13, 7 p. m. and 546, March 14,
7 P. m.).
Testerday's JOURNAL OFFICIEL published a decree
designed to Effect stricter control over the activities
of middlenen in the placement of national defense con-
tracts, sub-contracts, or orders. Hereafter unless
specifically authorized to do so by the Minister of National
Defense, commission agents may not intervene in such
transactions and any firm which has received & national
differense contract or order through the intermediary of
such an agent is required immediately to report the
matter to the Minister of National Defense.
MURPHY
NPL
.12
CK
GRAY
Paris
Dated March 18, 1940
REc'd 7:15 p.m.
Secretary of State
Washington
357, March 18, 7 p.m. (SECTION EIEVEN)
The securities market today was less active and in
2 mood of caution influenced by the surprise meeting of
Hitler and Mussolini. Rentes and French bank issues
were down fractionally whereas gains and loses were
mixed in French industrial issues.
French public opinion and Parliament in view of the
"moral defeat" as 1t is viewed here of the Allies in
Finland are demanding as & prelude to a more Energetic
prosecution of the war changes within the government. It
is therefore Expected that Doladier will announce such
changes within the next several days. HE is keeping his
own counsel clostly and whether hE Envisages a small "war
cabinet", a government of "national union" with 1 broad
base from Extreme Left to Extreme Right on merely "filling
in the vacancies" is not known. For the time being his
however, seem
relations with Reynnud,/better (probably influenced by the
difficulty of finding 2 successor) and today's erop of
rumors does not indicate a change of Finance Minister.
(END OF MESSAGE)
MURPHY
NPL
Regraded
313
HSM
PLAIN
London
Dated March 18, 1940
REC'd 2:20 P. m.
Secretary of State,
Washington.
681, March 18, 7 p. m.
FOR TREASURY FROM BUTTERWORTH.
In announcing that the £300 million three percent
war loan had been over-subscribed the Chancellor of the
Exchequer made the following declaration to the House
of Commons this afternoon:
"ThE policy of the Government is to aim at stability
of interest rates and to secure that the yields offered
on future loans, whatever their type, shall after making
due allowance for such factors as the period of the
loans, bE in agreement with the level of interest rates
Established by the terms of the recent two per cent
conversion loan and of the three per cent loan just issued.
"In these circumstances I welcome the action taken
today by the committee of the London stock Exchange in
announcing a revised list of minimum prices for govern-
ment securities. The new minima bear a closer relation-
ship to existing prices than those fixed on the outbreak
of the war and may bE taken as evidence of the desire
on
Regraded
314
hsm -2- No.681, March 18, 7 p. m., from London
on the part of the authorities concerned to cooperate
in the policy of meintaining interest rates at the
present level.
From city sources I understand that war loan
applicants below £50,000 were allotted in full; above
that figure they received 80 percent. The loan can bE
publicly called a "success", but given the probability
that the government controlled agencies made applica-
tions to the requisite amount, and the fact that it is
the first loan of the war issued 62 months after war
began the performance is not impressive.
As implied in Simon's statement the announcement
of new minimum prices for British Government securities
was made at the instigation of the British monetary
authorities and was not designed to meet any immediate
contingency but to consolidate the interest rate position
thus far established by preparations to limit the financial
repercussions arising out of future war developments.
Unlike the former, the new minimum prices are sotuarially
computed and can bE illustrated by the 37 percent per-
petual war loan which is now fixed at 95 EX dividend as
compared with the previous minimum rate of 881 cum
accrued interest. Incidentally war loan closed last
WEEK at 991 which, if accrued interest bE deducted, meant
a net price of 97%
The
Regraded Uclassified
315
hsm -3- No. 681, March 18, 7 p. m., from London
The British monetary authorities obviously timed
the minimum price announcement with a view to giving
psychological aid to the market in the present despondent
circumstances. The city's psychology SEEMS to have
worked otherwise. The new war loan opened at a discount
due not to the intrinsic merits or demerits of the
individual issue but to the general market feeling which
responded to the minimum price announcement by letting
British Government securities drift towards those prices.
KENNEDY
CSB
316
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 18,1940 18.
TO
Secretary Morgenthau
FROM Mr. Foley
Attached are (1) a copy of S. E. C.'s Investment Trust Bill and
(2) a statement concerning the Bill prepared for Senator Wagner (who will
introduce and sponsor the Bill in the Senate) by S. E. C.
Generally speaking, the purpose of the bill seems to be to regu-
late investment companies and investment advisers so as to insure that
investors will have a means of obtaining accurate information concerning
them and their activities, and to prevent the abuses indicated by the
S. E. C. studies over the past several years as being responsible for the
$3,000,000,000 in losses sustained by holders of investment trust shares
since the early 1920's.
The constitutional bases for the bill appear to be the postal
powers (compliance with the Act is made & condition of the use of the
mails) and the interstate commerce powers.
There are two titles in the bill. Title I relates to investment
companies, while Title II covers investment advisers. The highlights of
each title follow:
Title I of the bill requires every investment company
to register with the S. E. C. and give certain information re-
garding its officers, directors, depositors, underwriters,
distributors, etc., and its investment policy; provides that
no new company can offer its securities to the public unless
it has a net worth of at lesst $150,000, and that no company
vision for revocation of registration for cause after notice
can supervise assets worth more than $150,000,000; makes pro-
and hearing by S. E. C.; places limitations upon the kind of
stock companies may issue and the voting rights which may be
conferred thereby; makes the exercise of certain important
management functions subject to approval by shareholders; prohibits
317
- 2 -
for 8. five year period the promoters of one investment company
from promoting and participating in another such company; pro-
hibits assignment of distribution contracts; authorizes the
S. E. C. to adopt rules governing pricing practices; prohibits
companies from trading on mergin; restricts the borrowing and
loan making powers of companies; provides for the elimination
of conflicting interests on the part of directors and managers;
prohibits "self-dealing" by directors and other managers; sub-
jects inter-company transactions to close scrutiny by S. E. C.;
makes reorgenization plans subject to S. E. C. approval; author-
izes S.E. C. to prescribe and regulate accounting practices;
restricts payment of dividends; and protects investors of small
meens by limiting sales on installment plan and preventing ex-
cessive penalties and forfeitures for lapses or defaults in pay-
ments.
Title II regulates people who furnish investment advice
to others for compensation. It requires registration with
S. E. C.; the furnishing of information relative to their organisa-
tion, facilities, methods of operation, etc.; prohibite their
engaging in transsctions in which they have 8. personal interest;
prohibits compensation based on profits realized by investor; and,
provides for revocation of registration in cases of violation
of the Act, etc.
The last four pages of the statement prepared for Senator Wagner
contain a more comprehensive summery of the bill.
E.w.7h
Regraded Uclassified
FOR P.M. TEMSPAPERS. THURSDAY. MARCH 14, 1940.
SENATOR WAGNER INTRODUCES INVESTMENT TRUST LEGISLATION
Senetor Robert F. Wegner of Now York today (Thireday, March 14, 1940) introduced
la the Senste comprehensive logislation to regulate investment companies and invest-
sent advisors. and issued the following statement concorning ito purposes and provi-
vional
KATIONAL PUBLIC INTEREST IN INVESTMENT TRUSTS AND INVESTMENT COMPANIES
"Investment trusts and investment companies constitute one of the importent
for the investment of sevings of the American public and STL important fector
in our national oconomy. At the présent time, these organizations have total eseeta
of approximately $4,000,000,000. In widition, they centrol or exprcise DI significant
influence in B. great variety of industrial enterprises. public utilities, insurance
communies, banks. etc., with Amgregate resources of opprazinately $20,000,000,000.
"During the past ten years there have been approximately 4,500,000 holders of
certificates or shares of investment trusts and Investment companies located in every
State. American investors have susteined lossee exceeding $3,000,000,000. cht of a
total investment in such companies accrosation about $7,000,000.00. During the
period between the early 1930's-wellan the investment companies first ande their
appearance in this country-and the present, approximately 1300 investment enter-
primes of all types were crosted. However, only about 650 trusts and companies are
still la existence, the rensinder having disappeared olthor through norgers, receiver-
stip, dissolution or bankruptcy. In addition. missrous companies controlled or
Influenced by investment componies went benkrupt or sustained substantial losses.
A large portion of these looses in directly attributable to those Genegemente which
refused to recognize their fiduciery obligations to their charcholders and subordi-
the interest of the investor to their OWN: permirary edventego.
"To problems with respect to investment trustv and investment compenies are
still acute, for now organizations of this typo pico still boing fornoù in lirge
medors end are raising substantial funds. From the tiddle of 1935 up to the and of
1939, appresinately $2,400,000.000 of securities of investment trusts -nd companies
have boo. registered with the Condition. Althous. not all of these socurities have
Deen distributed. suproximately $400,000,000 of investment company securities were
sold during 1936 and 1937 alone, or approximately one-oirth of all conrefunding
corporate Issues sold during those years. During the lost few years, sales compaigns
have been vigorously conducted and investment trust certificates are belas sold
spon the installment plan to individuals in the lowest economic and income atreta of
ar population - individuals who are particularly subceptible to devisus high-
pressure solling acthods and who have been subject to unconscionable pen-Ities and
forfeitures in all-too-many instances.
SECURITIES AND EXCHANGE CONMISSION INVESTIGATIONS
"The and deficioncies of investment tristo and companies which occesioned to
tosse locace attance to the American public ATC not acadente, and not corely attributable the
the finencied and aconomic ethics wideh provailed the 1920's. Soon of were
cost flegrant abusce and (roasest violations of daty to investors YAR
porpotrated during the yor." time that the Securities and Exchange Comission companice
restacting its comprehensive atudy of invostment truits not investment 1975. That
gursuant to Section that, unless these organizations TO subject to superve in
30 of the Public Utility Holding Company Act of
and conclusively regulation, demonstrates the Interest of many of almost 2,000,000 Amorican investore tisees
Institutions vill be substantially throstened,
GENERAL PURPOSES 03 THE LEGISLATION
for the registration and regulation of investment other trusts 10- and
Vestment to Insure révisity to invostore e full and fair disclosure of the nature and best so
investment companies services. The underlying purpose of the legislation activition of the
"Inis bill provides and for the registration of investment counselore and 18 got money
withinate invostment end trusts prevent and those deficiencies end abuse: in these organizations holders. which here
investment companies in which they are intersated
contributed to the tromendous lossés sestained by their socurity
ENTESTMENT TRUSTS NOV LARGELY UNREGULATED
sicilar "Covestment financial trusts institutions, represent Large pools of liquid funto of the other
and investment companies, 11ke benks. insurance compentes public and
entrusted financial Institutions, to investment truats and Investment companies, although and their
individuals for consument And investment. Yet with those
field of elivity 18 unlinited, have Best subject to vistually DO regulation
Regraded Uclassified
recervision by any governmental agency, Federal or State, Date absence ed registing
request. 1. or of the fundamental detises of the obsers Which have been altogether too
FINANCIAL ABUSES
"Decause of this Absence of anfoguards, promoters and managers of investions
companies beve been able to determine every aspect of their effairs in on utmosphere
of celf-incling end conflicting interests dovoid of trans-longth bargaining. Inde-
resdent acrutiny, in behalf of public stockholdere, of the transactions and
activities of promoters and controlling groups in the organization and overation
of invostment companies has been and is virtually non-oxistent. Too often, the
organization of investment trusts and compenies WAS notivated not by e dosire of
that sponsors to ongize in the business of furnishing investment management to the
mill investor but rather to accumulate large pools of woulth which would provide "
write of sources of profit and emoluments to their sponsors and controlling person
"Only P amall amount of capital is required to form investment trusts and coo-
penies. As è consequence, these organizations are still experiencing P.O. unround
rowth: nnd verious individuals, regardloss of their beckground, have boon
ab20 to promote or sequire control of those organisations, with their Ingo poble of
liquid masota, with a sinimm of investment. In any instinces, centrol of these
institutions has been ande improgneble by devices such DE management voting stocky
vosing trusts; the counon 1-w or Misiness trust fors of organization in which
security holders have no vote: long-torm managerient contracts which gloo secured
substantial compensation irrespective of the company's surformence; option perrants
in purchase the company's stock which have the potentiolity of aubstantirily diluting
the value of the public stockholder's interest; end finally, comination of the proxy
pachinory for the solicitation of authority to voto the chorge hold by public stock-
holders.
"In any instances, the pocunicry interest of the pronoters, distributore and
save docinated -Inost every phone of the organization and operation of
ingestment companies to the detriment of investors, Capital structures, which are
after confusing and incomprehensible to investors, have been created with the
ulterior retive of vesting in the controlling sroups couplete control of the public
atockholders! funds and a discroportionate share of the companies! profite. The
canitolization of invostment companies Wns in nany instances determined solely by
the empunt of securities the public would absorb. de A consequence, unsound cepital
structures 1990 been created--structures which fostored and perpetuated shorp 000-
flicts of interests between the holders of senior nocurities and junior socuritice.
Tobac conflicts have often buen resolved to the dutriment of the public reason
security belders end to the advantago of the cortion stock hold by Insiders. The
holdors of junior securition have retained control of the funds, although in
the posits belonged to sonior security holders: and bave transferred, for aubstantic
promonte for thoir stocks without easet "Alve. control of those funis without the
consent or moviedge of senior security holders. Marry senior securities Red no
protoctive focture, or inadequate features which were circumvented and mullified by
the controlling contion stockholders; and the public investors wore powerloos to
provent unfair and injurious prectices. Those compenies with senior securities have
Leon, in cesence, accounts-anrgin eccounts not subject to further eargin
01118-for treding in comun stocks for the benefit of the inside common stockholdery
Unwerrented speculative activities have remulted.
"In addition, these capital structures with more than one class of sécurity
Date acceptusted the problem of payment of dividonda in investment companies: for
the common stockholders have caused the payment of dividends and security other
Colders. Copital on gains have been drained off by the common stockholders inadequate in periods
Alctributions controlling their comon stock to the penintery injury of the senior
of rising prices, and dividends puid, although the sonior securities had
14act coverage.
"Investment that trusts of organization. Investment companies are pormitted of so pt- to
and invostment companies have suffered many abuses which
are poculiar to the brondost type powers, and in essonce, constitute 'blind pools' instance
have funds. directed As the B. investment of the public's funds in a variety of activities investment
lic organized with result. sponsore, promoters and controlling groups in many VitE-
out of the stockholders and irrespective of the announced the
policies the consent which induced the public to invest in the enterprise. In adition,
essose of investment reducible to cash. which could be used to acquire ay managers type
trusts end investment compenies consist of cash or of
socurities rondily or business. As e. consequence, officers. directore. other propert est
sucurity, property unloaded valualess or dubious securities and their in-
other in:1dors have often at extravagant prices: have borrowed the funile enterorises of in
Testant companies; interested. Substantial amounts of these y Invest- DATE
on investment companies not have coused such companies to loans to loans have
Which t'eto insiders were companies In any instances have lean exploited
sist boen repaid. Investment and chargers to enhance their braking età to stabilisc
2. imitiest spensore compenies wore caused to certicipate to callevritions;
Regraded Uclassified
(M) assist in securities underwritten by such managing croups: end to purchase our
startie] blocks of stocks in industrial companies, reilroads, banksand Insurance
companies in order to expand the banking and brokerage business and build up the
(inancial empires of these insiders.
"Io augment and intensify all of those opportunities for control and personal
profits st the expense of public stockholders, insiders have often fostered excessive
pyramiding of investment companies into complicated corporate systems. Funds,
securities and other proporty were shifted by the docinant persons anong the various
investment companies in the system and their controlled industrial and other sctor-
prinos. in order to promote their own personal pocuntary interests, to create nie-
10:41:05 values and fictitious profits for the purpose of doceiving stockholders,
and la centralize and perpetuate their control. In many instances, the D. remiding
of lovestment companies involved a complete renunciation of the policies the stock-
bolders had been led to believe their compenies would pursue: menagement coste have
inaquitably allocated among the various pyremided companies, and expenses have
been diplicated.
"Whologale traffiching in, and birtering of control of the management of
investment compenies without the knowledge or consent 01 the investor has also been
= friquent abuso in the history of invostment companios. Stockholders have suffored
largo losses na e result of undisclosed overnight transfers of control of mote
Dunda to TOM intorests who have oither been incompotent or dishonest. Under exiating
ponditions, investore ure powerloss to protect thomselves reainst the consequences
of such shifts in control.
Managements have also used their control of the explicable corporate and
statutory mechinery to subject stockholders to iniquitable readjustments of the
rights, privileges, preferences and values of their securities, by judicial reorgal-
instions, recapitalization plant, mergers, consolidations, dissolutions and sales of
the corporate assets to other companies. Existing remodios for the protection of
stockholders against inéquitable plans of readjustment are inadequate, cumbersume and
imprectical. The financial resources of the average stockholder ero usually insuf-
ficient to shet the burden of complicated and long-drown-out julicial and other
proceedings which any be necessary to oppose successfully unfeir
plane.
"Another fundamental count has been tiet any premoters and menagers of invest-
ment companiee have e greater interent in the profits which they can relize from
the distribution of invostment company securities than In compensation for the
rrowed function of furnishing orport. disinterested Investment service to investors.
At e consequence, canagement my be subordinated to distribution. Unsolted investment
Aminta and compenios any be organized in An effort to crerte accurition or norchan-
dien with 20100 appoal: and the investments of the comments may be mide, not on
banig of their soundness, but on the basic of their effect ou sales of the compantes!
shares. Selling charges are often fixed to yield a eximm of fees to distributors
and frequently include sony "hidden" fees exacted from the purchasing public. The
profité to be derived in the morchendising of investment company securities has also
prompted the rapid formation of investment trusts and compenies by the semo spensors
in order to "switch" investors from old companies Into now companies, each witch
billes accompanied by exaction of A new selling "Ined" ::00 the security holders.
"In the case of those Investment trusts and companies which continuously cell
willted in substantial dilution of the investors' aguity in the fund. Such dilutions invost-
their shares to the public, practices have often bein countenanced which here no-
have taiton blace as recently se last Autunn. The small invostor, purchasing
EASE trust shares or contracts on the installment payment plan, her often been
subjected to excessive sales loads and onerous penalties and forfeitures.
"Inolocanting the perpotuation of all these abuses in the management's indication train
sitted to the stockholders. The absunce of uniform accounting principles
of the accounting practices and the acope and content of the financial reports has
facilitated the transmission to stockholders of annual reports which are often
mislending end incomplete.
extated in the investment company industry. or course, those abuses do part exist
"Indo 10 not a complete catalogue of the deficiencies and abuses which here
L. oqual degree in all cleanes of investment companies or in compenies within ench Is
stition, managements have takin stops to credicate adida of the defects
classification. Some =buses are posultar to certein types of companive only. and
uniproutices nome proveiling in the industry. However, considering the investment company
industry P.E. . whole, fundacental deficionetes and above actually or potentielly
exist in "Il cireses of investment companies. and in to absence of locialotivo
regulation, will continic or recur. The problem of the protection of Hw invostip
Regraded Uclassified
?!
and the national economy to too vital to permit of hapharerd voluntary solutions.
"Investment trusts and investment companies have furntshed but comperatively
little capital to industry. For the most part, these organizations have invested
their funds in securities Which have been outstanding for some time. On the other
hand investment trusto and investment companies could be capable of performing
important functions in the national economy and of becoming one of the important
Institutions in this country for the investment of savings, nlons with benies and
Insurance companies. As media for investment in securities, particularly equity
securities, investment companies may be able to offer more diversification end more
compotent menagement than the ordinery individual himself can provide, If the
Mijor present temptations to management, unrestrained by effectivo compulary
standerds of fair conduct, are removed. Certain types of investment companies could
be particularly useful to the national economy in supplying the noeds of GOV Indue-
triel enterprises, through equity financing and Insuis, thereby making available to
them enterprises sources of capital funds which would otherwise be beyond their
NC. Finally, Investment companies, if tindo into real representativen of the
exicipating investors and not of other interents, could Recome poro effuctive
advacatos of the great body of invostors in our industrial system then the now
inertion: to small stockholder.
INVESTMENT DOUNSEL AND ADVISORS
"The activities of investment endreal and other investment advisory poraons
in DARY respects offer the set opportunity for abtise of trust reposed in then by
investors ys exists in the crsé of managements of investment companies. The
extent of their influence 10 only certiclly indicated by the Inct that the portion
of those advisors studied by the Securities and Exchange C-mmission managed or
gave advice with respect to over 84,000,000,000 of The bill does not attecpt
to deal comprehensively with the problem of investment advisers, but is intended
only to climinate the more obvious basio abuses relating to the type of individual
viso ANY register as en investment advisor, profit shoring componsation, unloodings
MSA perpotration of frauds upon clients, and assignment of clients' contracts.
Regraded Uclassified
EMPLARY OF THE 3ILL
2/ an contains two titles. Title I relates to Investment trusts and In-
compenies of all types. Title Il relates to Investment counsel and other
sivisory services. The 8111 denla with abuses and deficiencise In the
sales of the securities, and operation of investment companies. In
the theory of the bill 1s to ellminate Wherever possible such cluses by
greet probilition of their continuance. Only in the comparatively few 01405 where
Ge problems alte complex and technical is B. regulatory power vosted in the Commission
correct advractices by rules, regulations, or orders promul cated in accordance
del proctor standards proscribed in the bill. The following resume 1: not a com
tists /escription of all the provisions of the bill nor of the abuses which the bill
11 coalered to recedy.
Investment Companies
Scomptions and Classifications of Compeniest Investment companies are
defined as Issuers holding themselves out as engine primarily in the
of investing, reinvesting and trading in securities, or issure which own
IT M acquire securities (other than government securities And securities of
applications company subsidieries) heving E. value asconding 40 per cent of their
out - (other than government securities and cash itcos), The 3111 does not
agree companies which are not investment compenies. It therefore excludes companios
primarily engaged, directly or through aubsidiories, it the nanagement and operation
e coninvostment business or businesses. It elso specifically excludes broknes,
aderveltors, benics. insurance companion, holding companies subject to the Public
THIRTY Solding Company Act of 1955 nna certain other types of companies. The bill
- provision for the exemption of employees investment companies upon such
conditions -- ANY to prescribed by the Corrivation. (Sections 3, 6)
Investment companies 36 en i-fined are subdivided inse variage types and classo
welling to corporate structure and investment policive, with the possure in the
Production to further subelassifications. (Sections 4, 5)
Disclosure of Investment Policies and Stre: As A condition to the use
to >ill and the facilities and Instrurestelitics of interstate compare, every
Investment company is required to register with the Securities and Exchange Commissi>
- be Ellon current the information contained to its registration statement. The
registration statement must clearly describe NO Investrent policy of the company.
Services It unde for the simplification of the registration procedure by pormitting
filing of copies of registration statements strondy filed under the Acts sow
=inistered by the Commission. (Sections 7, 4) So shift in the com-
Invostment policy say be anto without the vote of the holders of - sujority
of to company's voting accuritics. (Suction 12).
So provent the indiscriminato formation of investment companies, no Invostment
organized horeofter tassi malto a public offering of its securities unless it
Me not Westh of at lost $200,000 orior to such offoring. % climinate Impedi-
binic to the efficient supervision of investmente, to protect securitics riceta,
as Re rovent excessive consomtration of wealth and control over inturry,
is the parimo mount of regote which my be supervised by one manage-
neat luvesment compuny. (Enction 14).
of Depositors and Distributors: The H11 provides for n.
registration viti the Consission of Individuals serving ne officurs, directors
(epositors, principal imderwritery and distributors of the
of investment trusts and compenies. Registration can be dented or revolod
vis the 3 hearing and only upon the cround of conviction of c. orine; 15 injunction
corrt le cornection with B. accurity treations - violation of ay of the pro-
of this bill; or of micriel (ate 15 the registration
(Section 9).
Cypital Structures, Devices for, end Transfers of Control: Provision ly side to
United in the future the evile of complex capital structures: to apportion voting
wer equitably among the security holders of exteting companies: and to prevent un-
La cilution of atockholders' interest Ln the company. The bill provides horeafter
this investment companies say issue only common stock bring equal voting elghts
or outstending shere of the company's stock: and that the Commission shall from
or amiliontion of security bolders and may on its swa motion, after two years
Aloe effective date of the 3112, telm state to offect as equitable redistribution of
- rights and privileges among the supprity bolders. The comon VY preemptive is
that of stockholders to purchase additional shares insued by their companies
m) nice ne.ê regilations any be forminted with respect to the aolicitation 120
(Soction 15) the sale of voting trust certificates la 2010 of
greatm. (Spetita 20) The bill Are # not coptain any provision requiring
ollaination from capital structure of serior securities at the present
the
:
Regraded Uclassified
21
:: order to provent the circumvention of the stockholders' fundamental right to
dest Irectors (9 circumvention frequently accomplished by Miclosale resignations
greators end their replacement by Insiders, without the knowledge of stockholders).
er 8111 provides that directors EAT be replaced without 5. stockholders' vote only
the extent of one-third of their number. (Section 15)
to refeguard against the complete delecation of the dutles of officers and
limectore, and against long-term and appressive contracts, such contracts
by run for period of not exceeding two years, if sporoved by the company's stock-
colders, and Day be renewed only on e year-to-year basis, subject to the disapproval
et tockholders. Minagement contracts must state precisely all compensation to be
to the monagers. EAT not provide for profit-sharing schemes of compensation,
my not be assigned. (Soction 15)
Cotribution and Repurchases of Investment Company Securities: To prevent the rapid
né unsount formation of investment companies by promoters interested prisarily in
"perchandising" securities and in "switching" investors from old to new companies,
with to eliminate conflicting interests, the bill prohibits the promoters of one in-
restrant company within eny five-year period, from propoting and than participating
An the nanagement or securities distributions of the new investment companies. The
is empowered to exempt compenies and individuals from this and other
closely rolated provisions or the busis of certain prescribed standards. (Section 1
Purther deterrent to switching operations, contracts to distribute the securit]
of open-and investment companies may not be leng-term agreements and Day ant be 0.9-
(Section 15)
While mublicly offered medurities of investment companies must be registered
under the Sncurities Act of 1933, provision 1a mede to eliminate duplication in the
storiel filed under that Act and the present bill. (Section 24) The Commission
'irected to ndopt rules and regulations to protect investors wgainst dilution
of their equity exped by pricing abused 10 the distribution and redemption of the
comounies' securities. (Sections 22, 23) To prevent grossly excessive soles londs
co sacurities of open-end companies oni of unit investment trusto, the Commission,
after havring and after giving Veidit to various Inctors prescribed in the bill,
impowered to order the consation or notification of such charges. (Section 22)
To prevent discriminatory reperchered of their own securities by investment
commnies whose security holders to not have the right to require redesption, the
3512 rethorizes the Commission to promulgate rules. regulations and orders to proven
such discrimination. (Section 23)
Civitation on Speculative end other activitiest Investment companies any not trade
wargin 01° participate in joint trading gecounts in portfolio securities. The
Countasion is authorized to prevent the short onle of portfolio securities by rules
and regulations. Bozo tomes of investoent companies may engage in underwriting
intivities (if consistent with their declared financial and investment policies).
Will- other types BAY engage in such activities only to . limited extent. (Section
alle loase by investment companies to natural persons are prohibited. loans to
Forporations BLY be unio nader cortain specified conditions. Generally, investment
companies 13% prohibited from Dorrowing, accept for temporary purposes in an amount
the exceeding 5% of the value of the company's total assuto. (Section 21)
Dimination of Conflicting Interestor The bill requires that a majority of the boar!
directors of every registered investment commany be persons, having no common
pitside adfiliation and independent of those receiving Prokerage, management or
writing commengation. Certain other specific limitations upon the outside of-
fillations of persons who occupy important meltions in the conduct of the investment
insurance business are also imposed. Each of inten provisions is directed to s. spec-
(1) end dangorous conflict of duty or interest. (Soction 10)
chibitions Against Transactions by Insiders with the Investment Commenies: The
11 prohibite "gelf-Inaling" between insiders and the Investment compenies - trade=
prfiliated companies or firms have E personal pocuniary interest. These prohibition
notions with the company In which Its officers, lirectors, etc. or their
0020- med prinarily with sales and purchases of securities and other property to
or from the Investment company, the obtaining of Loans from the company and joint
proticipations with the company is underwritings and other financial vectures. Gros
miscondust or abuse of trust by directors, officers, managero, investment adviste,
principal underwriters and distributors so also made unlexful. (Section 17) To pri-
vent the use of the funds of investment companies to aid affiliated underwriters in
thoir investment banking business, investment compenies Day not purchase recusities
underwritten by such affiliated persons until more than DICO year after as sillit
distribution of such securities. (Section 10)
II
Regraded Uclassified
Among Pyramided and Affiliated Companies: Future pyreniding of 100
present compunies in made unlawful by BY provision forbidding the purchase by to-
commains of the securities of other investment companies, excent in con-
ctive -1th reorganization plans approved by the Connission. (Section 12, 35) The
(1) 1001 not require the simplification of existing systems of investment componice
Furchased and asles of securition between companies in the eame investment
and system are subjected to the scrutiny of the Securities and Exchange Continued
La order to insure their fairness and their consistoncy with the invostment policies
if (b) companies involved and the purposes of the bill. (Section 17) The Commissio
La authorized by rulos, regulations. or order to require that a company in on invest
into conpany system supplying management services to the constituent companiee rende
ruch service at cost, equitably allocated among the verious companies. (Section 15)
Cross-ownership and circular ownership of voting securities between and among
investment end other compenies is prohibited. (Section 20) Cross-ownership and
greater ownership have hed the effect in the past of giving 1. deceptive appoarance
it enhanced valuation of the nasets of the Investment companies concerned, attribu-
solely to the mirroring in each company of incrunsed value of its own cross -
IT circulariy-held securities.
gad Involuntery Recrganisation: In order to prevent unfalr plano of
missiony and involuntary reorganisation, recepitalization and dissolution, the bill
provides that such plans say be diampproved by the Commission If it finds, after 8.
discing, that they are not fair and equitable to all classes of security holders
affected. (Section 25)
Accounting Practices: The Commission is authorized to preseribe uniform -ccounting
E militing methods end the scope of such to require investment companies
to file with it And to transmit to its security holders annual or other periodic
and special reports: end to exemine the books of investment companies. Independent
public accountants for investment companies most be elected by the stockholders.
Principal accounting officers including controllers of such companies, the porticipe
la the preguration of financial statements filed with the Commission. must be electe
: the stockholders or appointed by the directors. (Sections 30. 31. 32)
Dividender Invostment companies are prohibited from raying dividends derived from
sureen other then their net income from interest and lividends ("ordinary" income).
Mess expressly authorized to do 20 by their charters or by vote of their security
colders. Investment companies with more than one closs of securities outstanding
by not R dividends, unless the securities centor to the security on which the
Evidend Is to be poid are protected be is proscribed asset coverage. (Section 19)
Axed Trusta and Certificates Sold on the Installment Plant To prevent the "orphan-
108° of Sixed trusts and periodic payment plans, the bill provides that only banks
ai trust companies 20% act ES |rustees; requires the trust indenture 10 contain
provisions enchling the trustee to be remineratod out of the trust funds: and mro-
15111 the truatee or depositor from resigning except under prescribed conditions.
the Comission is empovered, when any such trust has in fact become as "orphan". to
city proceedings In un numberiate Federal Discrict Court for the distribution of
to unlets to Its security holders. (Sections 2E, 27)
To prevent the perpetration of frmile upon investors in the lovist income lovels
the may purchase insestment certificatos vipot. the Installment plan, provision is made
Crinet excessive onlos loads and nacessive possition and Corfoltures for Innses and
afults. (Section 27)
BOE Amount Cortificate Companica: Conpanies with sell this type of investment
entract ere required to have a oision prid-in capitalization of $250,000 end must
elntein reserves in at amount sufficient to meet the acturity value of sneir cer-
firates on their due dates. Such reserves must ce invosted in securities of a
ar-ctor sintler to those usually required for the investment of life insurance COD-
my theorves, and the Commission may require such investments to be deposited with
apporate truntoes. Do eliminate excessive penalties and forfeitures, provision 10
sode with respect to cash surrender values. (Section 38) The Sandruptcy Act in
assonded to provide that deposite of securities and property made with State author-
ities for the benefit of future certificate holders shall be void ME sgainst the
trustnes in bankrupte? of such companies. It If nisa provided that my evel resisted
1= becomptey shall be expointed by the court, after giving the Commission in appor-
tualty to 30 Horrd. (Section 29)
ither Provisions: Buttlements of claims acainst Investment companies and their
ifficers ere directors for brotches of official duty, añé settloments of class nith
DM all curity holders must be approved by FL court. The Immission It amyovered to out-
sin sivisory reports 20 the courts with reference to such settlements. (Section 33)
111
Regraded Uclassified
The remaining sections of the title follow the battern clready catablished in
uffistions: DE the general powers of the Commission with respect to the issuance of
three Acts now being administered by the Commission. These sectings relate to
roles and regulations: the administration and enforcement of the Title: the right
: indicial review of orders of the Comission: liability for misleading statements;
and conalties for Intion of the provisions of the Title.
Investment Advisors
Registration, Revocation and Exemptionsr Title II of the bill deals with investment
advisory services - individuals or organizations engaged in the business of furnish-
116 for FL consideration investment advice with respect to the purchase or sale of
securition. Benks, attorneys, accountants. ongineers, etc., who give investment nd-
vice only = an incident of their pricary activities, are excluied from the provisio
of this Title. (Title I, : 5 45 (16).) Investment advisors are required to register
with the Socurities end Exchange Commission and to disclose pertinent information na
to their organization, nature and character of their personnel and methods of opera-
tion.
The Commission 1a enpowered. after & hearing, to dery or revoke
the registration of any investment adviser, on grounds identical with those provided
for the denial or revocation of registration of officers. directors, etc. of invest-
pect companies. (Section 204)
Conflicts of Interest and Unlawful Activities: The bill provides that it shall be
inlawful for investment advisers to employ fraudulent devices in administering the
funds of clients, or to engage in any transaction which would operate as fraud on the
clients.
An investment advisor acting as principal in selling any
security to g. client is required to disclose to the client his personal interest in
the transaction. (Section 208) The bill also prohibite compensation to investment
/visers on a profit-sharing basis. (Section 205)
Regraded Uclassified
326
13
[COMMITTEE PRINT]
MARCH 12, 1940
76TH CONGRESS
3D SESSION
S.
IN THE SENATE OF THE UNITED STATES
MARCH
: 1940
Mr.
introduced the following bill; which was read twice and referred
to the Committtee on
A BILL
To provide for the registration and regulation of investment
companies and investment advisers, and for other purposes.
1
Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3
TITLE I-INVESTMENT COMPANIES
4
FINDINGS
5
SECTION 1. Upon the basis of facts disclosed by the
6 record and reports of the Securities and Exchange Commis-
7 sion made pursuant to section 30 of the Public Utility Hold-
8 ing Company Act of 1935, and facts otherwise disclosed and
9 ascertained, it is hereby found that investment companies
10 are affected with a national public interest in that, among
11 other things-
J. 215852-1
Regraded Uclassifie
2
3
I
(1) the securities issued by such companies, which
1
their security holders, make difficult, if not impossible,
2
constitute n substantial part of all securities publicly
2
any effective State regulation of such companies in the
3
offered, are distributed, exchanged, transferred, re-
3
interest of investors.
4
deemed, and repurchased by use of the mails and means
4
DECLARATION OF POLICY
a
and instrumentalities of interstate commerce, and in the
5
SEC. 2. Upon the basis of facts disclosed by the record
6
case of the mimerous companies which issue redeemable
6 and reports of the Securities and Exchange Comunission made
7
securities this process of distribution and redemption in
7 pursuant to section 30 of the Public Utility Holding Com-
8
continuous and constant;
8 pany Act of 1935, and facts otherwise disclosed and ascer-
9
(2) the principal activities of such companies-
9 tained, it is hereby declared that the national public interest
10
investing, reinvesting. and trading in securities issued by
10 and the interest of investors are adversely affected-
11
other companies-are conducted by use of the mails and
11
(1) when investors purchase, pay for, exchange,
12
means and instrumentalities of interstate commerce, in-
12
receive dividends upon, vote, refrain from voting, sell,
13
cluding the facilities of national securities exchanges, and
13
or surrender securities issued by investment companies
14
constitute a substantial part of all transactions effected
14
without adequate, accurate, and explicit information,
15
in the securities markets of the Nation;
15
fairly presented, concerning the character of such securi-
16
(3) such companies customarily invest and trade
16
ties and the eircumstances, policies, and responsibility of
17
in securities issued by, and may dominate and control
17
such companies and their management;
18
or otherwise affect the policies and management of, com-
18
(2) when investment companies are organized.
19
panies engaged in business in interstate commerce;
19
operated. or managed in the interest of directors, officers,
20
(4) such companies are media for the investment
20
managers, investment advisers, depositors, or other nf-
21
in the national economy of a substantial part of the
21
filiated persons thereof, in the interest of underwriters.
=
national savings and may have a vital effect upon the
22
brokers, or dealers, in the interest of special classes of
25
flow of such savings into the capital markets; and
23
their security holders, or in the interest of other in-
24
(5) the activities of such companies, extending over
24
vestment companies or persons engaged in other lines
35
many States, and the wide geographic distribution of
Regraded Uclassified
4
5
1
of business. rather than in the interest of all classes of
1
(8) when investment companies operate without
to
such companies' security holders and of the public:
2
adequate assets or reserves, or attain such great size
3:
(3) when investment companies issue securities
3
as to preclude efficient investment management and in
4
containing inequitable, discriminatory, or anomalous pro-
4
have excessive influence in the national economy.
a
visions, or fail to protect the preferences and privileges
5 It is hereby declared that the policy and purposes of this
6
of their outstanding securities:
6 title, in accordance with which the provisions of this title
7
(4) when the control or management of investment
7 shall be interpreted. are to mitigate and, so far ns is fensible.
8
companies is unduly concentrated, inequitably dis-
8 to eliminate the abuses enumerated in this section.
9
tributed, or irresponsibly held:
9
DEFINITION OF INVESTMENT COMPANY
10
(5) when investment companies, in keeping their
10
SEC. 3. (a) When used in this title. "investment com-
11
accounts, in maintaining reserves, and in computing their
11 pany" menns any issuer which-
12
earnings and the asset value of their outstanding securi-
12
(1) holds itself out (If being engaged primarily.
13
ties, employ unsound or misleading methods, or are not
13
OF proposes to engage primarily, in the business of
14
subjected to adequate independent serutiny:
14
investing, minvesting, or trading in securities: or
15
(6) when investment companies are reorganized,
15
(2) is engaged or proposes to engage in the busi-
16
dissolved, become insetive, or change the character of
16
new of investing, reinvesting, owning. holding, or trud-
17
their business, or when the control or management
17
ing in securities, and OWIR DE proposes to acquire
18
thereof is transferred, without the consent of their seen-
18
investment securities having a value exceeding 441 per
19
rity holders and without adequate public supervision:
19
centum of the value of such issuer's total assets (exelu-
20
(7) when investment companies engage in manip-
20
sive of Government securities and cash items) on 0.00
21
ulative or unduly speculative transactions, have excessive
21
unconsolidated basis.
22
investments in securities or property of a speculative or
22 As used in this subsection, "investment securities" includes
23
ummarketable character, or by borrowing and the issu-
23 all securities except (A) Government securities, (B) securi-
26
nnce of senior securities increase the speculative charac-
34 ties issued by employees' securities companies, and (C)
25
ter of their junior securities; or
Regraded Ucla ssified
6
7
1 securities issued by majority-owned subsidiaries of the owner
1
(1) Any issur whose outstanding securities (other
2 which are not investment companies.
2 than short-term paper) are beneficially owned by not more
3
(b) Norwithstanding paragraph (2) of subsection (a),
3 than one hundred persons and which is not thing and
4 none of the following issuers is on investment company within
4. does not propose to make A public offering of its securities.
5 the meaning of this title:
5 For the purposes of this paragraph, beneficial ownership
6
(1) Any issuer primarily engaged, directly or through
6 by n company shall be deemed to be beneficial ownership
7 wholly-owned subsidiaries, in n business or businesses other
7 by one person: except that, if such company is an affiliated
8. than that of investing, reinvesting. or trading in socurities.
8 company of the issuer, the beneficial ownership shall be
9
(2) Any issuer which the Commission, upon application
9 deemed to be that of the Irolders of such affiliated company's
10 by such issuer. finds and by order declares to be primarily
10 outstanding securities (other than short-term paper).
11 enguged, directly or through majority-owned subsidiaries, in
11
(2) Any person substantially all of whose gross income
12 a business or businesses other than that of investing, rein-
12 from securities and securities transactions is derived from
13 vesting, or trading in securities. The filing of an application
13 acting ns broker and from the distribution of securities issued
14 under this paragraph by an issuer other than n registered
14 by other persons.
15 investment company shill exempt the applicant from all pro-
15
(3) Any bank or insurance company: any common
16 visions of this title for a period of sixty days. For cause
16 trust fund. as defined in section 169 of the Revenue An of
17 shown, the Commission by order may extend such period of
17 1938: any saving> and loan association substantially all the
18 exemption for an additional period or periods. Whenever the
18 business of which is confined to the making of loans to mem-
19 Commission, upon its own motion or upon application, finds
19 bers: or my person engaged exclusively in the business of
20 that the circumstances which gave rise to the issuance of an
20 making small loans and licensed under the laws of IL State
21 order granting an application under this paragraph no longer
21 to engage in such business.
22 exist, the Commission shall by order revoke such order.
22
(4) Any company effectively registered 13 il holding
23
23 company under the Public Utility Holding Company Act
(c) Notwithstanding subsections (a) and (b), none
24 of the following persons is an investment company within
24 of 1935.
25
(5) Any company, other than a face-amount certificate
25 the meaning of this title:
page 6, Inser between lines 22 and 23
which (other then mhort-term paper) are directly or indirectly
(3) Any Issuer ell the outstanding securities of
arned by a company excepted from the definition of investment
company by paragraph (1) or (3) of this subsection.
Regraded Uclassified
8
9
I
company, substantially all the intangible assets of which
1
(2) "Unit investment trust" means an investment com-
2 consist of mortgages and other liens on real estate.
2 pany which (A) is organized under as trust indenture.
3
(6) Any person substantially all of whose business con-
3 contract of enstodianship or agency, or similar instrument.
4 sists of owning OF bolding oil, gns, or other mineral royalties
4 (B) does not have a board of directors. and (C) issues
5 (1)" Jeuses, or fractional interests therein, or certificates of
5 only redeemable securities. each of which represents an IIII-
6 interest or participation in or investment contracts relative to
6 divided interest in it unit of specified securities; but does not
7. sneh royalties, lenses, or fractional interests.
7. include a voting trust. or any trust which issues and has
00
(7) Any company organized and operated exclusively
8 outstanding no securities other than short-term paper and
9 for religious, educational, benevolent, fraternal, charitable,
9 periodic payment plan certificates.
TO or reformatory purposes, no part of the net earnings of which
10
(3) "Management investment company" means any
11 intures to the benefit of any private shareholder or individual.
11 investment company other than a Ince-monnt certificate
12
(8) Any voting trust the assets of which consist exclu-
12 company, B unit investment trust, or is company which issues
13 sively of securities of a single issuer which is not an invest-
13 and has outstanding no securities other than short-term
14 ment company.
14 paper and periodic payment plan certificates.
15
(9) Any security Irolders' protective committee or
15
SUBCLASSIFICATION OF MANAGEMENT INVESTMENT
16 similar issuer having outstanding and issuing no securities
16
COMPANIES
17 other than certificates of deposit and commercial paper.
17
Sec. 5. (a) For the purposes of this titlo, management
18
CLASSIFICATION OF INVESTMENT COMPANIES
18 investment companies are divided. according to the securities
19
SEC. 4. For the purposes of this title, investment com-
19 which they issue, into open-end and closed-end management
20 panies are divided into three principal classes, defined as
20 investment companies, defined ne follows:
21 follows:
21
(1) "Open-end numagement investment company"
22
22 means a management investment company which is offering
(1) "Face-atnount certificate company" means an in-
23 for sale or line outstanding any redeemable security of which
23 yestment company which is engaged in the business of issuing
24 it is the issuer.
24 face-amount certificates, or which has been engaged in such
25
25
(2) "Closed-end management investment company"
business and has any such certificate outstanding.
Regraded Jclassified
10
11
1 means any management investment company other than an
1 ment investment company. other than it diversified invest-
2 open-end umagement investment company.
2 ment company, which meets the requirements of subpara-
3
(b) Management investment companies are further di-
3 graphs (A) and (B) of paragraph (1).
10, insert to place of Lines 4, 8, and 6
4
(8) "Securities finance company" means any manage-
video, according to the character of their assets, their Invest-
nont policy and capital structure, into diversified Investment com-
5 ment investment company other than a diversified invest-
pantes, securities trading companies, and securities finance comps-
6 roent company or securities trading company.
7 nies, defined as follows:
7
(e) A registered diversified investment or securities
8
(1) "Diversified investment company" masns a man-
8 trading company which at the time of its registration meets
9 agement investment company which meets the following
9 the requirements of subparagraphs (M) and (B) of para-
to requirements:
10 graph (1) of subsection (li) shall not lisse its status as 46
11
(A) the value of its investment in the securities of
11 diversified investment or securities trading company because
12
)
any one issuer (other than Government securities) does
12 of any subsequent discrepancy between the value of its vari-
13
not exceed 5 per centum of the value of its total assets:
13 ous investments and the requirements of said subparagraphs,
14
(B) at lenst 85 per centun of the value of its total
14 so long as any such discrepancy existing immuediately after
15
assets is represented by cash items, by Government
15 its acquisition of any security or other property is neither
16
securities. and by marketable securities of issuers of
16 wholly or partly the result of such nequisition.
17
which it does not own more than 5 per centum of any
17
(d) The Commission stall have authority, by rules and
IS
class of securities outstanding:
18 regulations in the public interest or for the protection of in-
19
(C) its portfolio turn-over during its last fiscal year
19 vestors, to make further classifications and subelassifications
20
did not exceed 150 per centinn:
20 of investment companies according to organization, capital
21
(D) it has outstanding only one class of securities
21 structure, nature of assets, amount of nssets, investment
22
other than short-term paper: and
21 policy, character of business done, or any one or more other
LE
(E) it does not control or own any voting security
23 characteristics which the Commission deems significant and
24
issued by any other investment company.
24 which are consistent with the definitions contained in this
is
(2) "Securities trading company" means any manage-
25 section and section 4.
Regraded Uclassified
12
13
I
EXEMPTIONS
1 which it is the issuer, except short-term paper and ordinary
2
Sic. 6. (a) The following investment companies are
2 receiver's or trustee's certificates.
3 exempt from every provision of this title except section 7
3
(b) Upon application hy any employees' securities com-
4 (d)
4 pany, the Commission shall by order exenrpt such company
6
(1) Any company not organized under the laws of the
5 from the provisions of this title and of the rules and regulations
6 United States or of a State.
6 hereunder, if and to the extent that it finds such exemption
7
(2) Any company organized under the laws of and
7 consistent with the protection of investors. In determining
8 having its principal office and place of business in Alaska,
8 the provisions to which such an order of exemption shall
9 Hawaii, Puerto Rico, the Philippine Islands, the Canal Zone,
9 apply, the Commission shall give due weight, among other
10 the Virgin Islands, or any other possession of the United
10 things, to the form of organization and the capital structure
11 States: but such exemption shall terminate if any security of
11 of such company, the persons by whom its voting securities,
12 which such company is the issuer is offered for sale or sold,
12 evidences of indebtedness, and other securities are owned,
13 after the effective date of this title, by such company or an
13 controlled, and held, the prices at which securities issued by
14 underwriter therefor, to 11 resident of any State other than
14 such company are sold and the sales load thereon, the dispo-
15 the State in which such company is organized.
15 sition of the proceeds of such sales, the character of the secu-
16
(3) Any company for which, in a proceeding in any
16 rities in which such proceeds are invested. and any relation-
17 court of the United States or of 21. State, a receiver, trustee in
17 ship between such company and the issuer of any such
18 bankruptoy, or similar officer bad been appointed or elected
18 security.
19 prior to the effective date of this title, and every such officer
19
(c) The Commission, by rules and regulations upon its
20 so appointed or elected prior to the effective date of this title:
20 own motion, or by order upon application. may conditionally
21 but such exemption shall continue only so long as (A) the
21 or unconditionally exempt any person, security, or transac-
22 conduct of such company's business remains subject to the
22 tion, or any class or classes of persons, securities, or trans-
23 supervision of such court or officer thereof, and (B) such
23 actions, from any provision or provisions of this title or of
24 company does not sell exclusively for cash any security of
24 any rule or regulation thereunder, if and to the extent that
Regraded Uclassified
14
15
1 the Commission finds such exemption necessary or appro-
1
interest, having reason to believe that such security or
2 priate in the public interest and consistent with the protection
2
interest will be made the subject of a public offering
3 of investors.
3
by use of the mails or any means or instrumentality
4
(d) If, in connection with any rule, regulation, or order
4
of interstate commerce:
5 under this section exempting any investment company from
5
(2) purchase, redeem, retire, or otherwise noquire
6 any provision of section 7. the Commission deems it neces-
6
or attempt to acquire, by use of the mails or any means
7 sary or appropriate in the public interest or for the protec-
7
or instrumentality of interstate commerce, my security
8 tion of investors that certain specified provisions of this
8
or any interest in a security, whether the issuer of such
9 title pertaining to registered investment companies shall be
9
security is such investment company or another person:
10 applicable in respect of such company, the provisions so
10
(3) control any investment company which does
11 specified shall apply to such company, and to other persons
11
any of the acts emmerated in paragraphs (1) and (2)
12 in their transactions and relations with such company, as
12
(4) engage in any business in interstate commerce:
13 though such company were a registered investment company.
13
or
14
TRANSACTIONS BY UNREGISTERED INVESTMENT
14
(5) control any company which is engaged in any
15
COMPANIES
15
business in interstate commerce.
16
SEC. 7. (a) No management investment company or
16 The provisions of this subsection shall not apply to trans-
17 face-ainount certificate company, miless exempted from the
17 actions of an investment company which are merely inci-
18 provisions of this subsection pursuant to section 6 or effec-
18 dental to its dissolution.
19 tively registered under section 8, shull directly or indirectly-
19
(b) No depositor or trusteee of or underwriter (or a
20
(1) offer for sale, sell, or deliver after sale, by
20 uuit investment trust, unless such trust is exempted from
21
the use of the mails or any means or instrumentality
21 the provisions of this subsection pursuant to section 6 or
IS
of interstate commerce, any security or any interest in
22 effectively registered under section 8, shall directly or in-
23
a security. whether the issuer of such security is such
23
directly-
24
investment company or another person; or offer for
24
(1) offer for sale, sell, or deliver after sale, by use of
25
sale, sell, or deliver after sale any such security or
25
the mails or any means or instrumentality of interstate
Regraded Uclassified
16
17
I
commerce, any security or any interest in a security of
1 commerce, directly or indirectly, to offer for sale, sell, OF
2
which such trust is the issuer; or offer for sale, sell, or
2 deliver after sale, in connection with a public offering, any
a
deliver after sale any such security or interest, having
8 security of which such company is the issuer.
4
reason to believe that such security or interest will be
4
REGISTRATION OF INVESTMENT COMPANIES
made the subject of a public offering by use of the mails
=
SEC. 8. (a) Any investment company organized under
di
or any means or instrumentality of interstate commerce:
6 the laws of the United States or of a State may register for
7
(2) purchase, redeem, or otherwise acquire or at-
7 the purposes of this title by filing with the Commission a
H
tempt to acquire, by use of the mails or any means or
N notification of registration, in such form na the Commission
9
instrumentality of interstate commerce, any security or
1) may by rules and regulations prescribe as necessary or
10
any interest in a security of which such Trust is the
TO appropriate in the public interest or for the protection of
11
issuer; or
11 investors. An investment company shall be deemed to be
12
(3) sell or purchase for the account of such trust,
12 registered upon receipt by the Commission of such notifi-
13
by use of the mails or any means or instrumentality of
13 eation of registration.
14
interstate commerce, any security or interest in a security,
14
(b) It shall be the daty of every registered investment
15
by whomever issued.
15 company to file with the Commission, within such reason-
16
(e) No promoter of a proposed investment company,
16 able time after registration as the Commission stall fix by
17 and no underwriter for such a promoter, shall make use of the
17 rules and regulations or order, an original and such copies
18 mails or any means or instrumentality of interstate commerce,
18 of a registration statement. in such form and containing
19 directly or indirectly, to offer for sale, sull, or deliver after
19 such of the following information and documents, as the
20 sale, in connection with a public offering, any preorganization
20 Commission shall by rules and regulations or order prescribe
21 certificate or subscription for such 11 company.
21 as necessary OF appropriate in the public interest or for the
22
(d) No investment company, unless organized under
22 protection of investors:
23 the laws of the United States or of a State, and no under-
23
(1) 11 description of the investment and manage-
24 writer for a company otherwise organized, shall make use
24
ment policies and of the business done and to be dow
25 of the mails or any means or instrumentality of interstate
25
by the registrant, including Il designation of-
J. 215852-2
Regraded Jclassified
18
19
I
(A) the class and subclasses of investment
I which has filed a registration statement under the Securities
2
company, as defined in or pursuant to sections 4.
2 Act of 1933 or the Securities Exchange Act of 1934, which
3
and 5, within which the registrant falls and within
a registration statement is currently effective, may file-
4
which the registrant proposes to operate in the
-
(1) such copies of such registration statement or
future:
portions thereof, and such copies of reports theretofore
G
(B) the activities other than investment in
G
filed by the registrant pursuant to section 13 or 15 (d)
7
which the registrant is engaged and proposes to
7
of the Securities Exchange Act of 1934, as the Com-
8
engage. such as trading, underwriting, neting
H
mission shall designate by rules and regulations or order:
9
investment adviser, and participating in or influ-
9
and
10
encing the management of companies outstanding
10
(2) " report containing such current information
11
securities of which are held by the registrant: and
11
and documents, regarding the matters included in such
12
(e) the elmaraeteristies, amounts, and relative
12
registration statement and reports, as the Commission
13
amounts of securities and other assets which the
13
shall prescribe by rules and regulations or order as neces-
14
registrant has required and proposes to acquire in
14
sary or appropriate in the public interest or for the
to
the course of its business:
15
protection of investors.
16
(2) the information and documents which would
16
(d) Whenever the Commission. on its own motion or
17
be required to be filed in order to register under the
17 upon application, finds that a registered investment company
18
Securities Act of 1938 all securities which the registrant
18 has censed to be nn investment company, it shall so declare
19
is authorized to issue: and
19 by order and upon the taking effect of such order the regis-
20
(3) additional pertinent information and documents
20 tration of such company shall, upon such terms and condi-
21
regarding the registrant, affiliated persons thereof. and
21 tions as the Commission finds and in such order prescribes
22
underwriters therefor.
22 ns necessary for the protection of investors, cease to be in
23
(e) In lieu of filing information and doeuments required
23 effect. The Commission's denial of any application under
24 pursuant to paragraph (2) of subsection (b), any registrant
24 this subsection shall be by order.
Regraded Uclassified
20
21
1 REGISTRATION OF CERTAIN AFFILIATED PERSONS AND
1 an officer. director, minager, investment adviser, depositor.
10
UNDERWRITERS
2 principal underwriter, distributor, or salesman may be reg-
3
Sec. 9. (a) It shall be unlawful for any person, unless
X istered under this section by filing with the Commission an
4 registered under this section, to serve or net in any of the
4 application for registration. Such application shall contain
5 following capacities for a period exceeding sixty days:
5 such information and documents, in such form and such de-
6
(1) as officer, director, manager, or investment
6 tail, as to such person and affiliated persons of such person
7
adviser of or for a registered management investment
7 as the Commission may by rules and regulations prescribe ns
8
company or registered face-amount certificate company:
8. necessary or appropriate to effectuate the purposes of this
9
(2) as depositor, manager, or investment adviser
9 title. Except as hereinafter provided, such registration shall
10
of or for 11. registered unit investment trust:
10 become effective thirty days after receipt of such application
11
(3) as principal underwriter for a registered open-
11 by the Conunission, or within such shorter period of time as
12
end management investment company, registered unit
12 the Commission may determine. Any amendment of an "P
13
investment trust. or registered face-ainount certificate
13 plication filed not more than fifteen days after the filing of
14
company; or
14 such application shall be deemed to have been filed with and
15
(4) as n distributor who tunkes use of the mails
15 as a part of such application. Any amendment of an applica-
16
or any means or instrumentality of interstate commerce
16 tion filed more than fifteen days after the filing of such ap-
17
to engage in the business of selling periodic payment
17 plication shall be deemed It new application incorporating by
18
plan certificates, or as H salesman for such IL distributor.
18 reference the unamended items of the earlier application.
19
(b) Any person whose registration under this section
19
(d) The Commission shall by order deny registration
20 is required solely because such person is an investment
20
to, or revoke or suspend the registration of, an applicant
21 adviser for o registered investment company shall be deemed
21 under this section, if the Commission finds that such denial,
a
registered under this section so long as such person is regis-
22 revocation, or suspension is in the public interest and that-
23
tored under section 204 of title II of this Act.
23
(1) the applicant, within ten years of the issuance
24
(e) Any of the persons cummerated in subsection (a).
24
of such order, bas been convicted of any felony or mis-
25
and any person who presently contemplates becoming such
25
demeanor involving the purchase or sale of any security
Regraded Uclassified
23
22
I
AFFILIATIONS INVOLVING CONFLICTS OF INTEREST
1
or arising ont of the applicant's conduct as AB under-
2
SEC. 10. (a) After one year from the effective
es
writer, broker, dealer, or investment adviser, or ns nn
3 date of this title, no registered investment company
3
affiliated person, salesman, or employee of any invest-
4 shall have a board of directors or an executive com-
1
ment company, bank, or insurance company;
5 mittee more than a minority of the members of which
6 consists of --
5
(2) the applicant. at the time of the issuance of
7
(1) affiliated persons of any one company
A
such order, is permanently or temporarily onjoined by
B
other than such registered company: or
T
order, judgment, or decree of any court of competent
e
(2) persons who regularly act as manager,
8
jurisdiction from neting ns an underwriter. broker, dealer.
10
investment adviser, broker, or principal under-
or investment adviser, or as All affiliated person, sales-
11
writer of or for such registered company, or
10
main, or employee of any investment company, bank.
12
affiliated persons of such persons.
11
or insurance company. or from engaging in or contin-
13
(b) Notwithstanding subsection (a), more than @
12
uing any conduct or practice in connection with any
14 minority of the members of such e. board or committee
13
15 may consist of persons whose only common affiliation
such netivity or in connection with the purchase OF sale
14
16 (except with such registered company) 1s with --
of any security:
17
(1) en investment company in the same in-
15
(5) the application. as amended, outs any material
18
vestment company system with such registered
16
fact required to be stated therein; or
19
company;
17
(4) the applicant has willfully violated section
20
(2) BA bank, if each such person was a member
18
34 (b). of this title. or that portion of section 20% of
21
of such board or committee on the effective date
19
title If of this Act which incorporates the provisions
22
of this title; or
20
of said section 34 (b).
23
(3) an investment adviser registered under
21
(e) The contriencement of n proceeding to deny regis-
24
section 204 of title II of this Act, If (A) such
22 tration under this section shall operate to postpone the
25
investment adviser is engaged in no business
29 effective date of registration pending final determination of
26
other than that of an investment adviser; (B) the
24 such proceeding.
27
sales load on securities issued by such registered
28
company does not exceed 1 per centum of the price
29
to the public; (c) such registered company has no
30
was not a
24
1
manager other than such investment adviser, and
25
2
such investment adviser does not receive a manage-
1
director or officer of such registered company on the
3
ment fee exceeding one-half of 1 per centum per ennum
2
effective date of this title;
4
of the value of such company's net assets averaged
3
(3) any person who regularly nets us broker for
5
over the year or taken as of B. definite date
4
such registered company:
6
within the year; (D) all expenses of such regis-
5
(4) if such registered company is an open-end
?
tered company, excepting only taxes and brokerage
6
management investment company, any principal under-
8
expenses, are paid by such investment adviser; and
7
writer therefor; or
9
(E) at loast one-third of the members of the board
8
(5) any attiliated person of any of the foregoing.
10
of directors and of the executive committee of
11
such registered company are persons other than
9 No provision of this subsection shall be construed to prohibit
12
such investment adviser or affiliated persons of
10 a person from serving or noting as investment officer,
13
such investment advisor.
11 manager. broker, or principal underwriter of or for (II) invest-
14
(c) After one year from the effective date of thi
I2 ment company. merely because such person, though not A
15 title, no registered investment company shall have as
13 nameger of any other investment company, is an investment
16 director any person who 1s an investment banker, a
14 adviser of mother =nch company,
17 broker, or an affiliated person of an investment banker
15
(e) After one year from the offective date of this citle.
18 or broker, if such person 1s a director, officer, or
16 it shall be unlawful for my director of officer of a registered
19 manager of an investment company which is not in the
17 investment company to serve or act no director or officer of
20 same investment company system with such registered
18 an issuer any outstanding security of which is owned by such
21 company.
19 registered company, if-
22
(d) After one year from the effective date of
20
(1) such registered company owns less than 5 per
23 this title, it shall be unlawful for any of the follow-
21
centure of the outstunding voting securities of such is-
24 ing persons to serve or act 8.8 investment officer or
22
25 manager of A registered investment company:
suer: OF
26
(1) any officer or manager of an investment
23
(2) such director or officer is an investment banker,
27
company which 18 not in the some investment con-
24
IL broker. of an affiliated person of all investment banker
28
pany system with such registered company;
25
or broker.
29
(2) any director or officer of a bank who
Regraded Uclassified
26
27
1
(f) It shall be unlawful for any director or officer of a
1 n board of directors, the provisions of this section, instead
2 registered investment company, or my investment banker
2 of applying to such company and affiliated persons thereof,
3 OF broker of which such a director or officer is an affiliated
3 shall apply, respectively, to every depositor or inanager of
4 person, to serve or net ns principal underwriter for any issuer
4 such company and to affiliated persons of such depositor OF
5 of which such registered company owns more than one-half
5 manager.
6 of I per centinn of any class of securities outstanding.
6
RECURRENT PROMOTION OF INVESTMENT COMPANIES
7
(g) No registered investment company shall purchase
7
SEC. 11. (*) It shall be unlawful for any promoter of
8 or otherwise acquire any security a principal underwriter of
8 a registered investment company organized on or after March
9 which is a director. officer. or manager of such company, or
9 1, 1940, to serve or not ne director, officer, manager, invests
10 is an investment banker or broker of which such a director.
10 ment adviser. depositor, trustee, or principal underwriter of
11 officer, or inanager is nn affiliated person. unless-
11 or for such company, if within five years such person. or any
12
(1) in nequiring such security such registered com-
12 company of which such person was then IIII affiliated person.
13
pany is itself acting Its n principal underwriter for the
13 has been a promoter of another investment company.
14
issuer: or
14
(b) It shall be unlawful for any promoter of a regis-
15
(2) such security was first offered to the public by
15 tered investment company organized on or after March 1,
16
the issuer or by or through an underwriter more than
16 1940, to serve or act as investment advisor of or principal
17
one year prior to such acquisition.
17 underwriter for such company if at the same time such per
18
(h) Any reciprocal arrangement for the purpose of
18 son, or any company of which suele person is an affiliated
19
evading the provisions of subsection (d) or (f) shall be
19 person, is serving or neting as officer, manager. investment
20 deemed as violation of this title by the persons concerned,
20 adviser, depositor. or principal underwriter of OF for another
21 and if such arraugement is known to the registered invest-
21 registered investment company.
22
22 neut company concerned. Il violation of this title by such
(c) No registered investment company (other than n.
23 face-amount certificate company) shall issue ony security
23 company.
24
24 (other than short-term paper) representing nn interest in
(i) In the case of a registered management investment
25 or claim against only a class of the issuer's nesets, unléss such
25 company which is an unincorporated company not having
Regraded Uclassified
28
29
1 class of assets was created, and securities representing interests
1
(2) to participate on a joint or a joint and several
2 exclusively in or claims exclusively against such class were
2
basis in any trading necount in securities:
3 offered and sold to the public prior to March 1, 1940.
3
(8) to effect a short sale of any security, in con-
4
(d) Upon application by 11. registered investment com-
4
travention of such rules and regulations as the Comunis-
5 pany, or by a promoter of a registered investment company
5
sion may prescribe ne necessary or appropriate in the
G or of et proposed investment company, the Commission shall
6
public interest or for the protection of investors; or
T by order conditionally or unconditionally exempt such com-
7
(4) to and as a denter in or distributor of securities
S pany or promoter from a provision or provisions of this
H
of which it is the issuer, in contravention of sach rules
9 section, if the Commission finds that such exemption is
9
and regulations na the Commission may prescribe ax
10 consistent with the purposes of this title. In considering
10
necessary or appropriate in the public interest or for
11 such application the Commission shall give due weight to
11
the protection of investors.
12 the organization and practices of the company concerned. the
12
(b) It shall he unlawful for my diversified investment
13 history and practices of any promoter concerned, the history
13 company to act as underwriter, whenever the amount of its
14 and practices of the investment companies with which such
14 outstanding underwriting commitments, plus the valite of its
15 promoter has been associated, and the possibility that the
15 investments in securities other than marketable securities
16 granting of such application will subject such company or
16 and in securities of issuers of which it owns more than 5.
17 promoter to conflicting duties or interests.
17 per centum of any class of securities outstanding. exceeds
18 FUNCTIONS OF INVESTMENT COMPANIES; FORMATION OF
18 15 per centuin of the value of its total assets.
19
INVESTMENT COMPANY SYSTEMS
19
(e) It shall be unlawful for any registered investment
20
SEC. 12. (a) It shall be unlawful for any registered
20 company to purchase or otherwise acquire any security issued
21 investment company-
21 by, or any other interest in the business of-
23
(1) to purchase any security on margin or credit
22
(1) any other investment company, except (A) in
23
23
connection with n plan of reorganization or offer of
(except such short-term credits, necessary for the clear-
24
ance of transactions, as the Commission may designate
24
exchange for which IL declaration is effective under -sec-
25
by rules and regulations or order) :
25
tion 25, or (B) with the proceeds of payments on
Regraded Uclassified
30
31
I
periodic payment plan certificates, pursuant to the terms
1 tration statements and reports filed under this title and in
of the trust indenture under which such certificates are
2 their reports to security holders, to the history of their invest-
N
issued; or
3 ment and managerial policies, and to their financial condition.
(2) any person who is a broker, dealer, under-
1
SIZE OF INVESTMENT COMPANIES
3
writer, manager, or investment adviser, unless (A) such
5
SEC. 14. (a) No registered investment company or prin-
G
person is a corporation all of the outstanding securities
6 cipal underwriter therefor shall sell any security of which
7
of which (other than short-term paper) are, or after
7 such company is the issuer (other than short-term paper),
8
such acquisition will be, owned by such registered com-
H il such company has, or upon completing such sale will have.
9
pany; and (B) the business of such person is confined to
9 total assets the value of which exceeds the following maxima:
10
activities in which such registered company itself may
10
(1) if such company is is diversified investment
11
lawfully engage.
11.
company or n unit investment trust, $150,000,000
12
CHANGES IN INVESTMENT POLICY
12
(2) if such company is Il securities trading or seen-
13
SEC. 13. (a) No registered diversified investment com-
13
rities finance company. $75,000,000:
It pany shall become a securities trading company or securities
14
(3) if such company is n face-amount certificate
K finance company, unless such change is authorized by the
15
company. $200,000,000.
16
vote of a majority of its outstanding voting securities.
16
(b) The provisions of subsection (n) shall not apply
17
(b) No registered investment company shall change any
17
to
18 (undamental investment or immagement policy unless each
18
(1) the sale of il security by an open-end numage-
19 such change is authorized by the vote of n majority of its
19
ment investment company. if the proceeds received by
20 outstanding voting securities, The Commission, by rules and
20
the issuer from all such sales during the fisent quarter
21 regulations or order. shall designate those investment and
21
within which such sale is made do not exceed such
22 ronnagement policies which are fundamental. giving due
22
issuer's total disbursements for redemptions during the
It weight, among other things, to the representations made in
23
same fiscal quarter: or
24 selling the outstanding securities of the company or com-
24
(2) a sale nade pursuant to an offer required by
25
panies concerned, to the representations made in their regis-
Regraded Uclassified
33
32
1 COMPENSATION OF MANAGEMENT; MANAGEMENT AND
1
any rule, regulation or order of the Commission under
2
UNDERWBITING CONTRACTS
(2)
If
paragraph In of section 19 (n).
3
SEC. 15. (a) After one year from the effective date of
3
(c) No person who regularly serves or acts as manager
4 this title, it shall be unlawful for any person regularly to
1 or investment advisor of a registered investment company,
5 serve or act as officer, director, manager, investment adviser,
5 and no inflilinted person of such a person, shall enter into,
6 or employee of any registered investment company, unless
6 renew. or consent to the renewal of, any contract to receive
7 such person's compensation from such company is deter-
7
remuneration for serving or acting us manager or investment
8 mined on one or more of the following bases, and no other:
9
8
adviser of another investment company, if the value of the
(1) n. definite sum of money per year, month, or
10
D
combined total assets of such companies exceeds the fot-
other definite period;
11
10 lowing maxima:
(2) a sum of money representing a definite per-
12
11
(1) if either of such companies is II securities trad-
centage of such company's income from interest and
13
12
dividends during a definite period: or
ing or securities finance company, $75,000,000;
13
14
(3) a sum of money representing n definite per-
(2) if both such companies are face-atoount cer-
15
centage of the value of the net assets of such company BE
14
tificate companies, $200,000,000;
16
of a definite date or averaged over II definite period.
13
(3) under my eircumstances other than those described
17
(b) After one year from the effective date of this
16
in paragraphs (1) und (2). $150,000,000.
18 title it shall be unlawful for any person regularly to serve
17
(d) No registered investment company organized after
19 or act as manager or investment adviser of a registered
18 March 1, 1940, and no principal underwriter for such a
20 investment company, except pursuant to a written contract
19 company. shall make a public offering of securities of which
21 with such company, approved by the vote of n. majority
20 such company is the issuer, unless-
22 of the outstanding voting securities of such company, which
21
(1) such company has a net worth of at least
23 contract-
22
$100,000: or
24
(1) precisely describes all compensation to be
23
(2) such company has previously made a public
25
paid thereunder;
24
offering of its securities, and at the time of such offering
J.215852-8
25
had a net worth of at least $100,000.
Regraded Uclassified
34
35
1
(2) by its terms expires not later than two years
1
of directors or of the security holders of such registered
2
from the date of its execution, and is renewable there-
2
company; and
3
after only by the specific approval annually of the board
8
(2) provides, in substance, for its automatic ter-
4
of directors or the security holders of such registered
4
mination in the event of its assignment or attempted
5
company;
5
assignment by such underwriter.
6
(3) provides, in substance, that it may be termi-
6
(d) It shall be unlawful for any registered investment
7
nated at any time, without the payment of any penalty,
7 company having a board of directors to enter into or perform
8
by the board of directors of such registered company
8 any contract or agreement, written or oral, whereby a person
9
or by voté of a majority of the outstanding voting seen-
9 undertakes regularly to serve or act as manager, investment
10
rities of such company on not more than sixty days'
10 adviser, underwriter, or broker for such company, unless the
11
written notice to the manager or investment adviser; and
11 terms of such contract or agreement have been approved by
12
(4) provides, in substance, for its automatic ter-
12 a majority of such directors, exclusive of any director who
13
mination in the event of its assignment or attempted
13 is himself a party to such contract or agreement or who is
14
assignment by the manager or investment adviser.
14 an affiliated person of such n party.
15
(c) After one year from the effective date of this title,
15
(e) If any registered investment company, or any com-
16 it shall be unlawful for any principal underwriter for a regis-
16 pany controlled by or under common control with such IL
17 tered open-end management investment company or regis-
17 company, is serving or neting, or proposes to serve or net,
18 tered unit investment trust to offer for sale, sell, or deliver
18 as manager or investment adviser of another company or
19 after sale any security of which such company is the issuer,
19 companies in the same investment company system with
20 except pursuant to a written contract with such company
20 such registered company, the Commission shall require, by
21 which-
21 such rules and regulations or orders as it finds necessary or
22
(1) by its terms expires not later than one year
22 appropriate in the public interest or for the protection of
23
from the date of its execution, and is renewable there-
23 investors, that such manager or investment adviser serve such
24
after only by the specific approval annually of the board
24 other company or companies at cost, and that such cost be
Regraded Uclassified
36
37
1 equitably allocated between and among such registered com-
1
company or any affiliated company thereof any security
2 pany and such other company or companies.
2
or other property (except securities of which the sellar
3
CHANGES IN BOARD OF DIRECTORS
3
is the issuer) :
4
SEC. 16. No person shall serve as director of a regis-
&
(3) to borrow money or other property from such
5 tored investment company unless elected to that office by
5
registered company or an affiliated company thereof
6 the holders of the outstanding voting securities of such com-
6
(unless the borrower is controlled by the lender) ; or
7 pany, at the annual or a special meeting of such security
7
(4) to effect any transaction in which such regis-
8 bolders duly called for that purpose; except that vacancies
8
tored company or an affiliated company thereof is a joint
9 occurring between sneh meetings, not exceeding in the
9
or a joint and several participant with such person, under-
10 aggregate one-third of the whole number of the board of
10
writer, or attiliated person, in contravention of such rules
11 directors, may be filled in any otherwise legal manner.
11
and regulations as the Commission may prescribe for
12 TRANSACTIONS OF CENTAIN AFFILIATED PERSONS AND
12
the purpose of (A) limiting or proventing participation
13
13
UNDERWRITERS
by such company on a basis different from or less nd-
14
SEC. 17, (a) It shall be unlawful for any affiliated
14
vantageous than that of such other participant, and
15 person of or principal underwriter for a registered invest-
15
(B) protecting the independent investment and mana-
16
16 ment company, or any affiliated person of such a person or
gerial judgment of such company.
17 underwriter, acting ns principal-
17,
(b) Notwithstanding subsection (a) a company which
18
18 controls or is controlled by a registered investment company
(1) knowingly to sell any security or other prop-
19
19 or which, with such registered company, is under the com-
erty to such registered company or an affiliated company
20
20 mon control of another company, may file with the Com-
thereof (unless such sale consists solely of (A) the
21
21 mission on application for an order exempting a proposed
redemption of redeemable securities by their issuer, or
22
22 transaction of the applicant from one or more provisions
(B) the deposit of securities with the trustee of IL unit
23
28 of that subsection. The Commission shall grant such appli-
investment trust or periodie payment plan by the de-
24 cation and issue such order of exemption if it finds that-
24
positor thereof)
25
25
(1) the terms of the proposed transaction, includ-
(2) knowingly to purchase from such registered
Regraded Uclassified
38
39
1
ing the consideration to be paid or received, are reason-
1
mission, fee, or other remuneration for effecting such
2
able and fair and do not involve overreaching on the
2
transaction which exceeds the usual and enstomary
3
part of any person concerned;
3
broker's commission for effecting similar transactions
4.
(2) the proposed transaction is consistent with the
4
on a national securities exchange.
5
investment and management policies of each registered
5
(e) Any gross misconduct or gross abuse of trust in
6
investment company concerned as recited in its regis-
6 respect of a registered investment company, on the part of
7.
tration statement and reports filed under this title; and
7 any person registered under section 9 na an affiliated person
8
(3) the proposed transaction is consistent with the
8 of or principal underwriter for such company, shall be
9
purposes of this title.
9 unlawful.
10
(0) Notwithstanding subsection (a), a person may
10
(f) After one year from the effective date of this title,
11 sell merchandise in the ordinary course of business to any
11 it shall be unlawful for the charter, certificate of incorpo-
12 affiliated company of a registered investment company if
13 ration, articles of association, bylaws, or trust indenture of
13 such affiliated company is not itself nn investment company.
13 any registered investment company, for any employment,
14
(d) It shall be unluwful for any affiliated person of a
14 management, underwriting, or brokerage contract or agree-
15 ment to which such a company is a party, or for any other
15 registered investment company, or any affiliated person of
16 such n. person-
TXT
16 instrument pursuant to which such a company is organized
17 or administered, 10 contain any provision which-
17
(1) acting as agent. to accept from any source
18
18
(1) anthorizes, or purports to authorize, the vio-
any compensation (other than 0 regular salary or wages
19
Intion of any provision of this title or of any rule, regil-
19
from such registered company) for the purchase or sale of
20
lation, or order hereunder: or
20
any property to or for such registered company or any
21
(2) relieves, or purports to relieve, any affiliated
21
affiliated company thereof, except in the course of such
22
person of or principal underwriter for such company
22
person's business as an underwriter or broker; or
23
from any duty or liability to such company or the secu-
23
(2) acting as broker, to sell any security to or
24
rity holders thereof to which such person or underwriter
24
for such registered company or any affiliated company
25
would otherwise be subject.
35
thereof, if such person receives from any source a com-
Regraded Uclassified
40
41
1
(g) The Commission is authorized to require, by rules
1
unincorporated company organized prior to March 1.
2 and regulations or order in the public interest or for the pro-
2
1940, is a security having substantially the same inci-
3 tection of investors-
3
dents as the common stock of a corporation:
4
(1) that securities and other investments of a rug-
4
(2) has no preference as to distribution or divi-
5
istered management investment company be placed in
5
dends over any outstanding security of such company:
6
the eustody of D.M. institution having the qualifications re-
6
(3) is a voting security, and has equal voting rights
7
quired by paragraph (1) of section 26 (a) for the
7
with every voting security of such company issued since
8
trustees of unit investment trusts: and
8
the effective date of this title: and
9
(2) that any person or class of persons registered
9
(4) if not is redecmable security, expressly provides
10
under section 9 be required to be bonded by a. reputable
10
that the holder thereof shall be given a reasonable oppor-
11
fidelity insurance company in such minimum amount
11
tunity, with other holders of the company's voting securi-
12
as the Commission may prescribe.
12
ties, to subscribe for and purchase ratably any voting
13
(h) Every person registered under section 9 as a dis-
13
securities which the company may thereafter issue, be-
14
fore such securities are sold to any other person or
14 tributor on periodic payment plan cerrificates shall be subject,
15 in his transactions with the issuer of such certificates, to the
15
persons.
16 If such company is an unincorporated company organized
16 same disties and liabilities as those imposed by this section
17 upon attiliated persons of registered investment companies in
17 prior to March 1, 1940, the Commission shull designate, by
18 rules and regulations or order in the public interest and for
18 their transactions with such companies.
19
19 the protection of investors, those incidents which such secon-
CAPITAL STRUCTURE
20
20 ity must have in order substantially to comply with the
Sec. 18. (a) It shall be unlawful for any registered
21 management investment company to issue my security
21 requirements of this subsection.
22 (other than short-term paper or periodie payment plan cer-
22
(b) The provisions of paragraphs (1) and (2) of sub-
23 section (n) shall not apply to the issuance or sale of is
23 tificates), or to sell any such security of which it is the
24 preferred or special stock if the only other outstanding class
24 issuer, unless such security-
25 of the issner's equity securities consists of du common stock
25
(1) is a commion stock. or if such company is an
Regraded Uclassified
42
43
1 upon which no dividend (other than a liquidating dividend)
1
DIVIDENDS
2 is permitted to be paid and which in the aggregate represents
2
Sec. 19. (a) It shall be unlawful for any registered in-
3 not more than one-half of 1 per centum of the issuer's out-
3 vestment company to declare or pay any dividend, or make
1 standing voting securities.
4 any distribution in the nature of a dividend, wholly or
5
(0) It shall be unlawful for any registered management
5 partly from any source other than such company's aggregate
6 investment company to issue any warrant or right to sub-
6 undistributed net income from interest and dividends, unless-
7 scribe to or purchase n security of which such company is
7
(1) the payment of a dividend from such other
8 the issuer, except-
8
source is either expressly permitted by the charter,
9
(1) in the form of warrants or rights to subscribe
9
certificate of incorporation, or other instrument pursuant
10
expiring not later than one hundred and twenty days
10
to which such company is organized or such payment, not
11
after their issuance and issued exclusively and ratably
11
being prohibited by such instrument, has been approved
12
to a class or classes of such company's security holders:
12
by the vote of a majority of such company's outstanding
13
or
13
voting securities; and
14
(2) in the form of periodic payment plan certifi-
14
(2) the dividend check is accompanied by a written
15
cates.
15
statement, in such form as the Commission may by rules
16
(d) After two years from the effective date of this title,
16
and regulations prescribe, which (A) fully discloses the
17 the Commission shall, upon application by the holder of any
17
source or sources of such dividend, and (B) gives the
18 outstanding security of a registered management investment
18
recipient such reasonable opportunity to invest in securi-
19 company, and may upon its own motion, require by order
19
ties of said company, without the payment of any sales
20 that such company, and every other registered investment
20
load, such substantial portion of said dividend paid out of
21
a source other than net income from interest and divi-
21 company in the same investment company system, take such
22 steps as are necessary or appropriate to effect an equitable
22
dends, as the Commission shall prescribe by rules and
23 redistribution of voting rights and privileges among the
23
regulations or order.
24 holders of the outstanding securities of such company or
24
(b) It shall be unlawful for any registered management
25 investment company to declare or pay a dividend on 9
25 companies.
Regraded Uclassified
44
45
1 security, unless immediately after such payment every class
1 or a lower asset coverage, in no event less than 200 pår
2 of the outstanding serurities of such company senior to the
2 centum.
8 security upon which such dividend is paid has the asset
3
(c) No provision of this section shall apply to it Equi-
é coverage hereinafter prescribed. For the purposes of this
4 dating dividend declared or paid in connection with a plan
5 subsection, the "asset coverage" of a class of outstanding
5 of total or partial liquidation of the company concerned,
6 securities means the ratio which the value of the total assets
6 which plan has been approved by the security holders of
7. of the issuer, as of the end of the period to which the dividend
7 such company in accordance with State law.
8 relates, less its liabilities not evidenced by securities, its lin-
8
PROXIES; VOTING TRUSTS; CIRCULAR OWNERSHIP
9 bilities evidenced by short-term paper and the total liquida-
9
Sec. 20. (n) It shall be unlawful for my person to
10 tion preferences of all ourstanding securities senior to such
10 solicit or to permit the use of his or its name to solicit, by
11 class, bears to the total liquidation preferences of all outstand-
11 use of the mails or any means or instrumentality of inter-
12 ing securities of such class. The prescribed asset coverage
12 state commerce, or otherwise, any proxy, power of attorney,
13 for n class of senior securities other than evidences of indebt-
13 consent, or authorization regarding any security of a regis-
14 edness shall be 200 per centum; but the Commission, by rules
14 tered investment company in contravention of such rules
15 and regulations or order for the protection of investors or to
15 and regulations or orders as the Commission may prescribe
16 preserve the financial integrity of the company or companies
16 for the purpose of insuring to the persons solicited-
17 concerned, may prescribe a higher asset coverage, in no event
17
(1) a form of proxy, power of attorney, consent,
18 exceeding 300 per centum, or a lower asset coverage, in no
18
or authorization which clearly presents the alternative
19 event less than 150 per centum. The prescribed asset cover-
19
choices available to such persons; and
20 age for evidences of indebtedness shall be 300 per contum:
20
(2) information sufficient to permit the exercise
21 but the Commission, by rules and regulations or order for the
21
of an informed judgment in choosing between such
22 protection of investors or to preserve the financial integrity
22
alternatives.
23 of the company or companies concerned, may prescribe a
23
(b) It sholl be unlawful for any registered investment
24 higher asset coverage, in no event exceeding 400 per centum,
24 company or affiliated person thereof. any issuer of a voting
Regraded Uclassified
46
47
I
trust certificate relating to any security of a registered in-
1 or circular ownership exists between a registered investment
2 vestment company, or my underwriter of such a certificate,
2 company and any other company or companies, it shall be
8 by use of the mails or any means or instrumentality of in-
3 the duty of such registered company, within three years after
terstate commerce, or otherwise, to offer for sale, sell, or
4 such effective date, to eliminate such cross-ownership OF
5
deliver after sale, in connection with a public offering, any
5 circular ownership. If nt any time after the effective date
6
such voting trust certificate.
6 of this title cross-ownership or circular ownership between
(c) No registered investment company shall purchase
7 a registered investment company and any other company
8
or otherwise acquire any voting security if. to the knowledge
8 or companies comes into existence, it shall be the duty of
9
of such registered company, cross-ownership or circular
9 such registered company, within one year after it first knows
10 ownership exists, or after such acquisition will exist, between
10 of the existence of such cross-ownership or circular owner-
11 such registered company and the issuer of such security.
11 ship, to eliminate the same.
12 Cross-ownership shall be deemed to exist between two com-
12
LOANS
13 panies when each of such companies beneficially owns more
13
Sec. 21. (a) It shall be unlawful for any registered
14 than 1 per centum of the outstanding voting securities of
14 management investment company to lend money or prop-
15 the other company. Circular ownership shall be deemed
15 erty to any natural person, directly or indirectly.
16 to exist between two companies if such companies are in-
16
(b) It shall be unhawful for any registered manage-
17 cluded within a group of three or more companies, each
17 ment investment company to lend money or property to
18 of which-
18 any company, directly or indirectly, il-
(1) beneficially owns more than 1 per centum of
19
(1) the company receiving the loan is in control
19
20
of or under common control with such registered
20
the outstanding voting securities of one or more other
21
21
company; or
companies of the group; and
22
(2) the investment and management policies of
21
(2) has more than 1 per centum of its own out-
23
such registered company, as recited in its registration
23
standing voting securities beneficially owned by another
24
statements and reports filed under this title, do not spe-
24
company. or by each of two or more other companies,
25
cifically authorize such B. loan.
25
of the group.
26
(d) If on the effective date of this title cross-ownership
Regraded Uclassified
48
49
1
(c) It shall be unlawful for any registered management
1 the Commission shall prescribe by mies and regulations or
2 investment company to borrow money, directly or indirectly,
2 orders, for the purpose of eliminating or reducing to a prac-
3 tiesl minimum any dilntion of or accretion to the corrent asset
3 except-
4
(1) from a company which controls such registered
4 value of any other securities of such company as n conse-
5
5 quence of such sale, redemption, or repurchose.
company:
6
6
(2) from a natural person who is an affiliated
(b) No underwriter or denler, in connection with a
7 primary distribution of redeemable securities of which any
(-)
person of such company: or
8 registered investuent company is the issuer, stall purchase
8
(3) from a barik or other person, for temporary
9 any such security from the issuer or from any underwriter
9
purposes only and in an amount not exceeding 5 per
10 except at the price at which he sells such security, less n.
10
centum of the value of such registered company's total
11 commission or spread allowed him by the person selling to
11
assets.
12 him.
12 A loan shall be presumed to be for temporary purposes if it
13
(e) If at any time the Commission has TERMOD to believe
13 is repaid within sixty days and is not renewed or extended:
14 that any redeemable security is being offered for sale or wild
14 otherwise it shall be presumed not to be for temporary
15 to the public by the issuer or any underwriter nt n. price which
15 purposes. Any such presumption may be rebutted by evi-
16 includes an unconscionable or grossly excessive sales load, the
16 dence. The provisions of this subsection shall not apply to
17 Commission shall emuse to be served upon the issuer (or if
17 the extension or renewal until not Inter than July 1, 1945,
18 the issuer is a unit investment trust, upour its depositor),
18 of any loan made prior to March 1, 1940.
19 and upon every principal underwriter for the issuer. n. notive
19
DISTRIBUTION, REDEMPTION, AND REPURCHASE OF
20 to appear and show exuse why such sales lond should not be
20
REDEEMABLE SECURITIES
21 prohibited. If, after hearing the evidence, the Commission
21
SEC. 22. (a) No registered investment company or
22 finds that the issuer or any principal underwriter therefor is
22 principal underwriter therefor shall sell, redeem, or repur-
23 selling such securities to the public at a price including nn
23 chase any redeemable security of which such a company is
24 unconscionable or grossly excessive sales load, the Commis-
24 the issuer, except at a price bearing such relation to the cur-
25 sion shall order such company, underwriter, or underwriters,
25 rent asset value of such security, computed as of such time, as
J. 215852
Regraded Uclassified
50
51
1 as the case may be, to cease and desist from selling at such
1 and regulations or orders as the Commission may prescribe
2 price. In determining whether a sales load is unconscionable
2 in the public interest or for the protection of investors to
3 or grossly excessive, due weight shall be given to the inci-
a prevent or limit such issuance or sale at a price below the
4 dents, denominations, and selling price of the securities in-
4 current asset volue of the security.
5 volved, to the organization, investment policy, past and pros-
5
(b) No registered closed-end management investment
6 pective earnings, management expenses, and management
6 company shall purchase, vall, or retire any securities of
7 and sales inethods of the issuer, its managers, depositors,
7 which it is the issuer in contravention of such rules and
8 underwriters, and dealers and its and their competitors, and
8 regulations or orders us the Commission may preseribe in
9 to such other factors ns are relevant in the particular pro-
9 the public interest or for the protection of investors to pre-
10 vent such purchase. call, or retirement in IN manner or on a
10 ceeding.
11 basis which unfairly discriminates against any security hold-
11
(d) The Commission is authorized, by rules and regula-
12 ers or any class of the security holders of such registered
12 tions OF order in the public interest or for the protection of
13 investors, to prohibit-
13 company.
14 REGISTRATION OF SECURITIES UNDER SECURITIES ACT
14
(1) the suspension, in whole or in part, of the
OF 1953
15
redemption privileges of any redeemable security of
15
16
Sec. 24. (a) No registered investment company OF
16
which ony registered investment company is the issuer:
17 principal underwriter therefor shall make use of the mails
17
and
18 or any means or instrumentality of interstate commerce,
18
(2) restrictions upon the transferability or nego-
19
tinbility of any redeemable security of which any regis-
19 directly of indirectly, to offer for sale, soll, DE deliver after
20 sale, in connection with a public offering. any security of
20
tered investment company is the issuer.
21 which such company is the issuer (other than short-term
21 DISTRIBUTION AND REPUBCHASE OF SECURITIES: CLOSED-
22 paper), unless such security is effectively registered under
22
END MANAGEMENT INVESTMENT COMPANIES
23 the Securities Act of 19:01. my exemptive provision of said
23
SEC. 23. (a) No registered closed-end management in-
24 Act to the contrary notwithstanding.
24 vestment company shall issue any security, or sell any sech-
25
(b) In registering under the Securities Act of 1933 any
25 rity of which it is the issuer, in contravention of such rules
Regraded Uclassified
52
53
1 security of which it is the issuer, a registered investment
1 ing document OF ns an amendment of such registration
2 company, in lieu of furnishing a registration statement con-
2 statement:
3 taining the information and documents specified in Schedule
3
(1) any registered open-end maniagement invest-
4 A of said Act, may file n registration statement containing
di
ment company:
a the following information and documents:
5
(2) any registered unit investment trust:
6
(1) sueli copies of the registration statement filed
6
(3) the issuer of any periodic-paynent-plan cor-
7
by such company under this title, mid of such periodic
7
tificate: or
8
and special reports filed by such company parsuant to
8
(4) any registered free-amount certificate company.
9
section 30 (a) of this title. or such copies of portions
9
(d) In addition to the powers relative to prospectuses:
10
of such registration statement and reports, as the Com-
10 granted the Commission by section III of the Securities Act
11
mission shall designate by rules and regulations or
11 of 1933, the Commission is authorized and directed to require,
12
order: and
12 by rules and regulations or order, that the information com-
13
(2) such additional information and doruments (in-
13 tained in any prospectits relating to a security registered under
14
cluding a prospectus) as the Commission shall prescribo
14 the Securities Act of 1933 on or after the effective date of
15
by rules and regulations or order as necessary or ap+
15 this title. of which any of the companies enumerated in
16
propriate in the public interest or for the protection of
16 subsection (c) is the issuer. shill be presented in such form
IT
investors.
17 and order of itens. and contain such summaries of any
18
(v) It shall be unlawful for any of the following com-
18 portion of such information, no the Commission deems neces-
19 panies, or for any underwriter for such a company, to
19 sary OF appropriate in the public interest or for the protection
20
employ, in the sale of any security registered under the
20 of investors.
21 Securities Act of 1933 of which such company is the issuer,
21 PLANS OF REORGANIZATION AND DISSOLUTION AND OFFERS
22
22
OF EXCHANGE
any pamphlet, circular, form letter, or other sales literature,
23 unless such literature has been filed with the registration
21
SEC. 25. (a) Except in accordance with " declaration
24 statement of said security under said Aet. 09 an necompany-
24 filed under subsection (c) and no order of the Commission
Regraded Uclassified
54
55
1 permitting such declaration to become effective, it shall be
1 subsection (c) and an order of the Commission permitting
3 unlawful-
2 such declaration to become effective, it shall be unlawful for
a
(1) for any person to solicit or permit the use of
a any registered investment company or principal underwriter
4
his or its name to solicit, by use of the mails or any means
4 therefor to issue or sell for any consideration other than
5
or instrumentality of interstate commerce, or otherwise,
5 cash, any security (other than short-term paper) of which
G
any proxy, consent, authorization, power of attorney,
6 such company is the issuer.
7
ratification, deposit, or dissent in respect of any plan of
7
(e) A declaration regarding any of the ants enunierated
8
reorganization, or of voluntary dissolution or liquidation,
8 in subsections (n) and (b) still be filed with the Coo-
9
or any plan for the restatement of the capital, of a regis-
9 mission in such form. and shall contain such information
10
tered investment company;
10 and documents, as the Commission may by rules and regu-
11
(2) for any person. by use of the mails or ony
11 lations or order preseribe as necessary or appropriate in
12
means or instrumentality of interstate commerce, or
12 the public interest or for the protection of investors. If
13
otherwise, to issue, offer for sale, soll, or deliver after
13 the declaration relates to a reorganization or other plan in
14 which the declarant has no bona fide interest, the Com-
14
sale, pursuant to any such plan, any security or other
15 mission stall by order dismiss such declaration. Unless the
15
property:
16 declaration is so dismissed, or is withdriwn by the declarant.
16
(3) for any person to submit any such plan to any
17 the Commission shall enter nu order either permitting
17
court of the United States for approval: or
18 such declaration to become effective as filed or amended,
18
(4) for any court of the United States to approve
19 or refusing to permit sands declaration to become effective.
19
any such plan.
20 Amendments to 28 declaration may be made upon such terms
20 Provided. That the provisions of this subsection shall not
21 and conditions as the Commission may prescribe.
21 apply to a plan of voluntary dissolution or liquidation of a
22
(d) An order under subsection (c) refusing to permit
22 registered investment company more than 75 per contum
23 a declaration to become effective shall be entered by the
23 of the value of whose assets consist of marketable securities,
24 Commission only if the Commission finds that the plan or
24 Government securities, and cash items.
25 offer of exchange to which the declaration relates-
25
(b) Except in accordance with Я declaration filed under
Regraded Uclassified
561
57
1
(1) is not fair and equitable to all persons and
1
(1) designates a trustee or trustees, each of which
K
classes of persons affected thereby;
21
is an institution incorporated and doing business under
3
(2) in the case of B. plan of reorganization, is not
3
the laws of the United States or of n. State, is authorized
1
feasible: or
4
under such laws to exercise corporate trust powers, is
5
(3) is inconsistent with the purposes of this title.
5
subject to supervision or examination by Federal or State
If
(e) The Commission, by rules and regulations on its (IWD
6
authority, and has a combined enpital and surplus of such
7 motion. OF by order on its own motion or upon application,
7
minimum amount ns the Commission may specify by
8
still conditionally or unconditionally exempt from any pro-
8
rules and regulations or order in the public interest or
9 vision of this fitle or of section 5 of the Securities Act of
9
for the protection of investore;
10 1933 any transaction or class of transactions provided for in
10
(2) provides, in substance, (A) that during the
11 a phan or offer of exchange for which as declaration is effective
11
life of the trust the Truster, if not otherwise renumerated,
12 under this section, if the Commission finds that such exemp-
12
may charge against and collect from the income of the
13 tion is consistent with the public interest and the interest of
13
trust, and from the corpus thereof if no incour is avail-
14 investors, that such transaction or transactions are necessary
14
able, such fees for its services and such reimbursement
15 or appropriate to the effectuation of such plan or offer of 08-
15
for its expenses as are provided for in such instrument:
16 change, and that such plan or offer of exchange will tend
16
(B) that no such charge or collection shall too made
17
17 to effectuate the purposes of this title.
except for services theretofore performed or expenses
18
18
theretofore insurred: (C) that no payment to the de-
UNIT INVESTMENT TRUSTS
19
19
positor of of a principal underwriter for such trust, OF
SRV, 26. (a) No principal underwriter for or depositor
20
to any attiliated person ne agent of such depositor OF
20 of 44 registered unit investment trust shall make use of the
21
underwriter. shall be allowed the trustee as an expense;
21 mails OF any unans or instrunentality of interstate continere,
at
and (1) time the trustee shall have title for and posses-
22 directly or indirectly, to offer for sale, sell, or deliver after
23
sion of all securities and other property in which the
23 sale any security of which such trust is the issner (other than
24
funds of the trust are invested, all tunds held for such
24 short-term paper), unless the trust indenture or other in-
25
investment, all equalization, redemption, and other 1
25 strument pursuant to which such security is issued-
Regraded Uclassified
58
59
1
cial funds of the trust, and all income upon and accre-
1
(2) a successor trastee has been appointed by a
2
tions to such property and funds, and shall segregate
2
court of competent jurisdiction.
3
and hold the same in trust (subject only to the charges
3
(e) It shall be unlawful for my depositor of a registered
4
and collections allowed under classes (A), (B), and
4 unit investment trust voluntarily to resign AR depositor, to
5
(C)) nntil distribution thereof to the security holders
5 make or attempt to make an assignment of any of his or its
6
of the trust; and
6 rights or duties with respect to such trust, to dissolvo or to
7
(3) provides, in substance, (A) that a record will
7 pay any liquidating dividend to its security holders, unless
8
be kept by the depositor or an agent of the depositor of
8 the Commission, upon application by such depositor, finds and
9
the name and address of, and the shares issued by the
9 by order declares that such action by the depositor will not
10
trust and held by, every holder of any security issued
10 substantially prejudice the interest of the security holders
11
pursuant to such instrument, insofar as such information
11 of such trust.
12
is known to the depositor or agent; and (B) that
12
(d) Whenever the Commission has reason to believe
13
whenever n security is deposited with the trustee in
13 that n. unit investment trust is imtetive and that its liquida-
14
substitution for any security in which such security
14 tion is necessary or appropriate in the public interest or for
15
bolder has an undivided interest, the depositor or the
15 the protection of investors, the Commission may file IL come
16
agent of the depositor will, within five days after such
16 plaint seeking the liquidation of such inst in the district
17
substitution, either deliver or mail to such security holder
17 court of the United States in any district wherein any trustee
18
a notice of substitution, including nn identification of
18 of such trust resides or has its principal place of business. A
19
the securities eliminated and the securities substituted,
19 copy of such complaint slindl be served on every trustee of
20
20 such trust. and notice of the proceeding stall he given such
and n specification of the shares of such security holder
21
21 other interested persons in such monner and al such times as
affected by the substitution.
22
22 the court may direct. 11 the court determines that such liqui-
(b) It shall he unlawful for any trustee of a registered
23
23 dation is necessary or appropriate in the public interest of
unit investment trust to resign, unless-
24
24 for the protection of investors, the court shall order such
(1) the Commission, on application by such trus-
25
25 liquidation and after payment of necessary expenses, the
tee, has by order consented to such resignation: or
Regraded Uclassified
60
61
1 distribution of the proceeds to the security holders of the
1
(1) each such certificate is a redeemable security;
2 trust in such nummer and on such terms ax may to the court
2
and
3 appear equitable.
a
(2) the proceeds of all payments on any such cor-
4
PERIODIC PAYMENT PLANS
4
tificate (except such ainounts ns are deducted for sales
5
Sec. 27. (a) It shall be undawful for may person to
5
lond) are deposited with il trnstee having the qualifien-
6 ninke use of the mails or any means or instrumentality of
G
tions required by paragraph (1) of section 26 (a) for
7 interstate commerce to engage in the business of selling
7
the trustées of mit investment trusts, and are held by
8
periodic payment plan certificates, it-
8
such trustee under a trust indenture containing, in sub-
9
9
(1) the sales load on any sneh certificate exceeds 9
stance, the provisions required by paragraph (2) of
10
10
per centum of the total payments to be made thereoi:
section 26 (a) for the trust indentures of unit investment
11
11
(2) more than one-half of any payment during the
trusts.
12
12
first year of the plan is deducted for sales load;
(c) It shall be unlawful for any trustee with which the
13
13
(3) The amount of sales load deducted from any
proceeds of payments on n. periodio payment plan certificate
14
payment during the first year of the plan exceeds the
14 have been deposited to resign, unless-
15
amount deducted from any other payment during such
15
(1) the Commission. on application by such trustee,
16
16
has by order consented to such resignation: or
year, or the anount deducted from my payment during
17
17
(2) a successor trustee has been appointed by is
the subsequent years of the plan exceeds the amount
18
18
court of competent jurisdiction.
deducted from any other payment during such years; or
19
FACE-AMOUNT CERTIFICATE COMPANIES
19
(4) either of the first two payments on any such
20
Sec. 28. (a) It shall be unlawful for any registered face-
20
cortificate is less than 820, or any subsequent payment
21
21 amount certificate company to issue of will any face-nmont
is less than 810,
23 certificate, or to collect or accept any payment on any such
If
(b) li shall be unlawful for any person, by TEST of the
23 certificate issued by such company on or after the effective
23 units or any means or instrumantality of interstate com-
24 merve, to engage in the business of selling periodic payment
24 date of this title, unless-
25 plan certificates, miss-
25
(1) capital stock of sneh company in an amount
Regraded Uclassified
62
C
63
1
not less than $250,000 has been bonn fide subscribed
1
rate of 31 per centum per annum, compounded ati-
2
and paid for in cash; and
2
nually, on such portions of all past payments OIL,
3
(2) such company maintains minimom certificate
a
and such portions of profits credited to, any such
4
reserves on all its issued and outstanding face-amount
A
certificate: and
5
certificates in an aggregate amount calculated and ad-
à
(E) such appropriate reserves for contingencies
6
justed ns follows:
6
for death and disability benefits, on any such cer-
7
(A) out of each payment required to be made
T
tificate providing for such benefits, as the Commis-
8
by the holder of every such certificate of the install-
8
sion shall prescribe by rules and regulations.
9
ment type in order to complete one full year's
9
(b) It shall be unlawful for any registered face-amount
10
installment payments, a portion of such payment
10 certificate company to sell any face-amount certificate. or De
11
equal to 50 per centum of the amount thereof:
11 collect or accept any payment on any such certificate issued
12
(B) out of every other payment made on any
12 by such company on or after the effective date of this title,
13
such certificate by the holder thereof, such portion of
13 unless such company has, in cash or qualified investments,
14
the payment ns will, together with similar portions
14 assets having a value not loss than the aggregate amount of
15
of all other such payments on such certificate and
15 the capital stock requirement and certificate reserve require-
16
any portions required by paragraph (A) hereof,
16 ment provided for in subsection (n) hereof. As used in this
17
with accumulations on all such portions at the rate
17 subsection, "qualified investments" means investments of a
18
18 kind in which life insurance companies are generally per-
of 31 per centum per annum, compounded annually,
19 mitted to invest. The Commission is authorized, by rules
19
attain upon the maturity of such certificate an
20
20 and regulations or order in the public interest or for the
amount equal to the maturity or face amount
21
thereof;
21 protection of investors, to designate those investments which
22
(€) any portion of the profits of such com-
22 are qualified and to prescribe the basis of valuation of any
23
pany which such company has undertaken to hold
23 such investment.
24
24
(c) The Commission is authorized. by rules and regin-
for the account of the holder of any such certificate:
25 lations or order in the public interest or for the protection
25
(D) an amount equal to accumulations at the
Regraded Uclassified
64
65
1 of investors, to require any registered face-amount certificate
1 Commission may permit or prescribe by rules and regula-
2 company to deposit and maintain, with on institution Inving
2 tions or order in the public interest or for the protection of
3 the qualifications required by paragraph (1) of section 26
3 investors.
4 (a) for the trustees of nnit investment trusts, all invest-
4
(e) It shall be unlawful for any registered face-amonnt
5 ments maintained by such company pursuant to the require-
5 certificate company to issue or sell any face-amount certifi-
6 ments of subsection (h) hereof.
6 ente which provides that the liolder shall be liable for or
7
(d) It shall be unlowful for any registered face-amount
7 charged with any unpaid amount on such certificate.
8 certificate company to issue or sell any face-aniount cer-
8
(f) It shall be unlawful for any registered face-amount
9 tificate, unless such certificate provides, in substance, that
9 certificate company, in the event of Il default by the holder
10 upon the surrender thereof to the company the holder thereof
10 in any installment payment on a face-amount certificate of
11 shall be entitled to receive from the company the following
11 which such company is the issuer, to cancel such certificate,
12 minimum amounts:
12 to suspend accumulations nt the rate provided for in the
13
(1) an amount equal at all times to 50 per centum
18 certificate upon payments previously made by such holder, or
14
of the sum of all past payments on such certificate by
14 to postpone the maturity date of such certificate, in contru-
15
the holder thereof: and
15 vention of such rules and regulations or orders As the Com-
16
(2) such additional mmounts, representing such
16 mission may prescribe in the public interest or for the
17
percentages of the certificate reserves of such company,
17 protection of investors.
18
as the Commission shall have prescribed by rules and
18 BANKBUPTCY OF FAUE-AMOUNT CERTIFICATE COMPANIES
19
regulations OF order for the purpose of providing nu
19
Sec. 29. (a) Section 67 of an Act entitled "An Act to
20
equitable graduation of surrender values,
20 establish a uniform system of bankruptey throughout the
21 Any such certificate nay provide that the surrender value
21 United States". approved July 1, 1898, as amended, is
00 thereof shall be adjusted to take into account any empaid
22 amended by adding nt the end thereof the following:
23
"f. (1) For the purposes of, and exclusively applicable
23 balance on any loan nade by such company to the holder
24 of such certificate, and to make allowance for such other
24 to, this subdivision f: (a) 'Debtor' shall mean a face-amount
25 certificate company, 89 defined in section 4 of the Invest-
25 nintters, including a reasonable surrender charge, RM the
J.215852-5
Regraded Uclassified
66
67
1 ment Company Act of 1940: (b) 'depositary' is a person
1 is amended by adding at the end of subdivision it thereof the
2 with whom securities or other property of n debtor is de-
2 following sentence:
3 posited, or to whom property of a debtor is transferred, in
3
"If the bankrupt is a face-amount certificate company,
4 trust or otherwise, pursuant to a State law requiring such
4 as defined in section 4 of the Investment Company Act of
5 deposit or transfer and providing for the distribution of such
5 1940, the court alone shall make the appointment; but the
6 property or its proceeds to creditors or security holders of the
6 court shall not make such appointment without first notify-
7 debtor in the event of the insolvency of the debtor or under
7 ing the Securities and Exchange Commission and giving it
8 other specified circumstances; and (c) State agency' is an
8 an opportunity to be heard."
9 official or agency of a State designated to act as depositary
9
PERIODIC AND OTHER REPORTS
10 or to distribute property, or the proceeds of property, held
10
Sec. 30. (a) Every registered investment company,
11 by a depositary.
11 and every manager, investment adviser, principal under-
12
(2) Every deposit or transfer of securities or other
12 writer, depositor, or distributor registered under section 9,
13 property made by or on behalf of a debtor with or to any
13 shall file with the Commission such annual, seminmund,
14 depositary or State agency for the benefit of the holder of
14 quarterly, and other periodic and special reports, the answers
15 any security sold by or on behalf of the debtor on or after
15 to such specific questions and the minutes of such directors',
16 October 1, 1940, shall be mill and void ns against the trustee
16 stockholders', and other meetings, as the Commission may
17 of such debtor, and such deposit or transfer and every lien
17 by rules and regulations or order preseribe as necessary or
18 created thereby shall be avoided by the trustée for the benefit
18 appropriate in the public interest or for the protection of
19 investors. The financial statements of such reports, if TO-
19 of the estate.
20
" (3) The court shall have summary jurisdiction of any
20 quired by the rules and regulations of the Commission, shall
21 be certified by an independent public accountant, and shall
21 proceeding to hear and determine the rights of any partiés
22 be made and filed at such time and in such form and detail
22 under this subdivision f. Due notice of any hearing in such
23 as the Commission shall prescribe. The Commission may
23 proceeding shall be given to every depositary and State
24 require that there be included in reports filed with it such
24 agency which is a party in interest."
25 information and documents as it deems necessary or appro-
25
(b) Section 44 of said Act of July 1, 1898, as amended,
Regraded Uclassified
68
69
1 priate to keep reasonably current the information filed by
1 this title, us the Commission may prescribe by rules and
2 such persons under section 8 or 9, and such further informa-
2 regulations or order as necessary or appropriate in the
3 tion, of a kind which the Commission might require to be
3 public interest or for the protection of investors.
4 included in or to accompany a registration statement filed
4
(d) Every person who is directly or indirectly the
5 ander section 8 or 9, us the Commission deems necessary or
5 beneficial owner of more than 10 per centum of any class
6 appropriate in the public interest or for the protection of
6 of outstanding securities (other than short-term paper)
1 investors.
7 of which H registered investment company is the issuer, of
8
(h) The Commission shall provide by mles and regula-
8 who is n. director or nn officer of such a company, shall
9 tions for the filing with the Commission and with any na-
9 be subject to the same duties and liabilities as those imposed
10 tional securities exchange concerned of copies of periodic
10 upon certain beneficial owners, directors, and officers by
11 missing special reports, or of portions of such reports, filed by any
11 section 16 of the Securities Exchange Act of 1934.
12
12 registered investment company pursuant to subsection (a),
(e) It shall be the duty of every person registered
13 in lien of any reports required of such company under section
13 under section 9 as an affiliated person of any registered
14 13 or 15 (d) of the Securities Exchange Act of 1934.
14 management investment company, within thirty days after
15 the end of every fiscal quarter of such company, to submit
15
(e) The Commission shall require by rules and rega-
16 to the hoard of directors of the company XI statement show-
16 lations OF order, if and to the extent that the Commission
17 finds such action necessary or appropriate in the public
17 ing the amounts and dates of every purchase or sale made
18 directly or indirectly for the account of such person, during
18 interest or for the protection of investors, that n registered
19 such fiscal quarter, of the securities of any issuer any out-
19 investment company transmit periodic and special reports or
20 standing security of which was purchased or sold by such
20 notices to the security holders, or specified classes of the
21 registered company at any time during such fiscal quarter.
21 security holders, of such company, at such times and in such
22
ACCOUNTS AND RECORDS
19 form and detail as the Commission shall prescribe. Such
23
SEC. 31. (a) Every registered investment company,
21 reports and notices shall contain such of the information
24 every underwriter, broker, dealer, or investment adviser
24 contained in registration statements, applications, reports,
25 which is a majority-owned subsidiary of such a company, and
25 and other documents relating to such company filed under
page 69, gdd to line 21.
The provisions of this subsection small not apply to purchases
or sales of Government securities or short-torm paper.
Regraded Jclassified
70
71
1 every manager, investment adviser, principal underwriter,
1 scribe for registered investment companies or classes or sub-
2 depositor, or distributor registered under section 9, shall
2 classes of registered investment companies-
3 make, keep, and preserve for eitch periods, such accounts,
3
(1) nniform methods for keeping accounts and
4 cost-accounting procedures, correspondence, memoranda,
4
other records required to be kept pursuant to subsec-
5 papers, books, and other records ns the Comunission may
5
tion (a), including, among other things, uniform moth-
6 prescribe by rules and regulations or order as necessary or
6
ods of (A) classifying and segregating accounts, (B)
7 appropriate in the public interest, for the protection of
7
recording and carrying sceurities and other assets, and
8 investors or for the enforcement of this title.
8
(C) differentiating between enpital and income; and
9
(b) All accounts, cost-accounting procedurés, corre-
9
(2) the methods, practices, and procedures to be
10 spondence, memorands, papers, books, and other records
10
followed in determining the entries to be made in no-
11 kept or required to be kept by any person subject to sub-
11
counts, books, and other records required to be kept pur-
12 section (a) shall be subject at any time and from time to
12
suent to subsection (a), including, atmong other things,
13 time to such reasonable periodic, special, and other exami-
13
methods, practices, and procedures of determining (A)
14 untions by the Commission, or any member or representative
14
cost of assets; (B) the value of assets: (C) profits,
15 thereof, as the Commission may prescribe. It shall be the
15
losses, income, and expenses: (D) the incurrence and
16 duty of any such person to furnish to the Commission,
16
disobarge of liabilities and contingent liabilities: (E)
17 within such reasonable time ns the Commission may pre-
17
the entries to reflect the issuance, sale, exchange, acqui-
18 seribe, any information with respect to such records which
18
sition, redemption, or retirement of any security of which
19 the Commission may by order require.
19
such a company is the issuer: (F) the adjustment of
20
(c) The Commission, or any member or representative
20
accounts upon the restatement of any asset or liability
21 thereof designated by it, shall have power at any time and
21
or any capital or surplus account: and (G) the entries
0
22 from time to time to make an examination of all the affairs
22
providing for depreciation or reflecting appreciation of
23 of any registered investment company.
23
assets.
24
(d) The Commission, by rules and regulations in the
24
(e) For the purpose of enforcing the rules and regula-
25 public interest or for the protection of investors, may pre-
25 tions of the Commission under subsection (d) and prevent-
Regraded Uclassified
72
73
1 ing circumvention thereof, the Commission is authorized-
1 accountant was selected by vote of the holders of such com-
2
(1) to prescribe by order the account or accounts
2 pany's voting securities at the annual or a special meeting
3
in which particular outlays, receipts, expenses, income,
3 of such security holders duly called; except that any vacaney
4
profits, losses, depreciation, appreciation, dividend dis-
4 between such meetings may be filled by the board of
5
tributions, and other transactions shall be entered,
5 directors of such company,
6
charged, or credited. and the manner in which any such
6
(b) No registered management investment company
T
entry, charge, or credit shall be made;
7 or registered face-amount certificate company shall file
8
(2) to require by order that an entry be modified
8 with the Commission any financial statement in the propo-
9
or supplemented:
9 ration of which the principal accounting officer or em-
10
(8) to probibit, by rules and regulations OF order,
10 ployee of such company participated, unless such officer or
11
the keeping of accounting records other than those pre-
11 employee was selected, either by vote of the holders of such
12
scribed or approved by the Commission, or the keeping
12 company's voting securities at the last annual meeting of such
13
of such records in a manner other than those prescribed
13 security holders, or by the board of directors of such company.
14
or approved by the Commission.
14
(e) The Commission is authorized, by rules and regu-
15
(f) No rule, regulation, or order shall be issued under
15 lations or order in the public interest or for the protection of
16 this section prohibiting a person from subelassifying nn
16 investors-
17
17 account, or from maintaining supplementary records reflect-
(1) to prescribe the minimum scope of and pro-
18
cedures to be followed in any audit of a registered
18 ing subclassifications of an account, in any manner which
19
investment company; and
19 does not impair the integrity of the account subclassified.
20
20
(2) to require accountants and auditors to keep
ACCOUNTANTS AND AUDITORS
21
reports, work sheets, and other documents and papers
21
SEC. 32. (a) After one year from the effective date of
22
relating to registered investment companies and to make
22 this title, it shall be unlawful for any registered management
23
the same available for inspection by the Commission or
23 investment company to file with the Commission any financial
24
any member or representative thereof.
24 statement signed or certified or based upon au examination
25 or andit by any independent public accountant, unless such
Regraded Uclassified
74
75
1
settlement OF CIVIL ACTIONS
1 whichever first occurs. A report of the Commission under
2
SEC. 33. (a) It shall be unlawful for any registered
2 this section may treat, among other things, of the reasonable-
3 investment company or affiliated person thereof to settle or
8 new of any legal or other fees to be paid by any registered
4 compromise any claim of the following classes, unless such
4
investment company, in connection with such action or suit,
5 claim is the subject of 8 civil action or suit in 8 court having
5 for services rendered a party or parties other than such
6 jurisdiction to approve such settlement or compromise:
6 company.
7
(1) any claim by a registered investment company
7
(c) The Commission is authorized. at the request of any
8
or a security holder thereof against an officer, director,
8 court of a State to which such a proposed settlement, compro-
9
manager, trustee, or depositor of such company for an
9 mise, or confession of judgment has been submitted, to file
10
alleged breach of official duty; or
10 such n. report with such court.
11
(2) any claim by a security holder of a registered
11
(d) Every report filed pursuant to this section shall be
12
investment company against such company or an officer,
12 based upon facts established before the court or an officer
13
director, manager, trustee, or depositor thereof for an
13 thereof, or before a member or officer of the Commission
14
alleged injury done such security holder together with
14 pursuant to an investigation by the Commission, and shall be
15
other security holders of the same class.
15 advisory only.
16
(b) Whenever any claim of the classes enumerated in
16
DESTRUCTION AND PALSIFICATION OF REPORTS AND
17 subsection (a) is made the subject of a civil action or suit
17
RECORDS
18 in a court of the United States, such court shall not approve
18
Sec. 34. (a) It shall be unlawful for any person, except
19 any proposed settlement or compromise of such action or
19 as permitted by rule, regulation, OT order of the Commission,
20 to destroy, mutilate, or alter any account, cost-accounting
20 suit, or permit confession of judgment therein without triul,
21 until after the Commission has filed with the court a report
21 procedure, correspondence, memorandum, book, paper, or
22 other record kept pursuant to this title.
22 concerning the fairness of the proposed settlement, compro-
28
(b) It shall be unlawful for any person to make any
23 mise, or confession of judgment, or has notified the court that
24 untrue statement of a material fact in any registration state-
24 it will not file a report, or until the expiration of such reason-
25 ment, application, report, account, record, or other document
25 able time for the filing of a report as the court has fixed,
Regraded Uclassified
76
77
1 filed, transmitted, or kept pursuant to this title. It shall be
I
(c) No provision of subsection (a) or (b) shall be
2 unlawful for any person filing, transmitting, or keeping any
2 construed to prohibit a statement that a person or security
3 such document pursuant to this title to omit to state therein
3 is registered under this Act, the Securities Act of 1933, or
4 any fact necessary in order to prevent the statements made
4 the Securities Exchange Act of 1934, if such statement is
5 therein from being materially misleading. For the purposes
5 true in fact and if the effect of such registration is not mis-
6 of this subsection, any part of any such document which is
6 represented.
7 signed or certified by an accountant or auditor in his capacity
7
(d) It shall be unlawful for any registered investment
8 as such shull be deemed to be made, filed, transmitted, or
8 company, as part of the name or title of such company or
9 kept by such accountant or auditor, as well as by the person
9 of any security of which it is the issuer, to use any word or
10 filing, transmitting, or keeping the complete document.
10 words which, in the light of the business and history of such
11
UNLAWFUL REPRESENTATIONS AND NAMES
Il company, the Commission finds and by: order declares to be
12
Sec. 35. (a) It shall be unlawful for any person in
12 deceptive or mislending.
13 issuing, selling, or offering for sale any security of which a
13
RULES, REGULATIONS, AND ORDERS; GENERAL POWERS
14 registered investment company is the issuer, to represent
14
OF COMMISSION
15 or imply in any manner whatsoever that such security or
15
Sec. 36. (a) The Commission shall have authority
16 company, or any affiliated person of or principal underwriter
16 from time to time to make, issue, musul, and rescind such
17 for such company. has been guaranteed, sponsored, recom-
17 rules and regulations and such orders as it finds necessary
18 mended, or approved by the United States or any agency
18 or appropriate to curry out the provisions of this title, in-
19 or officer thereof.
19 cluding rules and regulations defining accounting, technical,
20
20 and trade terms used in this title, classifying investment
(b) It shull be unlawful for any person registered under
21 companies and other persons to whom this title relates, and
21 any section of this title to represent or imply in any manner
22 prescribing the form or forms in which information required
22 whatsoever that such person has been sponsored, recom-
23 in registration statements, applications, reports, and other
23 mended, or approved, or that his abilities or qualifications
24 doenments filed with the Commission shall be set forth.
24 have in any respect been passed upon by the United States
25
(b) The Commission, by such rules and regulations or
25 or any agency or officer thereof.
Regraded Uclassified
78
79
1 order as it deems necessary or appropriate in the public
1 may admit as a party any representative of interested security
2 interest or for the protection of investors or consumers, may
2 holders, or any other person whose participation in the pro-
3 authorize the filing of any information or documents re-
3 ceeding may be in the public interest or for the protection
4 quired to be filed with the Commission under this title, the
é of investors.
5 Securities Act of 1933, the Securities Exchange Act of 1934,
5
ENFORCEMENT OF TITLE; INVESTIGATIONS
6 the Public Utility Holding Company Act of 1935, or the
6
SEC. 38. (a) The Commission, in its diseretion. may
7 Trust Indenture Act of 1939, by incorporating by reference
7 investigate any facts, conditions, practices, or matters which
S any information or documents theretofore or concurrently
8 it may deem necessary or appropriate to determine whether
9 filed with the Commission under this title or any of such
9 any person has violated or is about to violate any provision
10 Acts.
10 of this title or any rule or regulations thereunder, or to aid
11.
(c) No provision of this title imposing any liability
11 in the enforcement of the provisions of this title, in the pre-
12 shall apply to any act done or omitted in good faith in con-
12 scribing of rules and regulations thereunder, or in obtaining
13 formity with any rule, regulation, or order of the Commis-
13 information to serve as a basis for recommending further
14 sion, notwithstanding that such rule, regulation, or order
14 legislation concerning the matters to which this title relates.
15 may, after such act or omission, be amended or reseinded or
15 The Commission may require or permit any person to file
16 be determined by judicial or other authority to be invalid
16 with it a statement in writing, muler oath or otherwise as
17 it shall determine, as to any or all facts and circumstances
17 for any reason.
18 concerning a matter which may be the subject of investigu-
18
HEARINGS BY COMMISSION
19 tion. The Commission, in its discretion, may publish in-
19
SEC. 37. Hearings may be public and may be held be-
20 formation concerning any of the foregoing matters.
30 fore the Commission, any member or members thereof, or
21
(b) For the purpose of any investigation or my other
21 any officer or officers of the Commission designated by it,
22 proceeding under this title, including any examination pur-
22 and appropriate records thereof shall be kept. In any pro-
23 sunnt to section 31, any member of the Commission, or any
23 ceeding before the Commission, the Commission, in accord-
24 officer thereof designated by it, is empowered to administer
24 aree with such rules and regulations as it may prescribe, shall
25 oaths and affirmations, subpena witnesses, compel their
25 admit as a party any interested State or State agency, and
Regraded Uclassified
80
1 attendance, take evidence, and require the production of any
81
2 books, papers, correspondence, memoranda, contracts, agree-
1 fail or refuse to attend and testify or to answer any lawful
3 ments, or other records which are relevant or material to
2 impuiry or to produce books, papers, correspondence, memo-
4 the inquiry. Such attendance of witnesses and the produe-
3 randa, contracts, agreements, or other records, il in his or
5 tion of any such records may be required from any place
4 its power so to do, in obudience to the subpena of the Com-
6- in any State or in any Territory or other place subject to
5 mission, shall be guilty of n misdemeanor, and upon con-
7 the jurisdiction of the United States at any designated place
6 viction shall be subject to a fine of not nore than $1,000
8 of hearing.
7 or to imprisonment for IL termi of not toote than nue year,
9
(e) In ease of contumacy by, or refusal to obey a
8 or both.
10 subpena issued to, any person, the Commission may invoke
9
(d) No person shall be excused from attending and
11 the aid of any court of the United States within the juris-
10 testifying or from producing books, papers, correspondence,
12 diction of which such investigation or proceeding is earried
11 memorands, contracts, agreements, or other records and down-
13 on, or where such person resides or carries on business, in
12 nreuts before the Commission, or in obedience to the subpena
13 of the Commission or my member thereof or any officer des-
14 requiring the attendance and testimony of witnesses and
15 the production of books, papers, correspondence, memoranda,
14 ignated by it. or in any cause or proceeding instituted by the
15 Commission. ou the ground that the testinuouy or ovidence.
16 contracts, agreements, and other records. And such court
16 documentary or otherwise, required of him may tend to in-
17 may issue an order requiring such person to appear before
17 criminate him or subject him to a penalty or forfeiture: but
18 the Commission or member or officer designated by the
18 no individual shall be prosecuted or subject to any penalty or
19 Commission, there to produce records, if so ordered, or to
19 forfeiture for or on account of any transaction, matter, or
20 give testimony touching the matter under investigation or
20 thing concerning which he is compelled to testify or produce
21 in question; and any failure to obey such order of the court
21 evidence, documentary or otherwise, after having claimed his
22 may be punished by such court as a contempt thereof. All
22 privilege against self-incrimination, except that such individ-
23 process in any such case may be served in the judicial dis-
23 nal so testifying shall not be exempt from prosecution and
24 triet whereof such person is an inhabitant or wherever he
24 punishment for perjury committed in so testifying.
25 may be found. Any person who without just cause shall
25
(e) Whenever it shall appear to the Commission that
J. 215852-6
Regraded Uclassified
82
83
1 ony person has engaged or is about to enguge in any act or
1 sions of this title, or of any rule, regulation, or order there-
2 practice constituting a violation of any provision of this title,
2 under, to the Attorney General, who, in his discretion, may
3 or of any rule, regulation, or order hereunder, it may in its
3 institute the appropriate criminal proceedings under this title.
4 discretion bring on action in the proper district court of the
4
COURT REVIEW OF ORDERS
5 United States, the Supreme Court of the District of Columbia,
5
SEC. 39. The provisions of section 24 of the Public
6 or the United States courts of any Territory or other place
6 Utility Holding Company Act of 1935 nity hereby incor-
7 subject to the jurisdiction of the United States, to enjoin such
7 porated in this title as though fully set forth herein.
8 nets or practices and to enforce compliance with this title or
8
JURISDICTION OF OFFENSES AND SUITS
9
9 any rule, regulation, or order hereunder. Upon a showing
SEC. 40, (a) The provisions of section 25 of the Public
10 that such person has engaged or is about to engage in any
10 Utility Holding Company Act of 1935 are hereby incor-
11 such act or practice, a permanent or temporary injunction
11 porated in this title ns though fully set forth herein.
12
12 or decree or restraining order shall be granted without bond.
(1) Any criminal proceeding based upon a violation of
13 section 34, or upon a failure to file n report or other document
13 In any proceeding under this subsection to enforce compli-
14 required to be filed under this title, may be brought in the
14 ance with section 7, the court ns a court of equity may, to
15 district wherein the defendant is an inhabitant or maintains
15 the extent it deems necessary or appropriate, take exclusive
16 his or its principal office or place of business.
16 jurisdiction and possession of the investment company or
17
INFORMATION FILED WCT1) COMMISSION
17 companies involved and the books, records, and assets
18
SEC. 41. (n) The information contained in any regis-
18 thereof, wherever located; and the court shall have jurisdio-
19 tration statement, application, report, or other document filed
19 tion to appoint a trustee, who with the approval of the court
20 with the Commission pursuant to any provision of this title
20 shall have power to dispose of any or all of such assets and,
21 or of my mle or regulation thereunder shall be made available
21 subject to such terms and conditions as the court may pre-
22 to the public, unless and except insolur as the Commission, by
22 seribe, may make such disposivion in accordance with a plan
23 rules and regulations upon its own motion. or by order upon
R$
of reorganization as to which a declaration is effective under
24 application, finds that public disclosure is neither necessary
24
section 25. The Commission may transmit such evidence
25 nor appropriate in the public interest or for the protection of
25
as may be available concerning any violation of the provi-
Regraded Uclassified
84
85
1 investors. It shall be unlawful for any member, officer, or
1 rule, regulation, or order if he proves that he had no knowl-
2 employee of the Commission to use for personal benefit, or
2 edge of such rule. regulation, or order.
3 to disclose to any person other than an official or employee of
3
EFFECT ON EXISTING LAW
4 the United States or of n. State, for official use, any informa-
4
SEC. 44. Except where specific provision is made to the
5 tion contained in any document so filed, if such information is
5 contrary, nothing in this title shall affect (1) the jurisdie-
6 not available to the public.
6 tion of the Commission under the Securities Act of 1933, the
7
(b) Photostatic or other copies of information contained
7 Securities Exchange Act of 1934, the Public Utility Holding
8 in documents filed with the Commission under this title and
8 Company Act of 1935, or the Trust Indenture Act of 1939.
9 nunde available to the public shall be furnished any person
9 over any person, security, or transaction. or (2) the rights,
10 at such reasonable charge and under such reasonable
10 obligations, duties, or linbilities of any person under sneh
11 limitations as the Commission shall prescribe,
11 Acts: not shall anything in this title affect the jurisdiction
12 ANNUAL REPORTS OF COMMISSION: VALIDITY OF COX-
12 of any other commission. board, agency, or officer of the
13
TRACTS: LIABILITY OF CONTROLLING PERSONS; PRE-
13 United States or of any State or political subdivision of any
14
VENTING COMPLIANCE WITH TITLE; EMPLOYEES OF
14 State, over any person, security, or transaction, insolar INP
15
THE COMMISSION
15 such jurisdiction does not conflict with any provision of this
16
SEC. 42. The provisions of sections 23, 26, 27, and 31 of
16 title or of any rule, regulation, or order hereunder.
17 the Public Utility Holding Company Act of 1935 are hereby
17
GENERAL DEFINITIONS
18 incorporated in this title ns though fully set forth herein.
18
SEC. 45. (a) When used in this title, unless the context
19
PENALTIES
19 otherwise requires-
20
See, 43. Any person who willfully violates any provi-
20
(1) "Person" means a natural person or a company.
21 sion of this title or of any rule, regulation, or order hereunder
21
(2) "Company" means a corporation, a partnership, nn
22 shall upon conviction be fined not more than $10,000 or
22 association, IN joint-stock company, a must, or any organized
23 imprisoned not more than two years, or both; but no person
23 group of persons whether incorporated or not: or any re-
24 shall be convicted under this section for the violation of any
24 ceiver, trustee in bankruptcy, or similar official or any liqui-
Regraded Uclassified
86
87
1 dating agent for any of the foregoing, in his capacity as such.
1 distribution of assets over another security of the wame
2
(3) "Security", "prospectus", and "underwriter" have
2 issuer.
3. the same meanings as in the Securities Act of 1933,
3
(7) "Redeemable security" means any security, other
4
(4) "Exchange", "facility" (when used with respect
4 than short-term paper, under the terms of which the holder.
5. to au exchange), "broker", "dealer", "bank", "director",
5 upon its presentation to the issuer or to II person designated
6 "State", and "interstate commerce" have the same meanings
6 by the issuer, is entitled to receive approximately his pro-
7 as in the Securities Exchange Act of 1934.
7 portionate share of the issuer's current net assets, or the
8
(5) "Voting, security" means any security presently
8 eash equivalent thereof.
9 entitling the owner or holder thereof to vote in the direction
9
(8) "Face-emount certificate" means any certificate,
10 or management of the affairs of B company. A specified
10 investment contract, or other security which represents an
11 percentage of the outstanding voting securities of 2% company
11 obligation on the part of its issiter to pay n. stated or deter-
12 minable suin or sums at a fixed or determinable date or
12 means such Amount of its outstanding voting securities as
13 dates, in consideration of the payment of n som certain or of
13 entitles the holder or holders thereof to cast said specified
14 periodic installinents of a stated or determinable amount.
14 percentage of the aggregate votes which the holders of all
15
(9) "Periodic payment plan certificate" means ony
15 the outstanding voting securities of such company are entitled
16 certificate, investment contract, or other accurity providing
16 to east. The vote of a majority of the outstanding voting
17 for a serios of periodic payments by the holder, and represent-
17 securities of a company means the vote, at the annual or a
18 ing no undivided interest in certain specified securities or
18 special meeting of the security holders of such company duly
19 in a unit or fund of securities purchased wholly or partly
19 called. (A) of 67 per centum or more of the voting securities
20 with the proceeds of such payments.
20 present at such meeting, if more than 50 per centum of the
21
(10) "Short-term paper" menns any note, draft, bill
21 outstanding voting securities of such company are present:
22 of exchange, or banker's acceptance payable on demand or
22 or (B) or more than 50 per centum of the outstanding voting
23 having 11. unturity at the time of issuance of not exceeding
23 securities of such company.
24 nine months, exclusive of days of grace, or any renewal
24
(6) "Senior security" means a security, other than
25 thereof payable ou demand or Inving a naturity likewise
25 short-term paper, which is entitled to a preference in its
Regraded Uclassified
88
89
1 limited: and such other classes of securities, of a commercial
1 rule allowed another underwriter participating in the dis-
2 rather than an investment character, ns the Commission may
2 tribution.
3 designate by rules and regulations.
3
(15) "Investment officer" means any officer of an
4
(11) "Government security" means any security issued
4 investment company who is empowered to execute or order
5 or guaranteed as to principal or interest by the United States,
5 the execution of purchases or sales of securities for the
6 or by n. person controlled or supervised by and acting as an
6 account of such company.
7 instrumentality of the Government of the United States pur-
7
(16) "Investment adviser" means any person who, for
8 suant to authority granted by the Congress of the United
8 compensation, engages in the business of advising others.
9 States: or any certificate of deposit for any of the foregoing.
9 either directly or through publications or writings, as to
10
(12) "Marketable security" means any security which
10 the value of securities or as to the advisability of investing in,
11 is listed or admitted to unlisted trading privileges on a Da-
11 purchasing. or selling securities, or who, for compensation
12 tional securities exchange or on an exchange exempted from
12 and as part of II regular business, issues or promulgates
13 registration pursuant to section 5 of the Securities Exchange
13 minlyses or reports concerning securities; but does not in-
14 Act of 1934, or for which a market price is regularly nseer-
14 clude (A) a bank: (B) any lawyer. accountant, engineer,
15 tainable from publications or other readily accessible sources.
15 or teacher whose performance of such services is solely
16
(13) "Issuer" means every person who issues or pro-
16 incidental to the practice of his profession; (C) the pub-
17 poses to issue any security, or luis outstanding any security
17 lisher of any bona fide newsperper or newsmagazine of gen-
18 which it has issued.
18 eral circulation: or (D) such other persons, not within the
19
19 intent of this paragraph. as the Commission may designate
(14) "Principal underwriter" means any underwriter
20 who, in connection with a primary distribution of securities,
20 by rules and regulations or order.
21 (A) is in privity of contract with the issuer or an affiliated
21
(17) "Manager" of an investment company meanx a
22 person of the issuer; (B) acting alone or in concert with
22 person empowered by contract or otherwise to determum
23 what securities and other investments shall be purchased or
23 one or more other persons, initiates or directs the formation
24 sold by such company: but does not include (A) a bom
24 of an underwriting syndicate: (if (C) is allowed n. rate of
25 fide officer, director, trastee, depositor, or employee of such
25 gross commission, spread, or other profit greater than the
Regraded Uclassified
90
91
1 company in his capacity as such; (B) an investment adviser
1 securities of which are owned by such person, or by n com-
2 each of whose recommendations for purchase or sale must
2 pany which, within the meaning of this paragraph, is il
3 be approved, before such purchase or sale is executed, by
3 majority-owned subsidiary of such person.
4 no investment officer, director, or trustee of such company
4
(21) "Wholly-owned subsidiary" of it person means a
5 who is not an affiliated person of such investment adviser:
5 company 95 per centum or more of the outstanding voting
6 or (C) any person the character and amount of whose com-
6 securities of which are owned by such person, or by n.
7 pensation from such company must be approved by n. court.
7 company which, within the meaning of this paragraph, is
8
(18) "Affiliated person" of another person means (A)
8 a wholly-owned subsidiary of such person.
9 any person directly or indirectly owning, controlling, or
9
(22) "Investment company system" means two or more
10 holding with power to vote, 3 per centum or more of the
10 investment companies one of which through its ownership
11 outstanding voting securities of such other person: (B) any
11 of voting securities directly or indirectly controls the others.
12 person 5 per centum or more of whose outstanding voting
12
(23) "Insurance company" means a company which
13 securities are directly or indirectly owned, controlled, or
13 is organized as an insurance company under the laws of a
14 held with power to vote, by such other person; (C) any
11 State, whose primary and predominant business activity is
15 person directly or indirectly controlling, controlled by, or
15 the writing of insurance, and which is subject to supervision
16 under common control with, such other person; (D) any
16 by the insurance commissioner or a similar official or agency
17 officer, director, partner, or copartner of such other person:
17 of such State: or any receiver or similar official or any
18 (E) if such other person is an investment company, any
18 liquidating agent for such a company. in his capacity as such.
19 manager thereof or any person who regularly acts BS invest-
19
(24) "Employees' securities company" means any in-
20 vestment company or similar issuer all of the outstanding
20 ment adviser thereof; and (F) if such other person is a
21 securities of which (other than short-term paper) are
21 unit investment trust, the depositor thereof.
22 owned (A) by the employees of a single employer or of
22
(19) "Affiliated company" means a company which
23 two or more employers each of which is an affiliated com-
23 is an affiliated person.
24 pany of the other, (B) by former employees of such ellt-
24
(20) "Majority-owned subsidiary" of a person means a
25 ployer or employers, (C) by members of the immediate
25 company 50 per centum or more of the outstanding voting
Regraded Uclassified
93
92
1 family of such employees or former employees, (D) by
1 transfer or hypothecation of a contract or chose in action
2 any two or more of the foregoing classes of persons, or (E)
2 by the assignor, or of a controlling block of the assignor's
3 outstanding voting securities by a security holder of the
3 by such employer or employers together with any one or
4 assignor; but does not include an assignment of partnership
4 more of the foregoing classes of persons.
5. interests incidental to the death or withdrawal of a minority
5
(25) "Sale", "sell", "offer to sell", or "offer for sale"
6 of the members of the partnership having only a minority
6 includes every contract of sale or disposition of, attempt
7 interest in the partnership business.
7 or offer to dispose of, or solicitation of an offer to buy, a
8
(29) "Value", as used in sections 3, 5, and 12, means
8 security or interest in a security, for value. Any security
9 (A) with respect to marketable securities nequired before
9 given or delivered with, or as a bonus on account of, any
10 the end of the owner's last fiscal quarter, the market value
10 purchase of securities or any other thing, shall be con-
11 of such securities nt the end of such fiscal quarter, and (B)
11 clusively presumed to constitute a part of the subject of
12 with respect to other assets (including other securities), the
12 such purchase and to have been sold for value.
13 cost thereof to the owner, or if the Commission finds that
13
(26) "Sales load" means the difference between the
14 such cost is not ascertainable without undne effort or expense
14 price of at security to the public and that portion of the
15 or does not fairly reflect the value thereof, o valuation OIL
15 proceeds from its sale which is received and invested or
16 such other reasonable basis as the Commission my prescribe
16 held for investment by the issuer, or in the case of n. unit
17 by rules and regulations or order. As used elsewhere in
17 investment trust, by the depositor or trustee. In the case
18 this title, the terio "value" or any other term importing
18 of a periodic payment plan certificate, "sales load" includes
19 value menns the valuation given in, or n valuation based on
19 the sales load on any investment company securities in
20 the accounting principles followed in. the most recent regis-
20 which the payments made on such certificate are invested.
21 tration statement or periodie report filed under this title by
21 ILS well as the sales load on the certificate itself.
22 the company concerned.
22
(27) "Loud" includes a purchase coupled with an
23
(30) "Portfolio turnover" means the ratio which the
21 agreement by the vendor to repurchase: "borrow" includes
24 sam of the dollar amount of a company's sales and purchases
24 a sale coupled with a similar agreement.
25 of portfolio securities (other than Government securities)
25
(28) "Assignment" includes any direct or indirect
Regraded Uclassified
94
95
1 during a given fiscal year, minus the dollar amount of net
1 any corporation which is wholly owned directly or indirectly
2 sales during the same year of securities of which such com-
2 by any one or more of the foregoing, or any officer, agent,
3 pany is the issuer, bears to the value of such company's
3 or employee of any of the foregoing acting us such in the
4 security assets (exclusive of Government securities) at the
4 course of his official duty, unless such provision makes
5 beginning of such year or at the end of any quarter thereof,
5 specific reference thereto.
6 whichever is the highest.
6
SEPARABILITY OF PROVISIONS
7
(31) "Convicted" includes n verdict, judgment, or plen
7
SEC, 46. If any provision of this title or any provision
8 of guilty, or all fuding of guilt on a plea of nolo contendere,
8 incorporated in this title by reference, or the application
9 il such verdiet, judgment, plea, or finding lins not been
9 of any such provision to any person or circumstances. shall
10 reversed, set aside, or withdrawn, whether or not sentence
10 be held invalid, the remainder of this title and the appli-
11 has been imposed.
11 cation of any such provision to persons OF circumstances
12
(32) "National securities exchange" means au exchange
12 other than those as to which it is held invalid shall not
13 registered under section 6 of the Securities Exchange Act
13 be affected thereby.
14 of 1934.
14
SHOET TITLE
15
(33) "Meaus or instrumentality of interstate commerce"
15
See. 47. This title may be cited as the "Investment
16 includes any Incility of a national securities exchange.
16 Company Act of 1940".
17
(34) "Commission" means the Securities and Exchange
17
EFFECTIVE DATE
18 Commission.
18
SEC. 48. The effective date of this title is October I,
19
(35) "Securities Act of 1933", "Securities Exchange
19 19400 Except where specific provision is made to the con-
20 Act of 1934", "Publie Utility Holding Company Act of
20 trary, every provision of this title shall take effect on said
21 1935", and "Trust Indenture Act of 1939" mean those Acts:
21 effective date.
22 respectively, as heretofore or hereafter amended.
22
TITLE II-INVESTMENT ADVISERS
$
23
FINDINGS OF THE CONGRESS
(b) No provision in this title shall apply to, OF he
24 deemed to include, the United States, n. State, or any politi-
24
SEC. 201. Upon the basis of facts disclosed by the record
25 eal subdivision of a State, or any agency, authority, or
25 and report of the Securities and Exchange Commission made
26 instrumentality of any one or more of the foregoing, or
Regraded Uclassified
96
97
1 pursuant to section 30 of the Public Utility Holding Company
1
securities markets, the national banking and monetary
2 Act of 1985, and facts otherwise disclosed and ascertained, it
2
system and the entire national economy.
3 is hereby found that, investment advisers are of national
3
DECLARATION OF POLICY
4 concern, in that, among other things-
4
SEC. 202. Upon the basis of facts disclosed by the record
5
(1) their advice, counsel, pablications, writings,
5 and report of the Securities and Exchange Commission made
6
analyses, and reports are customarily furnished and dis-
6 pursuant to section 30 of the Public Utility Holding Com-
7
tributed. and their contracts, subscription agreements,
7 pany Act of 1935, and facts otherwise disclosed and ascet-
B
and other arrangements with elients are customarily
8 tained, it is hereby declared that the national public interest
9
negotiated and performed. by the use of the unils and
9 and the interest of investors are adversely affected-
10
means and instrumentalities of interstate commerce:
10
(1) when investors are unable to obtain adequate
11
(2) their advice, counsel, publications, writings,
11
information us to the activities, practices, ability, train-
12
analyses, and reports enstomarily relate to securities,
12
ing, and integrity of investment advisers, their affiliated
13
and to the volume of trading in and the prices of secur-
13
persons, and employees:
H
ities, which are traded on national securities exchanges
14
(2) when persons of proven lack of integrity in
is
and in interstate over-the-counter markets, securities
15
financial matters are permitted to engage in business
16
issued by companies engaged in business in interstate
16
as investment advisers;
IT
commerce, and securities issued by national banks and
17
(3) when the compensation of investment advisers
18
member banks of the Federal Reserve System;
18
is based upon profit-sharing contracts and other con-
19
(3) they advise and through such advice influence
19
tingent arrangements conducive to excessive speculation
20
the policies of large financial and other institutions
20
and trading: or
21
engaged in banking, and in interstate business; and
21
(4) when the business of investment advisers is
El
(4) all of the foregoing transactions are carried on
22
so conducted as to defraud or mislead investors, or to
23
in such great volume as substantially to affect interstate
23
enable such advisers to relieve themselves of their fido-
24
commerce, national securities exchanges, and other
24
eiary obligations to their clients.
J. 215852-7
Regraded Uclassified
98
99
1 It is hereby declared that the policy and purposes of this
1
or reports with respect to securities for which nn over-
2 title, in accordance with which the provisions of this title
2
the-counter market exists in any State other than that
3 shall be interpreted, are to mitigate and, so far ns is presently
3
within which such investment adviser maintains his or
4 practicable, to eliminate the abuses enumerated in this
4
its principal office or place of business.
5 section.
5
(c) Any investment adviser, or any person who pres-
APPLICATION OF TITLE I
6
6 ently contemplates becoming nn investment adviser, may
7
SEC. 203. The provisions of the following sections of
7 register under this section by filing with the Commission
8 title I are hereby incorporated in this title as though fully
8 an application for registration. Such application shall con-
9 set forth herein: Sections 3, 34 (b), 35 (b) and (e), 36,
9 tain such of the following information and documents, in
10 37 (e) and (f), 38, 39, 40, 41, 42, 43, 45, 46, and 47.
10 such form and detail, as the Commission may by rules and
11
REGISTRATION OF INVESTMENT ADVISERS
11 regulations prescribe as necessary or appropriate in the public
12
SEC. 204. (a) Except as provided in subsection (b).
12 interest or for the protection of investors:
18 it shall be unlawful for any invesment adviser, unless regis-
13
(1) information in respect of-
14 tered under this section, to make use of the mails or any
14
(A) the organization and personnel of such
15 means or instrumentality of interstate commerce in con-
15
investment adviser. including the number of his or
16 nection with his or its business ns nn investment adviser.
16
its employees and their duties:
17
(h) The provisions of subsection (a) shall not apply to
17
(B) the education. experience, and other back-
18 an investment adviser-
18
ground, and the past and present business affiliations
19
of such investment adviser;
19
(1) all of whose clients are residents of the State
within which such investment adviser maintains his or
20
(C) the nature and scope of the business of,
20
21
and of the advice, analyses, and reports furnished
21
its principal office and place of business:
22
by, such investment adviser;
22
(2) who does not furnish advice or issue analyses
23
(D) the nature and scope of the authority and
23
or reports with respect to securities listed or admitted
24
practices of such investment adviser with respect
24
to unlisted trading privileges on a national securities
25
to clients' funds and accounts; and
25
exchange; and
26
(3) who does not furnish advice or issue analyses
Regraded Uclassified
100
101
1
(E) the basis or bases upon which such invest-
1 this section, if the Commission finds that such denial, revo-
2
ment adviser, his or its partners, officers, directors,
2 cation, or suspension is in the public interest and that such
3
and employees are compensated;
3 investment adviser OF any partner, officer, director, or CODE
4
(2) copies of every form of contract or agreement
4 trolling person thereof-
5
between such investment adviser and its clients which
5
(1) within ten years of the issuance of such order,
6
is regularly used by such investment adviser; and
6
has been convicted of any felony or misdemeanor involv-
7
(3) such further information and copies of such
7
ing the purchase or sale of any security or arising out
8
further documents relating to such investment adviser,
8
of any conduct or practice of such investment adviser or
9
his or its affiliated persons and employees na the Com-
9
affiliated person as an investment adviser, underwriter,
10
mission may by rules and regulations or order prescribe
10
broker, or dealer. or as an affiliated person or employee
11
as necessary or appropriate in the public interest or
Il
of any investment company, bank, or insurance company;
12
for the protection of investors.
12
(2) nt the time of the issuance of such order, is
13 Except as bereinafter provided, such registration shall be-
13
permanently or temporarily enjoined by order, judgment,
14 come effective thirty days after receipt of such application
14
or decree of any court of competent jurisdiction from
15 by the Commission, or within such shorter period of time
15
acting as an investment adviser, underwriter, broker. or
16 as the Commission may determine. Any amendment of un
16
dealer, or as an affiliated person or employee of any
17 application filed not more than fifteen days after the filing
17,
investment company, bank, or insurance company, or
18 of such application shall be deemed to have been filed with
18
from engaging in or continuing any conduct or practice
19
in connection with any such activity or in connection
19 and as a part of such application. Any amendment of an
20
with the purchase or sale of any security:
20 application filed more than fifteen days after the filing of
21
(3) has omitted to state in such application or in
21 such application shall be deemed a new application incor-
22
an amendment thereto any fact which such person is
22 porating by reference the unamended items of the earlier
23
required to state therein; or
23 application.
24
(4) has willfully violated section 34 (b) of title I
24
(d) The Commission shall by order dony registration
25
of this Act. or that portion of section 203 of this title
25 to or revoke or suspend the registration of an applicant under
Regraded Uclassified
103
102
1
which incorporates the provisions of said section 34 (b).
1
capital appreciation of the funds or any portion of the
(e) The commencement of a proceeding to deny regis-
2
funds of the client; or
2
3
(2) fails to provide, in substance, that no assign-
3 tration under this section shall operate to postpone the effec-
4
ment of such contract shall be made by the investment
4 five date of registration pending final determination of such
5
adviser.
5 proceeding.
6 As used in this section, "investment advisory contract"
6
(f) Any person registered under this section may,
7 means any contract or agreement whereby a person agrees
7 upon such terms and conditions as the Commission finds
8 to net ns investment adviser or to manage any investment
8 necessary in the public interest or for the protection of in-
9 or trading account for another person. Paragraph (1) of
9 vestors, withdraw from registration by filing n written notice
10 this section shall not be construed to prohibit an investment
10 of withdrawal with the Commission. If the Commission
11 advisory contract which provides for compensation based
11 finds that any person registered under this section, or who
12 upon the total value of n. fund averaged over n. definite
12 has pending an application for registration filed under this
13 period or taken ns of IN definite date.
13 section, is no longer in business or is not engaged in busi-
14 PROHIBITED TRANSACTIONS BY REGISTERED INVESTMENT
14 ness as an investment adviser, the Commission shall by order
ADVISERS
15
15 cancel the registration of such person.
16
Sec. 206. It shall be unlawful for any investment ad-
16
INVESTMENT ADVISORY CONTRACTS
17 viser registered under section 204, by tise of the mails or
17
See. 205. No investment adviser registered under sec-
18 any means or instrumentality of interstate commerce, directly
18 tion 204 shall make use of the mails or any menns or instru-
19 or indirectly-
19 mentality of interstate commerce, directly or indirectly, to
20
(1) to employ any device, scheme, or artifice to
20 enter into, extend, or renew any investment advisory con-
21
defraud any client or prospective client:
21 tract, or in my way to perform any investment advisory
22
(2) to engage in any transaction. practice, or
22 contract entered into, extended, or renowed on or after the
23
course of business which operates or would operate as
23 effective date of this title, if such contract-
a fraud or deceit upon any client or prospective client;
24
24
(1) provides for compensation to the investinent
(3) acting as principal, knowingly to sell any
25
25
adviser on the basis of a share of capital gains upon or
Regraded Uclassified
104
1
security to or purchase any security from any client,
2
unless such investment adviser is a member of an
3
association of brokers or dealers registered with the
4
Commission pursuant to section 15A of the Securities
5
Exchange Act of 1934; or
6
(4) if such investment adviser is a member of
7
such an association, knowingly to sell any security to
8
or purchase any security from any client without dis-
9
closing to such client in writing at or before the com-
10
pletion of such sale or purchase whether he is acting
11
as a dealer for his own account, as a broker for such
12
customer, or as a broker for some other person.
13
PENALTIES
14
SEC. 207. Any person who willfully violates any provi-
15 sion of this title shall upon conviction be fined not more
16 than $10,000 or imprisoned not more than two years, or
17 both.
18
SHORT TITLE
19
SEC. 208, This title may be cited as the "Investment
20
Advisers Act of 1940".
21
EFFECTIVE DATE
22
SEC. 209. This title shall become effective on October
23
1, 1940.
Regraded Uclassified
[CO TTEE PRINT)
MARCH 12, 1940
70TH CONGRESS
to SERSION
S.
A BILL
To provide for the registration and regulation
of investment companies and investment
advisers, and for other purposes.
By Mr.
MARCH
. 1940
Read twice and referred to the Committee on