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    "title": "Volume 66, April 23 – April 30, 1937",
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    "ocrText": "DIARY\nBook 66\nApril 23 - April 30, 1937\nRegraded Uclassified\n- A -\nBook\nPage\nAgriculture\nFarm Tenancy Bill:\nConference after Cabinet between FDR, HMJr, Wallace,\nand Bell - 4/23/37\nLXVI\n9\na) Wallace suggests cutting his road appropriation\n($30 million)\nAltschul, Frank\nSee Stabilization\nAnderson, Benjamin M.\nSee Chase National Bank\nAppointments and Resignations\nWolfe, Joe:\nGibbons reports investigation is completed: cancelled\nchecks showing money deposited to personal account;\nHMJr will recommend to FDR dismissal of Landy and\nturning over to Department of Justice all remaining\nmaterial - 4/28/37\n217\nMemorandum for FDR\n377\n- B -\nBudget\nGarner tells FDR people on Hill are right behind him in\nperfecting the budget - 4/23/37\n27\nFDR explains to HMJr that Housing Bill should function\nas follows:\n- 4/26/37\n71\n1) $1 million project: city should provide out of\nits own budget $200,000; Federal Government will\ngive grant of 45%, or $360,000; Federal Government\nwill give 10% of relief labor, or $80,000;\nbalance of $360,000 should be raised on first\nmortgage\n2) FDR also tells HMJr he will either send a message\nto Congress or letter to Harrison and Doughton\ngoing into detail concerning the shortage of\n$600 million in revenue; wants to emphasise that\nTreasury estimate and method of estimating are\ncorrect but that taxpayers find too many loopholes\nGarner tells HMJr time may come when he will have to\nresign if he does not get the cooperation of FDR on\nspending; Garner tells HMJr, \"Frankly, I am talking to\nthe President through you\" - 4/27/37\n88\nBusiness Conditions\nDaggit memorandum: \"The Business and Price Situation\" -\n4/29/37\n292\n- C -\nBook Page\nChase National Bank\nAldrich and Anderson (Benjamin M. - - Economist) going to\nEurope; Anderson is seeing Hull and wishes to see HMJr\nalso before sailing - 4/28/37\nLXVI\n231\na) HMJr discusses interview with Aldrich; tells\nAldrich, Anderson \"rubbed him wrong way\" and he\n(HMJr) thinks interview was most unfortunate - -\n4/30/37\n340\nHaas memorandum on conference\n372\n- E -\nEngland\nSee Great Britain\nEngraving and Printing, Bureau of\nHMJr asks that Major Berry be informed that his request\nfor the 15% differential for night workers has been\napproved - 4/27/37\n103\n- F -\nFamous Brands Ohio, Incorporated\nSee Investigations, Treasury Personnel\nFarm Tenancy Bill\nSee Agriculture\nFederal Trade Commission\nHMJr's letter to FDR, which was referred to Federal Trade\nCommission; Federal Trade Commission's reply to FDR;\nFDR's proposed letter transmitting this reply to the\nSpeaker and to Senator Robinson; and the letter from\nFederal Trade Commission approving this use of its\nletter; together with Oliphant resumd of case - 4/23/37\n17\nHMJr tells Oliphant matter was cleared at Cabinet - 4/26/37\n63\nFinancing, Government\nTaylor memorandum on gross amounts of bills which banking\nsystem can properly handle, the proper maturities,\nmaximum amount which should mature on quarterly dates,\net cetera - 4/28/37\n260\n- G -\nGermany\nWhite reports on conversation with Dr. Otto Jeidels, one of\nthe owners of the largest wholly privately-owned bank in\nGermany, the Berliner Handelsgesellschaft - 4/29/37\n306\nRegraded Uclassified\n- G - - (Continued)\nBook Page\nGovernment Bond Market\nEccles explains Federal Reserve action to HMJr when\n\"the market went off pretty badly\" - 4/26/37\nLXVI\n49\na) See Burgess memorandum\n46\nHarrison tells HMJr he is going to have a series of talks\nwith principal banks to find out, if possible, what is\nworrying them 4/27/37\n91\nHMJr aska Butterworth to ask American brokers in London\nwhy people are selling American stocks - 4/27/37\n104\na) Butterworth reply\n133\nHMJr asks Cochran also to make inquiries - 4/27/37\n117\nKnoke tells HMJr, Bolton reports whispering campaign\nmostly in academic circles, the so-called \"semi-\nintelligentsia\" - 4/27/37\n124,129,131\nGreat Britsin\nSee also Stabilization\nHMJr reports discussions that Cabinet is having concerning\ntalks Bingham and Davis are having with Chamberlain;\nGarner thoroughly displeased and wants to know subject\nof discussions - 4/29/37\n280\nHMJr-Arthur Krock conversation - - 4/29/37\n284\na) Ferdinand Coons' erticle \"Stocks Fall in London\"\ndiscussed\n1) HMr suggests article: due to FDR's constant\nwarnings, investigation shows United States\nbanks have not made commodity loans, brokerage\nhouses are in good shape, et cetera\nButterworth reports that Clay (Economic Adviser to Bank of\nEngland) has emphasized that decline in London Stock\nExchange prices has reached panic proportions - - 4/29/37..\n324\n- H -\nHarper, Williem G. (Secret Service Operative in Charge)\nSee Investigations, Treasury Personnel\nHousing\nSee Budget\n- I -\nInvestigations, Treasury Personnel\nYellowley-Igoe case: See also Books LIX, LX, end LXIV\nTreasury Department's reply to Igoe's charges transmitted\nto Department of Justice - 4/27/37\n139\nYellowley and his chief assistent, Levi 2. Baker, ordered\ncited for contempt of court because of conversations\nwith a Federal Grand Jury foreman - 4/29/37\n283\na) HMJr discusses with Oliphant - 4/29/37\n286\n- I - (Continued)\nBook Page\nInvestigations, Treasury Personnel (Continued)\nMcReynolds memorandum to HMJr reporting further on\nalleged participation of Collector of Internal Revenue\nCarl E. Moore, Assistant Collector of Customs C. W.\nPollock, and Secret Service Operative in Charge\nWilliam G. Harper, of Cleveland, Ohio, in 8 liquor\nsales agency - 4/27/37\nLXVI\n188\na) For Oliphent memorandum on above, 4/27/37,\nsee page 192\nb) Oliphant reports at 9:30 meeting that nothing\nhas ever been turned over to charity and they\nhave taken at least three more checks - 4/28/37\n222\nHarper-Moore-Pollock case discussed by HMJr, Oliphant,\nMcReynolds, Manning, and Helvering - 4/28/37\n234 -\nSecond conference; present: HMJr, Oliphent, Helvering,\nand McReynolds - 4/28/37\n245\na) HMJr reports on conference with Senator Bulkley\n1) Bulkley seems stunned that nothing has been\ndone\n- J -\nJapan\nAmerican Embassy, London, reports unsatisfactory\nconversations with Arakaws; thinks Arakawa has no\ninstructions to do anything specific - 4/23/37\n32\nResume of financial and economic policy &8 explained in\na speech delivered by Japanese Minister of Finance at\nthe Conference of Clearing Houses held in Tokio on\n4/20/37\n65\nTelegram from American Embassy, Tokio, quotes Minister\nof Foreign Affairs 88 saying that a check should be\nplaced on trend toward extreme trade protection and\nthat Japan should participate in movement with Europe\nand America; in spite of this, Ministry of Finance has\ndecided to retain in force after July 1st measures\nadopted on January 8th for import exchange control and\nto expand the scope of the measures in order gradually\nto restrict imports into Japan of luxury goods and non-\nessential materials - 4/23/37\n96\nAmerican Embassy, Tokio, reports on foreign policies of\nSato, recently appointed Minister for Foreign Affairs -\n4/28/37\n249\nJeidels, Otto (one of the owners of the largest wholly\nprivately-owned bank in Germany, the Berliner\nHandelsgesellschaft)\nSee Germany\n- K -\nBook Page\nKrock, Arthur\nHMJr decides to talk to Krock - 4/26/37\nLXVI\n57\nSee also Great Britain\n\" \" Stabilization\n- M -\nMellon, Andrew W.\nTax case discussed at Cabinet - 4/26/37\n64\nMethodists\nHMJr tells 9:30 group of plan for shrine at Oglethorpe,\nGeorgia, where Wesley landed, where, in time, they\nwill have a national home and national cemetery for\npreachers - 4/23/37\n1\nMoore, Carl E. (Collector of Internal Revenue - Cleveland, Ohio)\nSee Investigations, Treasury Personnel\n- N -\nNarcotics\nStrike at Parke-Davis plant in Detroit reported at 9:30\nmeeting; $1 million worth of narcotics there;\nHMJr tells McReynolds to watch situation very closely -\n4/29/37\n274\nArticle in North China Daily News, Shanghai, on Taybank\ncase - 4/30/37\n380\n- P -\nPollock, C. W. (Assistant Collector of Customs - Cleveland, Ohio)\nSee Investigations, Treasury Personnel\nPublic Health\nDispensary:\nHMJr asks Miss Roche, McReynolds, and representative of\nSecretary Ickes to investigate - 4/28/37\n221\nMcReynolds reports on space available in Loans and\nCurrency Building; will cost very much to put it in\nshape - 4/30/37\n360\n- R - -\nRussia\nSee U.S.S.R.\n- 6 -\nBook Page\nSmith Company, E. M.\nConference in Cummings' office; present: Cummings,\nAssistant Attorney General Morris, Oliphant, and\nMagill - 4/23/37\nLXVI\n14\na) Following conference, HMJr writes Cummings:\n\"In view of unusual character of these cases,\n***** any consideration of settlement of\ncivil liabilities at present is untimely\nand these criminal cases should be pressed\nto trial *****; thereafter the collection\nor settlement of the tax liability can be\ntaken up\" - 4/27/37\n138\nStabilization\nSee also Government Bond Market\nAmerican Embassy, London (Butterworth), reports further\nexchange of information: Phillips reports complete\nunderstanding of United States point of view; thinks\nit desirable to keep matter in the back of one's mind\nfor it is not pressing at this time\n33\nB) HMJr also asks Cochran to make inquiries\n117\nFrench situation also discussed in above conversation;\nPhillips thinks & crisis point may be approaching\n33\na) Cochran resume of situation in France -\n4/23/37 and 4/24/37\n35,43\n1) Cochran reports Minister of Finance\nbitterly complained before Chember of\nFinance Committee yesterday against\ncirculation of stories of imminent\nperil in finance situation and suggests\nthat campaign is the work of political\nenemies - 4/29/37\n331\nFrank Altschul writes HMJr at length concerning \"hot money\" -\n4/26/37\n83\nKnoke reports to HMJr on conversation with de Jong, of\nDe Nederlandsche Bank, concerning change in Instructions\nwith regard to sale of guilders - 4/27/37\n110\nFour principal causes of present uneasiness on exchange,\nsecurity, and commodity markets in Europe reported by\nCochran - 4/28/37\n200\n1) American gold scare\n2) French situation\n3) Remarks by FDR on commodity prices\n4) Taxation by Great Britsin and borrowing for rearmament\nHMJr-Arthur Krock conversation - 4/29/37\n284\na) Ferdinand Coons' article: \"Stocks Fall in London\"\ndiscussed\n1) HMJr suggests article: due to FDR's constent warnings,\ninvestigation shows United States banks have not made\ncommodity loans, brokerage houses are in good shape,\net cetere\nButterworth reports that Clay (Economic Adviser to Bank of\nEngland) has emphasized that decline in London Stock Exchange\nprices has reached panie proportions - 4/29/37\n324\n- T- -\nBook Page\nTaxation\nFor FDR's request that HMJr investigate loopholes in\ntax system, see page 72\nConference in HMJr's office; present: Magill, Oliphant,\nHelvering, and McReynolds - 4/29/37\nLXVI\n315\na) Reorganization of Bureau of Internal Revenue\ndiscussed so that number of places for review\nof additional tax cases before reaching Board\nof Tax Appeals may be lessened\n- U -\nU.S.S.R.\nFor resume of conferences on gold, 4/11/37-7/17/37,\nsee Book LXIV, page 79\nFederal Reserve Bank of New York reports cable from\nU.S.S.R. State Bank indicating desire to open an\naccount 4/28/37\n213\na) HMJr discusses with Eccles, who hopes Board\nwill approve request this morning; HMJr asks\nEccles to take personal interest because he\nfears & little resistance in New York -\n4/29/37\n266\nTaylor reports on luncheon conversation he and\nLochhead had with Oumansky - 4/29/37\n263\nHaas digest of two articles on Russien foreign trade\nwritten by A. Rosenhols, People's Commisser for\nForeign Trade - 4/30/37\n368\nUnited States Savings Bonds\nMcReynolds reports on conference with Comptroller\nGeneral to discuss Treasury's proposal to designate\ndepository banks as fiscal agents of the Treasury\nto sell \"baby bonds\" - - 4/27/37\n191\nHMJr tells Sloan and Bryan he wants to \"pep up\" sale\nbetween now and July lst - 4/29/37\n289\n- V -\nVeto Messages\nOliphant calls HMJr's attention to necessity of accurate\nrecords at White House and at Senate of exact time at\nwhich bills are returned to the Senate with the veto\nmessage of FDR 4/26/37\n47\n- W -\nBook Page\nWallace, Henry A. (Secretary of Agriculture)\nDoughton-HMJr conversation concerning Wallace speech\n\"Boom Feared Behind New Deal Fiscal Policy\"\ndelivered at University of North Carolina -\n4/29/37\nLXVI 328\na) Doughton feels only HMJr should represent\nAdministration on fiscal and tax policies\nWolfe, Joe (Democratic National Committeeman, Minnesota)\nSee Appointments and Resignations\n1\nApril 23, 1937\n9:30 group meeting.\nPresent:\nH. S. Klotz\nMr. Magill\nMr. Oliphant\nMr. Gaston\nMr. Taylor\nMiss Roche\nMr. Haas\nDr. Viner\nMr. Upham\nMr. Lochhead\nMr. McReynolds\nMr. Bell\nHM,Jr: Mac, there 1s a Mr. Jones coming in at ten\no'clock and I would like to have you here. He wants\nto know how they can go about making a national park of\na place down at Sea Island where this British gentleman\nlanded in 1770. He's got a very interesting idea. You\nwill be interested. The secretary of this general was\nthe man who founded the Methodist Church. Who founded\nthe Methodist church?\nDr. Haas: Wesloy.\nHM,Jr: There were two Wesley brothers. What was the\nname of the place?\nMr. Magill: Oglethorpe.\nHM,Jr: I thank you. They are trying to do two things.\nOne, 18 to get a national park where Wesley landed, at\nOglethorpe, and next to at they want to have a shrine for\nthe Methodists, combined, in 1940, and have a national\nhome and national cemetery for Methodist preachers. On\naccount of their moving around, they don't have a home.\nVery interesting idea.\nDr. Haas: The cemetery part is all right.\nHM.Jr: What he wants to know 18 does the National Park\nService buy land or does Georgia have to buy the land. Who\n2\n-2-\ncan he 800 and how can he go about to buy Fort Oglethorpe.\nThe Methodists will take care of their part.\nMr. Bell: Act of Congress on the books which authorizes\nthe National Park Service to establish historical points\nand make national monuments or shrines.\nHM.Jr: Personally I am tremendously impressed with this.\nI think he has a marvelous idea.\nMr. McReynolds: All the Methodists would have to do\nwould be to furnish the money.\nHM,Jr: They will take care of themselves, but the two\nthings will be next to each other. What he 18 interested\nin 18 having Fort Oglethorps made a national park. The\nother thing 1s next to it. They are not asking for any\nmoney, only to have Fort Oglethorpe as & national park.\nMr. Bell: The general policy is that somebody furnishes\nthe ground.\nHM,Jr: I want to put him in touch with the right party.\nThe Congressman from that district comes from Sea Island.\nPersonally I think it is a good idea -- the combining of\nthe two -- and put the whole business where Wesley first\npreached. The oak 18 still there. Evidently I am more\nreligious than some of the people in the room. Of course\nhe was not a Methodist when he arrived here. That's the\npoint. But out of that came the Methodist Church.\nMr. Upham: Jake Viner has read a very scurrilous his-\ntory of Wesley's life.\nDr. Viner: I don't think the book stressed the Georgia\npart of his lift. It W8.8 his life in England that it\nstressed.\nMr. Bell: I am in favor of it if it does not cost money --\nthat and the Jefferson Memorial.\nHM,Jr: I thought we might take this out of Soil Conser-\nvation!\nMr. Bell: I am in favor of that too.\nMr. Magill: Can't you put a three-strand barbed wire\n3\n-3-\nfence around 1t?\nHM,Jr: It only needs to be a three-strand wire fence.\nI want you to write a letter to Henry Wallace and ask if\nI get more if the wire 1s barbed? For an hour and a half\nHenry Wallace explained it and Bell said he understood it\nperfectly!\nMr. Bell: I had a lesson in agriculture.\nHM,Jr: The trouble was the President was sleeping 80\nhe did not stop anybody from talking.\nMac? Anything?\nMr. McReynolds: No. Graves 18 back this morning.\nMr. Bell: I haven't anything.\nHM,Jr: You and I, what do we do? Just sit tight until\nwe get a call from the White House?\nMr. Bell: I think that's the best thing? You mean on\nthe agricultural thing?\nHM,Jr: Yes.\nMr. Bell: They have had '8 rule and they were holding\nit up in Committee -- the Agricultural Bill. Does it come\nup for vote today?\nMr. Oliphant: That's what they said.\nMr. Bell: I thought it was being held until the Speaker\nheard something from the White House.\nMr. Oliphant: Has word gone to the Speaker to hold it?\nHM,Jr: Yes. But no word from this shop. Please get that\nstraight. We haven't done a thing. We Just sit tight.\nMr. Bell: I don't know what else to do. We suggested\na way to get the money and no one agrees with us, 80 they\nought to suggest something.\nHM.Jr: 0. X. Would you make a note, Dan. In view of\n4\n-4-\nthe fact that Mr. Wallace throws down his own statement\nas the thing is written, how much cash he would draw on\nthe Treasury. You see? He threw down his own statement.\nThis 18 the only copy I have. You might give no one to\ntake to Cabinet.\nMr. Bell: You mean based on Budget figures?\nHM,Jr: Yes.\nMr. Bell: Get figures from our standpoint.\nHM,Jr: Yes. Ezekiel fixed up figures on how much they\nare going to spend and I use the figures and they show that\non a cash withdrawal basis that Wallace gets one dollar out\nof every six. Then yesterday he throws down his own figures.\nMr. Oliphant: Ezekiel wasn't there?\nHM,Jr: Oh, no.\nMr. Upham: I have nothing.\nHM,Jr: The figures are right. Jump said they were right.\nDr. Viner: Is that the Department or all agricultural\nprograms.\nHM,Jr: Everything that goes through Wallace.\nDr. Viner: I would throw in any agricultural expenses --\nFarm Credit -- all agricultural expenses.\nHM,Jr: Supposing you have someone do that, Dan.\nDr. Viner: You ought to make a functional analysis.\nMr. Lochhead: Nothing.\nDr. Viner: Nothing.\nHM,Jr: Eleven o'clock, Jake, will you come in?\nDr. Viner: What's this investigation they are making of\nthe Alcohol Tax Unit in Chicago. The papers are full of a\nGrand Jury investigation.\nMr. Oliphant: We heard of that.\n5\n-5-\nHM,Jr: Did that just reach you? What do you read? The\nChicago Herald, one month late?\nDr. Viner: Chicago Tribune.\nMcReynolds: Yesterday evening they had it, only the other\nside of it. \"April Grand Jury bawls out the United States\nAttorney's Office andthrows bouquets at Alochol Tax.\"\nHM,Jr: God! Has it taken us that long to get it across?\nDid you (Viner) notice somebody just returned from Chicago?\nAre you interested in it?\nDr. Viner: Yes.\nHM.Jr: Send for Harold Graves if you are interested. It's\n& long story, but he can give it to you.\nDr. Haas: Nothing.\nHM,Jr: Will you (Haas) get in touch with Professor Merriam?\nHe's the fellow with National Resources and he wants us to put\non a show for them. You see, the President has these meetings\nsupposedly once a week, but he will not have one next week be-\ncause he will be away, and what Merriam wants is to look at\nthe picture from the Treasury's angle. Talk to him and 600\njust what he wants. Find out what he wants. He whispered\nto me and said that the next time they would like me to read\na paper on it from the Treasury angle. I don't want to do\nit unless it's absolutely top-notch, unless we have something\nto say. Anything else, George?\nDr. Heas: No.\nHM,Jr: (To Miss Roone) Denver still there?\nMiss Roche: Very much, sir.\nHM,Jr: After you have read the report on that hospital\nI would like to talk to you about it.\nMiss Roche: I would like to talk to you, too, Sir, but\nI would want first to talk to some other people about it.\nMr. Taylor: Nothing.\n6\n-6-\nMr. Gaston: Magill, do you have any objection to my doing\nwhat MacKellar wants?\nMr. Magill: No. Fine. Unless Mac objects.\nMr. Gaston: Might get Mac to write it.\nThe President has no press conference this morning.\nHM,Jr: Why?\nMr. Gaston: On account of Forbes Morgan's funeral. What\nother reason, I don't know.\nHM,Jr: You notice I wasn't asked to be a pallbearer. Also,\nmy picture wasn't among those in the advertising book. You\nknow. I felt hurt!\nWas there anything more about my nice side remarks about\nthe New York Times and their gold story? Krock didn't call\nme up.\nMr. Gaston: No. No. Both Rodney Bean and Bob Thornburgh\nacted kind of guilty and shamefaced about it. Rodney was told\nto ask and then Rodney wished it off on to Bob Thornburgh.\nHM,Jr: Lucky for me, after Walter Lippmann had been in to\n600 me he went up to see Bell and Bell told him word for word\nwhat I had told him without any preliminaries. But he walked\nin just the same to Bell and said, What I want to know is do\nthey mean what they say?\nMr. Oliphant: I sent you the files and record of what we\ndid in connection with the so-called joker in the liquor bill.\nIt's just for your records.\nHM,Jr: Not for action?\nMr. Oliphant: No. You remember we communicated with the\nCommission and I will have before you go to Cabinet meeting\na one-page summary of the Federal Trade Commission's bill.\nHM,Jr: May I say to you people that on account of the\nwork Bell and I have been doing, I an just three weeks behind\nand if anybody wants any action on anything, don't send it to\nme; handit personally to Mrs. Klotz because everything else\nis Just piling up for a rainy day. But if anybody wants\n7\n-7-\nanything done, you had better actually hand it to her be-\ncause I All three weeks behind on my reading. I have never\nbeen so badly off.\nMr. Magill: Nothing.\nHM,Jr: You fellows are going over at 11 o'clock?\nMr. Magill: Yes.\nHM,Jr: Who do you take with you?\nMr. Magill: Secret Service!\nMr. Oliphant: A couple of machine gune!\nHM,Jr: I want to say, if all of you could keep your ears\nopen, because I think the Treasury 18 going to come in for\nsabotage from now on, the like of which we have never had\nbefore. Bell and I are always in a tough spot, but I think\nwe will be in an even more difficult spot because as the\nPresident turns to us and says, If Wallace wants a Farm\nTenancy B111, find the money for him, and then Wallace during\nthe day, I give this 8.6 an example, knowing we found the money\nbut it has to come out of some existing appropriation, has a\npress conference and says, 'Too bad, Economy 18 the order\n80 we will Just give yp all the programs,' and then today\ncomes a long statement from Ed O'Neal attacking the thing.\nIt clicks Just like that (gestures).\nMr. Bell: There is going to be 8. conference here in ten\ndays, I understand.\nHM,Jr: I think it's terrible, but, 8.8 I say, I think\nBoll and I will come in for this kind of thing within the\nAdministration. It has been bad enough up to now, but I\ndon't think anything we have had will equal what we are going\nto get in the next two or three months, and anything you\npeople pick up or hear -- but it will come from within the\nAdministration. Wallace will attack and sit back and say,\n\"We want to do everything\" and then put various pressure\ngroups to work on us. I think it's terrible. Money is\navailable for Farm Tenancy, for ever-normal granary, for\nHousing -- it's all there, but they have to give up something.\nSo if you hear anything that 1a helpful to Bell and me, I\nwish you would get it. Bell, I think you and I are going\nto have the worst time because it's going to come from within.\nHerbert, you might get O'Neal's release for no. Just how\n8\n-8-\nmuch of it the President is going to stand, I don't know.\nBut I just thought I would let you know. But I think it's\nworth taking -- quite worth while.\nMr. Bell: By the way, Walter Lippmann sensed that. He\nnoticed a story in the paper on Wallace and he said, 'I think\nunless the President stands behind the Treasury that you\nwon't be able to go through with this program. I think\nit's unfair to put the Treasury on the spot that way and\nalone.' He said, 'I can see it coming.'\n000-000\n9\nApril 23, 1937\nAfter Cabinet the President asked to see Wallace,\nBell and me. At the end of & half hour discussing the\nFarm Tenant Bill Wallace suggested that we cut his road\nappropriation from 150 million dollars to 120 million\ndollars - the 30 million dollars to go towards starting\nthe Farm Tenancy Bill. This is, of course, what I hoped\nand prayed for, namely, that they would cut appropriations\nto find the necessary money to start anything new with.\nOn Crop Insurance they decided that they would limit\nit to wheat and that they would only need about three million\ndollars for administrative purposes until August, 1938, and\nWallace said that he would consult with his people to see\nwhether he could find the three million.\nThe meeting started very tense but ended on a very\namicable basis. I am tremendously encouraged.\nRegraded Uclassified\n10\nCONFERENCE AT THE WHITE HOUSE, APRIL 23rd.\nThe President discussed with Secretary Morgenthau, Secretary Wallace,\nand myself, the question of funds to finance, during the fiscal year 1937,\nthe provisions of the Farm Tenancy Bill and the Crop Insurance Bill. He\nasked Secretary Wallace as to whether or not he had been able to find any\nfunds in the Agriculture Department to finance the Farm Tenancy program.\nThe Secretary replied that they had discussed the matter at some length\nwith the heads of the various bureaus of the Department of Agriculture\nconcerned and they had come to the conclusion that the most that would be\nneeded for the fiscal year 1938 to start this program on an experimental\nbasis and maintain only a micleus of an organization would be about\n$25,000,000. He said he did not think they should spend more than\n$15,000,000 on Farm Tenancy and he hoped that the Department might get\nby with as much 88 $5,000,000 for the fiscal year. Under the land-buying\nprogram he thought that $5,000,000 would be sufficient but officials\nin charge of that program would prefer to have $10,000,000.\nAs to the source of the funds, he thought that the best place would\nbe good roads. He asked me to explain the situation with respect to good\nroads. I stated that the Secretary of Agriculture, prior to January 1,\n1937, apportioned for the fiscal year 1938 about $200,000,000 among the\nseveral States for Federal aid highways and grade crossings, and that\nthere will be a similar amount available for apportionment on January 1, 1938.\nThe Budget for 1938 contains an item of appropriation of $150,000,000 to\npay the States for Federal share of this program for the fiscal year 1938.\n11\n- 2 -\nI explained that when the Secretary of Agriculture apportioned these funds\nto the various states it becomes under the law an obligation of the\nFederal Government and does not require a contract to construct the roads\nin order to incur that obligation. I said that I felt some money could be\nsaved out of good roads by two methods (1) for the Appropriations Commit-\ntee to reduce the $150,000,000 to $130,000,000 after which the Secretary\nshould instruct Mr. MacDonald to advise the States that while the author-\nization for roads had been apportioned among the several States there\nwas only available for expenditure during that fiscal year the sum of\n$130,000,000 and therefore projects would not be approved in excess of\nthat sum, or (2) for the Secretary to instruct Mr. MacDonald to delay\nthe approving of projects 80 that some part of the program, to the extent\nof $20,000,000 or $30,000,000 will be thrown over into the fiscal year\n1939. Of the two, I prefer number (1) because Congress would be a party\nto the changed program. In either case, I think there will be some\nrepercussions from the road organizations.\nThe President instructed me to confer with Mr. Jump and Mr. MacDonald\nof the Agriculture Department to work out the necessary steps and then\nconfer with the Chairman of the Appropriations Committee so that the\nreduction might be made in the estimate pending in Congress.\nSecretary Morgenthau then brought up the question of the participation in\nthis program of Governor Myers' organization. He said that he felt that Gover-\nnor Myers already had the Federal Farm Mortgage Corporation a set up which\nRegraded Uclassified\n12\n- 3 -\nis prepared to assist in this land-buying program, particularly in\nthe appraisal end. He thought it advisable that the Secretary of\nAgriculture not set up a duplicate organization but be required to\nuse the organization already in existence with, of course, full\nauthority in the Secretary of Agriculture to determine the type of\nprojects and the places where they should be located. Secretary\nWallace agreed that this had a great deal of merit and he would be\nglad to look into that phase of the matter.\nSecretary Wallace then brought up the Crop Insurance Bill which\nhas passed the Senate. He said that he thought the President ought\nto get behind it or it would not get through as a great deal of\nobjection has developed in the House. The President asked the\nSecretary how much money was involved and he replied that there was\n$10,000,000 for administrative expenses and $100,000,000 for capital\nstock but that he did not feel the full amount indicated would be\nneeded for the fiscal year 1938. I asked the Secretary if he did not\nfeel that the incurring of obligations under the Crop Insurance program\ncould be confined for the fiscal year to wheat and the liquidation of\nany obligation so incurred could be confined to the fiscal year 1939\nand that the administrative expenses might very well be kept within\n& limit of not more than $3,000,000. He said that it was his thought\nthat the bill now pending in the House should eliminate every grain\nexcept wheat and that the experiment should be confined to that grain,\nand that the matter of the liquidation of the obligations under this\nprogram would not be presented until about August 1938, which would be\nRegraded Uclassified\n13\n- 4 -\nin the fiscal year 1939, and that certainly it was his thought that\n$3,000,000 for administrative expenses would be ample and he hoped\nthat they might turn out to be a great deal less than this sum. He\nalso said that he saw no reason why the funds required in 1938 for\nthis purpose should not also be taken out of roads.\nDWB\nRegraded Uclassified\n14\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE April 23,1937\nTO\nSecretary Morgenthau\nFROM\nMr. Magill\nSubject: Conference regarding the case of E. M. Smith, in\nAttorney General Cummings' office, attended by\nthe Attorney General, Assistant Attorney General Morris,\nMr. Oliphant, and myself.\nThe Attorney General asked for our views regarding the case,\nMr. Oliphant told him that in our opinion it was a particularly\nflagrant case, since there had not only been gross fraud by the tax-\npayer, but the taxpayer had induced twenty-five or thirty clerks,\ncashiers and the like to participate in his attempts to defraud the\nGovernment. Mr. Oliphant gave the Attorney General the names of\nseveral of these individuals with salaries ranging from $1,800. to\n$2,500. a year, who were dependent in some way upon Mr. Smith and\nwho, at his request, reported dividends of around $15,000. to $25,000.\neach, which did not belong to them. Mr. Oliphant said that WO re-\ngarded the case as one of the worst which we had ever seen and that\nit was extremely important to the morale of the taxpayers on the\nPacific Coast that the criminal prosecution be actively carried through.\nThe Attorney General then made B. long statement to the effect that\nthe difference between the Treasury Department and the Department of\nJustice was that his men had had greater experience with Judges and\njuries and that in many cases in which his attorneys would agree with\nthe Treasury that the fraud was flagrant, nevertheless a conviction\nhad not been secured. He mentioned particularly the Mitchell case\nand the \"Dutch\" Schultz case. Mr. Morris stated that there were a\nnumber of legal questions regarding some aspects of the tax liability\n80 that WG might not be able to recover the full tax. Further,\nMr. Smith would explain the fraud on the grounds that his wife, from\nwhom he was separated, was causing him a great deal of difficulty, and\nhe did not want her to know the actual extent of his fortune.\nMr. Oliphant reminded the Attorney General that Justice's success\nin fraud cases ran about 70 percent and that this case WRB of 8. sort\nwhere success is likely, owing to the fact that there would be many\nwitnesses who would testify to Smith's fraudulent schemes. He said\nthat this 08.86 offered the same opportunity to the Attorney General as\nthe Mellon case to instill new standards of uprightness in taxpayers.\nRegraded Uclassified\n15\nThe Secretary - 4/23/37 - 2\nThe Attorney General said that so far as the civil liability\nwas concerned, the taxpayer is now offering $1 million in cash,\n$500,000. payable at the end of the year, with the understanding\nthat he will waive the statute of limitations and permit the case\nto be tried before the Board of Tax Appeals to determine his exact\nliability. The understanding will be, further, that no part of the\n$11 millions is to be returned even if the Board finds his liability\nis loss than that amount. The Attorney General said that he thought\nthis offer VALS about all that could be expected, since the tax-\npayer's total assets were around $4 millions. Be could hardly be\nexpected to offer the full amount of the tax, penalties and interest,\nsince to do so would undoubtedly ruin him and cause him to lose con-\ntrol of his business. The Attorney General felt that the taxpayer\nwould agree to enter a plea of \"guilty\" to one of the counts of\nthe indictment, and that it would then be up to the Judge to de-\ntermine the sentence. The Attorney General did not seen disposed to\nundertake that his attorneys would make a vigorous attempt to seoure\na substantial jail sentence.\nI pointed out to the Attorney General that although WG had lost\nthe Mitchell case, the not effect has been to put a stop to husband\nand wife transactions for tax purposes, hence our loss W&S really a\ngreat victory. Furthermore, whether we win or lose the Mellon case,\nno one is apt again to create an educational trust out of pictures\nhanging on the walls of his own house, Both Mr. Oliphant and I com-\nplimented the Attorney General upon his persistence in prosecuting\nthe Mellon case, and told him that the case had been extremely help-\nful to the Treasury.\nThe Attorney General finally suggested at the end of a con-\nference of 11 hours, that we take a little more time to think over\nthe offer. Mr. Morris stated that the oriminal case was now set\nfor trial in the June term. The Attorney General thought that WB\nought to make up our minds regarding the offer in compromise at an\nearly date. He suggested in conclusion that the very fact that the\noffer had been made would make it difficult for us to succeed in the\ncriminal case.\nAfter this conference I saw Robert H. Jackson. He told me in\nconfidence that while he was head of the Tax Division he hAd strongly\nrecommended to the Attorney General that the criminal case be actively\nprosecuted. He said he had told the Attorney General that the\n$13 millions offer was ridiculous since it involved us in the neces-\nsity of trying out the fraud case. So far as the entry of the plea\nof guilty was concerned, he said he felt no doubt that & suspended\nsentence would be given. He added that Mr. Bruce Kramer had been\nvery angry at him and at you for refusing to accept the offers in\nRegraded Uclassified\n16\nThe Secretary - 4/23/37 - 3\ncompromise and that he (Jackson) had been told that his transfer\nto the Anti-trust Division might be connected with his\nattitude in this matter.\nRm\nRegraded Uclassified\n17:\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE April 23, 1937\nTO\nSecretary Morgenthau\nFROM\nHerman Oliphant\nThere are attached your letter to the President, which he\nreferred to the Federal Trade Commission, the Federal Trade\nCommission's reply to him, his proposed letter transmitting\nthis reply to the Speaker and to Senator Robinson, and the\nletter from the Federal Trade Commission approving this use of\nits letter.\nThis, briefly, is the situation: It now violates Federal\nlaw for a manufacturer to bind retailers to keep up the price\nof his product. This Tydings-Miller Bill would make this law-\nful in interstate commerce involving States which have legal-\nized contracts for resale price maintenance.\nThis change in the Federal law would facilitate a rise in\nthe price of many commodities and thus raise the cost of living.\nIf they say this Bill is aimed to prevent a retailer from\nselling something below cost to get customers into his store,\nthe answer is that that is a different unfair method of compe-\ntition, namely, predatory price study. We should prohibit it,\nbut not legalize resale price maintenance.\nThe five cases in the Federal Trade Commission against the\nliquor interests charged them with violating Federal law by\nbinding retailers with contracts to maintain their monopoly\nprices. If the Tydings-Miller Bill passes, these cases fall,\nand you can expect a rise in the price of liquor which will\naccentuate the \"bootlegging\" problem.\nAttachments\nUus Kerly:\n4-27-27\nBrought this subject at Cabinet\nPresident agreed to sign\n4 two attached letters HmL\nRegraded Uclassified\n18\nFEDERAL TRADE COMMISSION\nWASHINGTON\nAYRES\nApril 23, 1937.\nHonorable Henry Morgenthau, Jr.,\nSecretary of the Treasury,\nWashington, D. C.\nDear Mr. Secretary:\nIn response to your inquiry about\nthe letter of April 14 addressed to the President\nby myself as Chairman of the Federal Trade\nCommission, and discussing the probable effect of\nthe Tydings-Miller bill, you are advised that the\nletter was for the use of the President in any\nway he may wish.\nVery truly yours,\nW. 6 apes\nW. A. Ayres,\nChairman.\nRegraded Iclassified\n19\nSirt\nMy attention was called to S. 100, which would render\nlegal certain contracts for the maintenance of resale prices\nnow illegal under Federal law. I requested the Chairmen of the\nFederal Trade Commission to give ne a recommendation on this Bill,\nand I attach his reply on behalf of the Commission.\nThe present haserd of undue advances in prices, with a\nresultant rise in the cost of living, makes it most untimely to\nlegalise any competitive or marketing practice calculated to\nfacilitate increases in the cost of numerous and importent articles\nwhich American householders, and consumers generally, buy. You will\nnote that the Federal Trade Commission has made no study of the\neffect of resale price maintenance on consumers since 1929, but the\nCommission does mention a reputable body of informed opinion to\nthe effect that such control of resale prices would be hermful\nto the consuming public. Indeed, the Commission says: \"There is\ngreat probability that manufacturers and dealers may abuse the\npower to arbitrarily fix resale prices by unduly increasing prices,\nresulting in bitter resentment on the part of the consuming public,\nespecially in this period of rising prices.\"\nSince we are in a period of rising prices, this 8111 should\nnot, in ay judgment, receive the consideration of the Congress until\nthe whole matter can be more fully explored. Conceivably, the Con-\ngress might approve having the Commission bring down to date the\nstudy which it made eight years ngo by examining the economic effects\nof resale price maintenance under the novel and rapidly changing\nconditions now attending business in this country.\nFaithfully yours,\n7AR\nHonorable Joe T. Robinson\nUnited States Senate\nEnclosure\nHOrboie Typed 4/22/37\nRegraded Uclassified\n20\nSira\nMy attention was called to H.R. 1611, which would render\nlegal certain contracts for the asintenance of resale prices now\nillegal under Federal lav. I requested the Chairman of the Federal\nTrade Commission to give no a recommendation on this Bill,\nand I attach his reply ou behalf of the Commission.\nThe present hazard of undue advanced in prices, with a\nresultant rise in the cost of living, makes it most untimely to\nlogalize any competitive or marketing practice calculated to\nfecilitate increases in the cost of numerous end important articles\nwhich American householders, and consumers generally, buy. You will\nnote that the Federal Trade Commission has made no study of the\neffect of resale price maintenance on consumers since 1929, but the\nCommission does mention a reputable body of informed opinion to the\neffect that such control of resale prices would be hermful to the\nconsuring public. Indeed, the Commission sayss \"There is great\nprobability that munufacturers and dealers may abuse the power to\narbitrarily fix resale prices by unduly increasing prices, result-\n108 in bitter resentment on the part of the consuming public, espe-\ncially in this period of rising prices.\"\nSince we are in 6 period of rising prices, this Bill should\nnot, in my judgment, receive the consideration of the Congress until\nthe whole matter oan be more fully explored. Conceivably, the Con-\ngress might approve having the Commission bring down to date the\nstudy which it made eight years age by examining the economic effects\nof resale price maintenance under the novel and rapidly changing\nconditions now attending business in this country.\nFaithfully yours,\n7LR\nThe Speaker,\nHouse of Representatives.\nEnclosure.\nRegraded Uclassified\nFEDERAL TRADE COMMISSION\nWASHINGTON\nApril 14, 1937\nThe President,\nThe White House,\nWashington, D. C.\nDear Mr. President:\nReceipt 1s hereby acknowledred of your memorandum\nof April 7, 1937, transmitting Secretary Morgenthau's\nletter of April 6, 1937, and requesting a recommendation\non the Tydings-Miller Bill. The Commission has not\nheretofore expressed an opinion as to the merits of\nthis bill for the reason that it deemed it to be a\nmatter of legislative policy for determination by\nyourself and the Congress.\nThe Tydings-Miller B111 would amend the anti-\ntrust laws so as to legalize contracts and agreements\nfixing minimum resale prices for goods sold in\ninterstate commerce and resold within the jurisdiction\nof any state where such contracts or agreements as\nto intrastate commerce have been legalized. / number\nof states now have such statutes.\nMany of these state laws and the Tydings-Miller\nBill are directly and irreconcilably in conflict with\nthe present Federal law on resale price maintenance.\nPublic policy since the passage of the Sherman Anti-\nTrust Act in 1890 has been opposed to resale price\nmaintenance. Numerous court decrees have been entered\nunder the Sherman Act and numerous orders to cease and\ndesist have been issued by this Commission and affirmed\nby the courts in conformity with the public policy\nexpressed in the Sherman Act end in the Federal Trade\nCommission Act. Enactment of the Tydings-Miller Bill\nwould in its practical effect void such decrees and\norders and constitute a reversal of what has been\npublic policy for many years.\nThe President\n- 2 -\nApril 14, 1937\nSince state laws, legalizing resale price\nmaintenance, differ in the various states, and since,\nunder the proposed Federal legislation, Federal\nexemption from the anti-trust laws would be\nconditioned upon the legality of similar contracts\nin intrastate transactions, the Tydings-Miller Bill\nwould modify the anti-trust laws in differing degrees\nin different states. Thus, not only would it leave\nthe Federal anti-trust laws in full force and effect\nas to those states which do not legalize resale price\nmaintenance, but there would be divergent policies as\nto those states which legalize resale price maintenance,\nbecause of the differing terms of the different\nstatutes in the respective states. Thus, the Federal\nGovernment would be under the necessity of attempting\nto enforce divergent regulatory policies toward\nshipments made by the same manufacturer to dealers\nlocated in different states, because of the differ-\nences in the respective state statutes.\nA peculiar feature of many of the state laws\nwhich would, under EL recent decision of the Supreme\nCourt, speaking through Mr. Justice Sutherland\n(57 S. Ct. 147), thus be made binding upon interstate\ncommerce 1a that they require wholesalers and retailers\nto conform to the provisions of private resale price\nmaintenance contracts to which they are not parties.\nThus, a private contract, the provisions of which are\ndetermined without public hearing and apart from any\npublic supervision 8.3 to reasonableness, is made\nbinding upon all dealers and the consuming public.\nWith respect to the economic phase of this matter,\nthe Commission has not made a recent study of resale\nprice maintenance. However, in 1929, the Commission\ndid undertake such a study, reporting to the Congress\nthereon in 1931 (H.R. 546, 70th Congress, 2nd Session).\nIn that report the Commission said:\n\"The position taken by both proponents and\nopponents of resale price maintenance are\nbased on the belief that such maintenance\nUclassified\nThe President\nApril 14, 1937\nof prices will limit retail competition\n...\nThe real crux of the question, therefore, is\nwhether injury done to the consumers'\ninterests through the elimination of dealer\ncompetition with respect to price-maintained\narticles would be greater then the damage\nnow alleged to be done to the interests of\nmanufacturers and distributors of trade-\nmarked, nationally advertised brands when\nthey are used 88 leaders. Neither injury\nis capable of exact measurement, but, in the\nopinion of the Commission, the potential\ndamage to consumers through price fixing\nwould be much greater than any existing\ndamage to producers through this form of\nprice cutting.\"\nThe general opposition of economists and consumers\nto this type of legislation is noteworthy. A question-\nnaire sent to members of the American Economic\nAssociation some years ago, by Carroll W. Doten,\nProfessor at the wassachusetts Institute of Technology,\nresulted in a vote of 401 to 87 that the manufacturer\nshould not have the legal right to control the retail\nprices of his products.\nThere is great probability that manufacturers\nand dealers may abuse the power to arbitrarily fix\nresale prices by unduly increasing prices, resulting\nin bitter resentment on the part of the consuming\npublic, especially in this period of rising prices.\nReplying to your inquiry as to the five complaints\nissued against certain distillers by this Commission,\nreferred to by Secretary Morgenthau, there are\nenclosed herewith, for your information, copies of\nthose complaints. In substance, these dealers are\ncharged with mainteining uniform minimum resale prices\nin interstate commerce and with enforcing agreements\nwith respect thereto by unlawful methods, such as\nThe President\n- 4 -\nApril 14, 1937\nthe use of blacklists, boycott, threats of boycott,\nand other coercive methods incidental to the enforce-\nment of their resale price policies.\nWith great respect, I am\nVery truly yours,\nW.a.ayer W. A. Ayres, agree\nChairman.\nRegraded I Iclassified\nTHE WHITE HOUSE\n277\nWASHINGTON\nApril 7, 1937.\nMEMORANDUM FOR\nHON. W. A. AYRES\n6106\nWould you give me a\nrecommendation on this Tydings-\nMiller Bill to which the Secretary\nof the Treasury refers?\nF.D.R.\n761\nLetter from the Secretary of the Treasury,\n4/6/37 to the President. States the live\nFARES Gending w/Pore the Federal Trade Com-\nmission against DONE of the largeat distilling\ncompenter which he muntioned to President In-\n1377\nvolve Lidr monopolistle practice of fixing\nretail prinos in violation of Federal Inw\n\" winst rosels price maintenance. States If\nTydinga-Miller Bill, reported out in both\nHouses, to to be unacted, the liquor Industry\nshould Do excepted.\n26\nSECRETARY OF THE TREASURY\nC\nWashington\no\n?\nI\nApril e, 1957.\nBy dear Mr. Presidents\nThe five cases pending before the Federal Trade\nCommission against some of the largest distilling companies\nwhich I sentioned to you invoive their monopolistic\npractice of fixing retail prices in violation of Federal\nlaw against resale price maintenance.\nThe Tydings-Miller Bill has been reported out in\nboth Houses. It would legalise the monopolistic practices\non which these Federal Trade Commission cases rest.\nThis Bill applies to all commodities and would\ntend to raise prices generally, particularly in the lines\nof business where monopolistic conditions prevail. It\nshould not pass at all, but, if it is to be enacted,\nthe liquor industry should be excepted because a rise in\nprices in that industry would have the additional social\ndisadvantage of accentuating the problem of \"bottlegging.\"\nFaithfully yours,\n(Signed) H. Morgenthau, Jr.\nThe President\nThe White House.\nRegraded Uclassified\n27\nApril 23, 1937.\n11:34 a.m.\nH.M.Jr: Hello.\nOperator: Vice-President.\nH.M.Jr: Hello\nGarner:\nHello Henry.\nH.M.Jr:\nThis is your old friend, \"Money-Bags\".\nG:\nYes, that's all right - I'm for you; I'm doing my\ndamnest to protect you.\nH.M.Jr:\nWell I just wanted before I went to Cabinet I wanted\nto kind of - how things - how are they feeling up\nthere.\nG:\nWell by God there all for this reduction now I'll\ntell you that.\nH.M.Jr:\nThey are.\nG:\nBet your damn life they're all for Secretary of the\nTreasury'\nH.M.Jr:\nWell that's - ah\nG:\nThat's - that's fine ain't it?\nH.M.Jr:\nCouldn't be better.\nG:\nWell now I'm just going to tell you. You've been up\nthere about three years haven't you?\nH.M.Jr:\nYes.\nG:\nAnd by God this is the first time that you've ever said\nyou wanted anything done.\nH.M.Jr:\nThat's right.\nG:\nWell now - ah - nobody's to blame but you fellows if\nthe thing's overloaded but we're ready to help now\nand help like hell unless you\ndown and say\nno - no - no - no - no\nRegraded Uclassified\n28\n- 2 -\nH.M.Jr: Well we'll go the limit. Of course, the way - the\ntrouble right this week is that the newspapers don't\nbelieve we mean what we're saying.\nG:\nI know they don't and that's all right they may not -\nwe may not be able to do it. I don't know what the\nboss is going to say; I believe he's going to balk\non this 10 percent.\nH.M.Jr:\nOn the what?\nG:\nIs he going to balk?\nH.M.Jr:\nNo.\nG:\nWhen he finds out what it is by God he's going to say,\n\"Well wait a minute\".\nH.M.Jr:\nWell you know this reminds me of the way - when the\nworld war and they wouldn't believe that the American\nsoldiers were coming because they kept telling them\neach month they were coming next month,\nG:\nYes, I know - well we've been doing that you know the\nlast two years.\nH.M.Jr:\nAnd if there was some little bill that he could veto.\nG:\nYes by God with a ringing message.\nH.M.Jr:\nI mean some little bill for a million dollars or\nsomething\nG:\nYes.\nH.M.Jr:\nand say at least\nG:\nI just hope to God he can; I'll do everything I can\nto persuade him to do it and fix it on the hill.\nH.M.Jr:\nIf you could think of some little bill that didn't\nmean much and we could get him to veto it and then\nG:\nWell you find out one of them and by God I'll do it.\nH.M.Jr:\nAll right.\nRegraded Uclassified\n29\n- 3 -\nG:\nAll right, I'll see you there at 2 o'clock.\nH.M.Jr: Thank you.\nG:\nAll right.\nRegraded Uclassified\n30\nApril 23, 1937.\n11:35 a.m.\nBell:\nHello\nH.M.Jr:\nDan\nB:\nYes.\nH.M.Jr:\nIf we could only find some bill that comes down\nfor 500 thousand or a million dollars that - and\nget the President to veto it soon, see?\nB:\nYes.\nH.M.Jr:\nAnd then give a good stiff message and let it - it\nwould need something like that for these people to\nbelieve that he's going to do it, see?\nB:\nAh-ha.\nH.M.Jr:\nNow these bills that come down have to go across\nyour desk, don't they?\nB:\nOh yes - oh yes.\nH.M.Jr:\nWell now see if you can't find some bill that we can\nget them to veto that carries an appropriation\nB:\nWell I've been looking for some but there's been -\nhasn't been any bills going through that amount to\nanything. There's a lot of private claims and things\nlike that - about all.\nH.M.Jr:\nNo but something that he could sound off on, you see?\nB:\nYes.\nH.M.Jr:\nMake\na\nB:\nAh -\nH.M.Jr:\n- a noble speech about, see?\nB:\nWhat I'd like to see him veto is some appropriation\nbill.\nH.M.Jr:\nThat's what I mean.\nRegraded Uclassified\n31\n- 2 -\nB:\nThat's never been done - I mean big one\nH.M.Jr:\nOh.\nB:\ntake the Interior Department bill which aT they\nare now talking about increasing that Vocation Education\nfrom three to fourteen which is eleven million dollars\nincrease and if they do it - just hop right on it and\nveto the thing; he's opposed to it; he said he was at\nthe time and that - ah - and then call attention to the\nfact that it's a shame that he has to veto a whole\nappropriation bill with 500 items in it to get at one\nand then ask for a Constitutional Amendment bfore he\ncan veto individual items. One at a time, see?\nH.M.Jr:\nYes, well let's get something like that, see?\nB:\nYes. Well I think that if he could take a whole\nappropriation bill which is something - ah - well I\ndon't know - remember when one was ever vetoed.\nH.M.Jr:\nWell we've got to do something to make these people\nbelieve.\nB:\nThat's right. I know they don't believe it.\nH.M.Jr:\nYes.\nB:\nAnd I talked about doing a little work here on some\nletters\nH.M.Jr: Yes.\nB:\nto go out to - about this next June and impress\nupon these people that the President did mean to save\nmoney in the next three months.\nH.M.Jr:\nYes but we need - what we need is a very very strong\nveto message.\nB:\nThat's right - that's right. Well I've been looking\nfor something but there hasn't anything come along\nthat's worth much.\nH.M.Jr:\nWell - ah - when you get it give me - come running in.\nB:\nAllright, fine, I will.\nH.M.Jr:\nThank you.\nB:\nGoodbye.\n32\nLMS\nGRAY\nLondon\nDated April 23, 1937\nRec'd 2:45 p. m.\nSecretary of State,\nWashington,\n241, April 23, 6 P. m.\nSTRICTLY CONFIDENTIAL.\nfor TREASURY FROM BUTTERWORTH.\nAt the weekly meeting at the British Treasury today,\nI conveyed the information which was given me in the tele-\nphone conversation of April 19th on Japanese financial\napproaches in Washington, and Phillips stated in reply that\nhe had seen Arakawa since the latter's conversation with\nWaley and that he had found him very vague. Arakawa had\nmade no mention of the tripartite monetary agreement and\nasked a number of questions and had given no information\nin return. Philipps said he could only conclude that\nArakawa had no instructions to do anything specific and\n\"728 merely \"nosing around for information on the price of\ngold\".\nI also mentioned that I had heard that the views which\nhe had been good to make known in last Friday's meeting\nhad been read with interest in Washington, particularly\nhis offer to exchange at any time views on the general\nsituation\n33\nLMS 2-No. 241, April 23, 6 P. m., from London.\nsituation created by the increase in the quantity and value\nof gold. The American Treasury was, of course, also willing\nto exchange views at any time; however, the important ques-\ntion of ways and means immediately arose since the related\nproblems were so complicated that they did not lend them-\nselves to cabled instructions. Philipps said that he under-\nstood that point of view; that it was desirable to keep the\nmatter in the back of one's mind for it was not pressing -\nthere was no need of precipitate action.\nHe then changed the conversation by saying that the\nFrench situation seemed to have become more complicated\nsince our last talk and was perhaps approaching a crisis\npoint. This time it was not due to a treasury deficiency\nfor the French Treasury had enough money with which to carry\non for the time being but it WD.S a currency matter, which\nWC.8 to say a political matter. His feeling for which he\nemphasized he had no factual basis was that \"once again\nwe will be approached by the French for advice\". Asked,\nwhether there was anything in the monetary realm which Blum\ncould do Phillips said that he did not believe there was\nany definitive action he could take and therefore he had no\nadvice to offer them should they come for advice. At bottom\nthe trouble seemed to be one of political and social in\ndiscipline;\n34\nLMS 3-No. 241, April 23, 6 P. m., from London\ndiscipline; for example in some extraordinary way it has\nbecome C. highly important political question involving\nwhether the Blum Government WS.S to reverse its policy and\nprovide a public works program merely to please the 30,000\nworkmen who were now reluctantly and intermittently putting\nup the exhibition buildings.\nBINGHAM\nTTC\nPage 3\n35\nPARTIAL PARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, Paris\nDATE: April 23, 4 p.m.\nNO. 523\nFROM COOHRAN\nParis exchange market much quieter today. French\ncontrol had up to 3.30 p.m. intervened only slightly\nselling sterling between 111.29 and 15. Lazard is sell-\ning dollars importantly against sterling or francs (then\nconverting francs into sterling). Dollars were fairly\nwell bid until New York opened seller. Rentes up; 4 1/2\n1937 bonds unchanged; shares about even.\nI made a call this forenoon at the Bank of France.\nThe French control had not intervened in the market up\nuntil 11:30 but it was still too early to make any fore-\ncasts as to market trends. I was told most confidentially\nby Cariguel that since I last called on April 16th (refer\nto my telegram No. 491 of April 17, 9 a.m.) the control had\nbeen steadily losing gold and had difficulty between\ntwo credit days. Cariguel let me know that the net balance\nof gold and foreign exchange in the control fund had\ndeclined from approximately (end Section one)\n36\nPARAPHASE OF SECTION TWO. No. 523 from Paris April 23.\n4,500,000,000 francs to 3,650,000,000 francs.\nI questioned Cariguel as to whether during the past\nfew days any other means had been discussed of raising\nmoney for the Government to supplement the Treasury's funds\nwhich still remain from the new loan. The balance of\nthe Treasury, incidentally, (as I mentioned in my telegram\nof yesterday) with the Bank of France has declined as\nof the last statement. This confirms the prediction that\nthis account would not be increased through the receipt of\nlate payments on subscriptions to the loan, but the fund\nwas rather drawn upon. Reference was made by Cariguel to\nthe City of Paris loan - see my telegram No. 482 of April 14,\n6 p.m. - the proceeds of which will undoubtedly be used\nby the Treasury. Government or semiofficial loans which\nare issued on the local market usually result in a flood\nof applications being received by the Bank of France. How-\never during the first few days that the City of Paris issue\nwas open, at the Bank of France not a single bond was sold.\nI was informed by Cariguel that there 18 now some dis-\ncussion of the possibility of issuing 2,000,000,000 france\nof bonds of the Caissides Pensions, offering the same terms\nas the last loan. Taking into consideration the present\n(omission) market, he doubts whether such an issue would\nbe feasible.\nCariguel could not confirm the rumor that recently\nan attempt to borrow in the Netherlands had been made by\nthe Treasury. END SECTION TWO.\nBULLITT.\n37\nPARAPHRASE OF SECTION 3. No. 523 from Paris April 23\nThe recent weakness of the franc Cariguel attributes\nto fears over the political and social structure in France.\nThis consisted of a flight from the franc, he said, and not\na filling of commercial demands for currencies of other\ncountries. During the last speculative attack on the frano,\nhe said, the situation was not favorable as long and short\nterm money rates are high on the French market, with prac-\ntically no foreign funds here and bank deposits are low.\nHe said that nevertheless, if big holders of capital see\nfit to leave the franc irrespective of money rates, this\ncurrency can be put under such pressure that the foreign\nexchange resources and gold of the French control might\nnot last long. Presumably the control had already started\ndrawing out gold from the Bank of France.\nCariguel said that, with reference to the situation\nin the Netherlands, President Trip of the Netherlands Bank\nhad recently released from the Dutch stabilization fund\na considerable amount of gold.\nEND SECTION THREE.\nBULLITT.\nEA:LWW\n38\nPARAPHRASE OF SECTIONS FOUR AND FIVE, No. 523, April 23\nfrom Paris.\nHe had given this gold to the Netherlands Bank of the Indies\nagainst florine, to reconstitute the gold resources of that\nBank.\nAt noon today I had a visit from Maurice Frere, the\nrepresentative of Prime Minister Van Zeeland, charged with\npreliminary international economic investigations. I have\nknown Frere several years, and he talked rather frankly\nabout his mission. The job keenly interests Frere, although\nhe realizes that nothing could be accomplished very quickly\nand that there are many obstacles to be overcome and much\ngroundwork to do. Frere said he saw no early opportunity\nto hold a world conference on these matters. He has no\npreconceived plans about it, but is obtaining the views\nof the appropriate officials in the various countries and\nhe then hopes to see if they can develop some common form-\nula.\nFrere had seen Spinasse, the French Minister of National\nEconomy, before he called on me this morning. He found that\nSpinasse, as well as Auriol and other officials of the Blum\nGovernment, were interested in the undertaking of Van Zee-\nland, and anxious to do what they could to assist it. How-\never, he understands that the French Government 18 not in\na position to take the initiative but will await the results\nof the explorations which Frere is making to see whether\nthen can fit into a general plan. If some broad interna-\ntional program 1s achieved, Frere thought there would be\nRegraded Uclassified\n39\n- 2 -\nan especial opportunity for replacing quotas by customs\ntariffs in France. The German situation, he knows, would\npresent difficulties in the achievement of such a plan.\nAny big program, he believes, must envisage a devaluation\nand stabilization of the Reichsmark, for which outside\nfinancial assistance would have to be given to Germany.\nFrance, he believed, would be unwilling to extend such\nassistance to Germany without some political guarantee\nfrom her. When Spinasse and other French officials urgently\nrequested Frere's views as to the French situation, he\nsaid he expressed them frankly. The Blum Government, he\ntold them, should at once take definite and forceful action\nto quiet the labor situation, and demand the Extreme Left's\nfull cooperation. Frere asked them why they were letting\nsuch a situation develop for some other government to take\nin hand. If a strong policy of public order and relaxation\nof the forty-hour week, etc., would be followed by the\nBlum Government, Frere said he thought it could win suffic-\nient confidence on the part of the capitalist classes to\nbring about a repatriation of funds and a business paikup\nIf pickup which might\nEND SECTIONS FOUR AND FIVE.\nBULLITT.\nEA:LWW\n40\nSECTION SIX\nsave the situation. Nevertheless, he realizes that\nthe time for such action is near to passing and that 1f\na crisis is to be avoided, something must be done soon.\nHe would regret seeing a government which in most matters\nmeets the current policical thought in France fall on a\nfinancial difficulty. He is convinced that his banking\nfriends in Paris, although skeptical of the present Gov-\nernment, would help the Government through a crisis rather\nthan see it fall in circumstances where the banks might\nconceivably be blamed therefor.\nFrere is returning to Brussels tonight and will proceed\nto Berlin on Monday where he has been urged to stay a week\nby Schacht. A favorable impression was made by Schacht\nin Brussels where Frere attended the meetings between Van\nZeeland and Schacht. After leaving Berlin Frere will go\nto Rome but will not stop off in Basel where he has\nattended regularly the B.I.S. annual meetings heretofore\nas a representative of the Austrian National Bank. He\nconsiders that it is highly important that he obtain the\nsupport of the Government of Italy to the present under-\ntaking and that the dictators find no reason to take\noffense at Van Zeeland's procedure and no basis for\n41\nPARAPHRASE OF SECTION SEVEN. No. 523 of April 23 from Paris.\nterming this plan a \"democratic\" maneuver. It is Frere's\nplan to see the appropriate officials as soon as he can.\nHe does not want to expose himself to the general question-\ning which he might experience if he stopped over at Basel,\nwhere at the annual meeting 80 many central banks will be\nrepresented.\nI questioned Frere as to whether on Van Zeeland's\ntrip to the United States he would be with him. His reply\nwas that van Zeeland's trip to Washington is still considered\nas a purely personal call, and that 28 long as this is the\nsituation, he does not want to give evidence of actual\ninvestigation or negotiation through taking his technical\nassistant with him.\nI gave to Frere a document on the American Government\n1938 budget, and two publications of the Treasury Depart-\nment on capital movements. As yet Frere has not got together\nany sort of a staff, but he said he might call upon me\nlater for further documentation with respect to our country.\nMaterial on France had been given him by Rist.\nEND MESSAGE.\nBULLITT.\nEA:LWW\nRegraded Uclassified\n42\nMM\nGRAY\nBOMBAY\nDated April 24, 1937\nRec'd. 6am.\nSecretary of State\nWashington, D.C.\nApril 24, llam.\nFOR THE SECRETARY OF THE TREASURY.\nSilver market continued quiet durint the WEEK;\nready opened at rupees 53-5 per hundred tolas and after\ntouching 53-10 closed at 52-12. Stocks on hand continued\nheavy at about 34,000 bars and daily offtake improved to\nabout 85 bars. A shipment valued at 20,000 pounds\nreported from London.\nGold declined; ready opened at rupees 34-14-3\nper tola, touched 34-11-6, closed at 34-13-6. There was\nsome nervousness early in the WEEK concerning American\nTreasury policy but confidence returned.\nWATERMAN\nWC\nKLP\nDECEIVED\nTRUZANT\n43\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, Paris\nDATE: April 24, noon\nNO.:\n527\nFROM COCHRAN\nThere is no exchange news as Paris banks are closed\nfor the day.\nThis morning I talked by telephone with Jacobsson\nat Basel. From Jacobsson's conversations with Van Zeeland,\nMarcel and other officials of the B.I.S. and contacts, he\nthinks Paul Van Zeeland is principally playing for time,\nthrough Freres investigational trips to European capitals,\nuntil he can come to Washington.\nI talked yesterday with the senior partner in a\nParis-American banking concern. He told me that franc\ndeposits in his bank were not increasing and that the\ndeposits in foreign currencies, namely, sterling, dollars\nand Swiss francs, amounted to twenty-four percent of his\ntotal deposits. The firm of Sulzer Freres, one of his\nclients which has manufacturing plants for engines, et\ncetera, in France and Switzerland, informs hii that due\nto inefficiency of French labor and to social legislation,\ntheir cost of production in France is at present thirty\npercent higher than that in the Swiss plant despite the\nfact that higher per capita wages are paid Swiss laborers.\nHe\nRegraded\n44\n-2-\nHe said that another American client of the bank requiring\nlarge quantities of manufactured material finds that it\ncan get goods it had ordered cheaper in Switzerland than\nin France and can get a guarantee as to fulfillment of\nthe contract and delivery for a specified date from the\nSwiss while no guarantee will be given by the French\nfactories. These two examples were offered by my contact\nto show the unfavorable financial situation which has\ndeveloped under the present political and social regime in\nFrance and the unsound business.\n03V13338\nTS21 08 89A\nEA:DJW\n3\n6330\n- - - -\nRegraded Uclassified\nFin\nAH\n45\nThe Government Security Market\nWeek ended April 24,1937\nTreasury bonds recorded a net decrease of about 1/2 of a\npoint in the average during the past week, thereby cancelling\npractically all of the advance in the preceding week. Prices\nturned upward on Monday and Saturday but in the other four days\nthe movement was toward lower levels. Trading continued at a\nmoderate rate, principally in small lots, but as there was\nlittle buying interest shown in the market a small amount of\nselling at times resulted in sizeable losses. The long issues\nwere the most active and suffered the largest losses. The five\nlongest maturities lost about 3/4 of a point, the three\nshortest issues were about unchanged, while declines by the\nother issues ranged from about 1/4 to 1/2 of a point. Guar-\nanteed issues declined about 5/8ths of a point in the average.\nThe trend to the Treasury note market for the week as a\nwhole was toward slightly lower levels but at no time was there\nany real weakness in the market as individual changes on any\none day were confined to small fractions. Losses ranged from\n1 to 6/32nds compared to gains that ranged up to 23/32nds in\nthe previous week,\nMHHarro\n46\nMEMORANDUM\nApril 23, 1937\nTo:\nSecretary Morgenthau\nFrom: Dr. Burgess\nTreasury bond market opened moderately lower today and\nprices sagged steadily in quiet trading up to the close. The\nlong Treasury bonds finished 10/32 to 16/32 down from yester-\nday, the intermediate maturities were down 4/32 to 12/32, and\nthe three shortest bonds were down 2/32 to 6/32. Losses in\nthe guaranteed bonds ranged from 1/4 up to about 1/2 point.\nVolume was $1,572,000, most of which consisted of small lot\ntransactions. The note market was easier and closing quota-\ntions were at the lows of the day, 1/32 to 4/32 off from\nyesterday.\nDomestic bonds were dull but there was a little activity\ntoward the latter part of the day when some selling appeared.\nSecond grade bonds showed losses of up to 1/2 point and high\ngrades were off, on the average, about 1/4 point.\nForeigns were generally quiet with prices unchanged.\nGerman bonds showed gains of fractions to about a point and\na number of Latin-American issues were fractionally off.\nNo purchases for Treasury today.\nRegraded\nUclassified\nPlease TREASURY GENERAL DEPARTMENT COUNSEL speak to me\nWASHINGTON\nAPR 26 1937\nMy dear Mr. Secretary:\nReference is made to the letter, under date of March\n5, 1937, to the Secretary of the Treasury from G. Mallet Prevost,\nadministrator of the estate of Teresa de Prevost, in which ap-\nplication and demand is made for payment under the provisions of\nBill S. 1360, 74th Congress, 2d Session, entitled \"AN ACT For the\nrelief of the estate of Teresa de Prevost\". The letter states\nthat the Bill \"became a law by reason of the failure of the Presi-\ndent to return the same with his objections thereto to the House\nof Congress in which it originated in the time and manner pre-\nscribed and required by the Constitution and Law of the United\nStates\". The amount involved is $25,000.\nIt appears from an investigation by members of my\nstaff that no record was kept either at the White House or at\nthe Senate of the exact time or even the day upon which the\nBill was returned to the Senate with the Veto Meesage of the\nPresident.\nArticle 1, Section 7, Clause 2 of the Constitution pro-\nvides, in part, as follows:\n\"Every Bill which shall have passed the\nHouse of Representatives and the Senate, shall,\nbefore it become a Law, be presented to the\nPresident of the United States; If he approve\n48\n- 2 -\nhe shall sign it, but if not he shall return it,\nwith his Objections to that House in which it\nshall have originated, who shall enter the Ob-\njections at large on their Journal, and proceed\nto reconsider it. ... If any Bill shall not\nbe returned by the President within ten Days\n(Sundays excepted) after it shall have been pre-\nsented to him, the Same shall be a Law, in like\nManner as if he had signed it, unless the Con-\ngress by their Adjournment prevent its Return,\nin which Case it shall not be a Law.\" (Under-\nscoring supplied.)\nThe nature of the return and record thereof contemplated\nby the Constitution was indicated by the Supreme Court in The\nPocket Veto Case, (1929) 279 U.S. 655 (at pages 684-685)\n\"In short, it was plainly the object of the con-\nstitutional provision that there should be a\ntimely return of the bill, which should not only\nbe B. matter of official record definitely shown\nby the journal of the House itself, giving pub-\nlic, certain and prompt knowledge as to the\nstatus of the bill, but should enable Congress\nto proceed immediately with its reconsideration:\nand that the return of the bill should be an ac-\ntual and public return to the House itself, and\nnot 8. fictitious return by & delivery of the\nbill to some individual which could be given a\nretroactive effect at a later date when the time\nfor the return of the bill to the House had ex-\npired.\"\nIt 1a obvious that the lack of records in the instant\ncase illustrates an undesirable situation which should be remedied.\nYou may wish to call the matter to the attention of those concerned\nor to present it in Cabinet meeting.\nVery truly yours,\nGeneral Counsel.\nThe Honorable\nThe Secretary of the Treasury.\nRegraded Uclassified\n49\n\"pril 26, 1937.\n9:25 a.m.\nH.M.Jr:\nHello\nOperator:\nChairman Eccles.\nH.M.Jr:\nHello.\nEccles:\nHello.\nH.M.Jr:\nMarriner.\nEccles:\nYes sir.\nH.M.Jr:\nI think I better go away every Saturday.\nE:\nWhy?\nH.M.Jr:\nWell look what happened to the bond market. What\ndid you fellows do to it?\nE:\nWell we put a few orders in.\nH.M.Jr:\nI see. Do you want to tell me? We've heard one\nside of it; we haven't heard yours.\nE:\nWell this is what happened - ah - on Friday, of\ncourse, the market went off pretty badly\nH.M.Jr:\nYes.\nE:\nand - ah - so I had a meeting Friday a fternoon\nin the office and we got ahold of George and decided\nwhat to do on Saturday morning.\nH.M.Jr:\nYes.\nE:\nTold them that they ought to change their tactics\nand put some orders in\nH.M.Jr:\nYes.\nE:\nand that's what they did.\nRegraded Uclassified\n50\n- 2 -\nH.M.Jr:\nWell they must have changed their tactics about\nputting in orders of five bonds under the market and then\nwhen he hits it why withdraw the orders of five bonds.\nE\nWell they got a - they got quite a lot of them on\nSaturday.\nH.M.Jr:\nBut they must have followed the market up, didn't they?\nE:\nWell I wouldn't say that they put orders in - not under\nthe market - they put orders in with the dealers for\ntwo million each.\nH.M.Jr:\nTwo million each?\nE:\nYes.\nH.M.Jr:\nOf what?\nE:\nWell two million - two million to each dealer.\nH.M.Jr:\nOh I see.\nE:\nTwo million dollars.\nH.M.Jr:\nYes, to use at his discretion?\nE:\nWhat is it?\nH.M.Jr:\nTo use at his discretion?\nE:\nNo - no - to - to use them to buy any bonds that were\non the market - being offered at the market.\nH.M.Jr:\nI see.\nE:\nYou know they weren't to follow it up but they weren't\nnecessarily to follow it down but if there were bonds\nhanging over the market\nH.M.Jr:\nI see.\nE:\nYou see? To pick them up\nH.M.Jr:\nYes.\nE:\nand on the board they put orders in for - ah - well\nI think they picked up close to five million.\nRegraded Uclassified\n51\n- 3 -\nH.M.Jr:\nWell -\nE:\nAt least they - we got - we got Saturday morning\nfifteen million\nH.M.Jr:\nYes.\nE:\nand - ah - I - I argued that that market ought to\nshow some strength over the week-end.\nH.M.Jr:\nYes.\nE:\nThat they had bill financing to do to-day\nH.M.Jr:\nYes.\nE:\nand that the job to-day - would be just that much\nmore if we didn't change that trend of the end of the\nweek.\nH.M. Jr:\nYes. Of course, I'm simply delighted. Taylor and\nLochhead and I walked home Friday night and we talked\nit all over and - because we felt terribly blue at\nthe way they were handling it but I kept saying it's\nthe Federal reserve's money - it's not mine and then\nyou fellows did Saturday what we were praying that\nyou'd do.\nE:\n(Laughs) Well -\nH.M.Jf:\nI mean you did what we'd have done if it was our money.\nE:\nWell I felt that - that the - ah - Open Market Committee\nhad authorized - we fought that thing through as you\nknow\nH.M.Jr:\nYes.\nB:\nand I said, \"Well what the devil do they mean\nnow?\" I said, \"We've got this money to be spent and\nit's true we can't take the market and there may be\nmore offerings than we can take but certainly we can\nget in there and do a darned sight more than we did do.\"\nH.M.Jr:\nYes.\nE:\nI said, \"We've proven by putting a statement - see George\nis always arguing and some of the others on the Committee\nRegraded Uclassified\n52\n- 4 -\nwere arguing very strongly that if we could show a\nstatement where we hadn't bought any bonds for a week\nH.M.Jr:\nThat would be bullish.\nE:\nthat that would be bullish because it wouldn't\nbe E supported market.\nH.M.Jr:\nWell they got\nA:\nAnd I said, \"Well I - I'm not sure that's the case at\nall. If I was sitting out in the country and saw that\ncondition I'd say that the Federal Reserve's got cold\nfeet and they're withdrawing.\"\nH.M.Jr:\nWell, of course, George Harrison has been saying all\nthe time the best news - they did nothing - well your\nstatement came out and showed that they'd done nothing\nE:\nThat's right.\nH.M.Jr:\nand the country's reacted - \"Well if the\nFederal Reserve System hasn't got confidence in the\nbonds why should we?\"\nE:\nWell it - an - I don't know what - I don't know what\nreason George will give for that now, He'll have some\nother reason I guess; something else will have happened.\nH.M.Jr:\nOh, I - I haven't talked to him but Taylor has and from\nthe way he was sputtering I gathered that you fellows\nmust have done something and naturally we were curious.\nE:\nWell we bought - ah - we bought fifteen million on\nSaturday.\nH.M.Jr:\nYes, well All I can say is more power to you.\nE:\nAnd we're going to meet in about a half hour - George\nis down - I had him come down and Sinclair is down\nH.M.Jr:\nYes.\nE:\nso that we can watch the market this morning and -\nah - SO as to make that bill offering successful, AS\nI understand it though the bill market has acted pretty\ngood and the market is entirely cleaned of bills\nH.M.Jr:\nYes.\nRegraded Uclassified\n53\n- 5 -\nE:\nwhich is a good thing.\nH.M.Jr:\nYes.\nE:\nAnd - ah - as you know, we took some of the bills last\nweek\nH.M.Jr:\nI know.\nE:\nbut the dealers then during the rest of the week,\nin spite of the bond market being weak, had a strong -\na pretty strong demand for the bills and they even got\nrid of all the nine months bills.\nH.M.Jr:\nGood.\nE:\nSo the bill market looks better.\nH.M.Jr:\nWell I think that having a strong market Saturday -\nyou're absolutely right - it makes it much easier to-day.\nE:\nWell I figured it would cost less to-day if we did that\nthan if we let that market continue to go down.\nH.M.Jr:\nEven the New York Times had a kind word to say for the\nbond market\nE:\nDid they?\n(Laughs)\nH.M.Jr:\nwhich is something.\nE:\nWell I hope - I hope it will get off all right.\nH.M.Jr:\nWell I'm simply tickled to death but we made up our\nmind that it wasn't our money and we were going to\ngrit our teeth and go through this week and take it\non the chin.\nE:\nWell I - an - I told you I was going to do what I could\nand I've been fighting like hell to keep the thing\ngoing and\nH.M.Jr:\nWell -\nE:\nwe've got another week to get through and\nRegraded Uclassified\n54\n- 6 -\nH.M.Jr:\nWell I'm - I'm more pleased to-day than I've been\nany time since the 15th of March.\nE:\nWell that's fine. I'm - I'm glad you are.\nH.M.Jr:\nYes. Well let me know later on, will you?\nE:\nI will. I'll call you.\nH.M.Jr:\nNow that it - I - you see with Burgess away I don't\nget as good information as when Burgess is there.\nE:\nYou know that's a terrible loss to us. Now if we -\nan - an - those fellows don't run that market like\nBurgess.\nH.M.Jr:\nOh no.\nE:\nAnd - and - and\nH.M.Jr:\nAnd they've insisted that Harrison - ah - what the\nhell does he know about the bond market?\nE:\nHe doesn't know anything.\nH.M.Jr:\nAnd when you call up Harrison he insists on referring\nto this man - what's his name?\nE:\nAh - Allan Sproul.\nH.M.Jr:\nAnd not only that but he's the boy that sees the\nnewspapermen every a fternoon.\nE:\nWell it's just unfortunate. It's just one of those\ndamn breaks because I'm - I'm sure that if we'd had\nBurgess - ah - the situation would have been handled\nfar much better than it has; the results would have\nbeen better.\nH.M.Jr:\nOh sure.\nE:\nBurgess was in favor of - of this action you know -\nwhen this crowd was down here although he didn't\nsay much about it - I knew he was pretty much in\nsympathy with what I wanted to do.\nRegraded Uclassified\n55\n- 7 -\nH.M.Jr:\nWell even if he wasn't he'd do what you want him\nto do.\nE:\nHe'd not only do that but he knows what to do.\nH.M.Jr:\nYes. Oh I've felt his loss tremendously.\nE:\nYes, well it's been a fright for us.\nH.M.Jr:\nWell let - talk to me a little later will you Marriner?\nE:\nAll right.\nH.M.Jr:\nThank you.\nE:\nGoodbye.\nRegraded Uclassified\n56\nApril 26, 1937\n9:30 Group Meeting.\nPresent:\nMrs. Klotz\nMr. Oliphant\nMr. Magill\nMr. Upham\nMr. Gibbons\nMr. Taylor\nMr. McReynolds\nMr. Bell\nHM,Jr: Steve, what about this J. L. Matthews, related\nto the Vice President, who came in to see you?\nMr. Gibbons: He came in and said you had talked to the\nVice President, Just a young chap.\nHM.Jr: I don't know who he 18.\nMr. Gibbons: He said the Vice President had spoken to\nyou about it.\nHM,Jr: No. Well, I have to see the Vice President myself.\nI will go up the first thing tomorrow morning. The Vice\nPresident 1a more temperamental than at any time over the\nspending thing. All this stuff that the Vice President is\nworking against Roosevelt 18 not true, because I have seen\nhim in action and he always said, 'Now, Chief, what do you\nwant? Is it all right for me to do 1t?' Don't for B.\nmoent, want anybody in this room to think he is working\nagainst Roosevelt.\nMr. Gibbons: I think he would come right out in the open\nand tell you what he 18 doing.\nHM,Jr: Herbert?\nMr. Gaston: (Gave the Secretary Kiplinger's 'Washington\nLetter'.)\nHM,Jr: I got this over to Kiplinger anyway. I had\nRegraded Uclassified\n57\n-2-\nbetter luck than with Lippmann. (Reading) \"How sincere\n1E the President? We have reason to believe that he is\nsincere NOW despite fact that in past he has TALKED economy\nand then proceeded to spend more than ever. He may change\nhis mind, as he has in the past, but Just now he has reason\nto be very earnest in working toward budget balance.\"\nHerbert, I am inclined to sand for Arthur Krock. I haven't\ndone it for B. long time. And talk to him about the editorial\non gold in the Times. They ran that rumor the other day and\nin order to justify themselves, instead of being good sports\nand coming out and saying we are a bunch of old wash-women,\nI kind of thought I might send for Arthur Krock and in view\nalso -- if you would get yesterday's Editorial Section of the\nTimes -- make a note -- a story by Turner Catledge. In the\nbody of his story 18 a straight factual story, but the head-\nings are 'Due to Treasury's Blunders we are Having Budget\nTroubles'. Then you read the Turner Catledge story and\nthere is nothing in it, but the heading -- something about\n'Treasury Blunders Makes Budget Balance Difficult -- but the\nstory does not say anything about it and there 18 no use\ncalling up -- I would much rather have it out with Krock.\nWhat do you think?\nMr. Gaston: of course, Krock would not have anything to\ndo with the heading of that story.\nHM,Jr: No. No. But I have nothing to 108 e and 8. little\nto gain. Shall I call him up and see if I can get him?\nMr. Gaston: Yes.\nHM,Jr: (To Operator) See if Mr. Krock could come in to\nsea me between 11 and 11:30. Let me know which.\nMr. McReynolds: Nothing.\nMr. Bell: Nothing.\nHM,Jr: Danny, on this thing\nnow did you keep your\nword with me?\nMr. Bell: on, yes!\nMr. McReynolds; Yes, he did. I went around to his office\nabout eleven o'clock and the girl said, 'He isn't here. The\nSecretary made him promise to stay nome.'\nRegraded Uclassified\n58\n-3-\nHM,Jr: Could you get hold of Clarence Opper and this\nfellow Ihlder and sort of sit down and see if they can sketch\nsomething along the line the President told us. What he\nsaid 18, we take part of Ickes' revolving fund and then we\nset up housing on a basis of, first, the community would\nhave to buy the land. Isn't that what he said?\nMr. Bell: He said he would insist on it.\nHM,Jr: Then he said, two, we will give & 45% grant, and\nthree, all the unemployed labor that they could use.\nMr. Bell: Did he say 45% grant?\nHM,Jr: Yes.\nMr. Bell: And in addition\n.....\nHM,Jr:\nall the unemployed labor that they could use,\nWhat they are doing now 18 they are giving them\nMr. Bell:\n...\nrelief labor.\nHM.Jr: Well, aren't they giving them -- we are buying\nthe land, We Just give them a 45% grant.\nMr. Bell: Ickes is constructing some himself.\nMr. McReynolds: All that he 1e doing is he's doing 16\nall, but he 18 giving them 45%.\nHM,Jr: Mac is in on this and we are not getting anywhere.\nMr. McReynolds: Ihlder has B. draft, but everytime it\ncomes back, something new is thrown into it.\nHM,Jr: You have been thinking about it and if I get &\nbreathing spell in the next two or three days, I would like\nto sit in on it, but I am afraid the President will send for\nus.\nFor ty-five percent grant, he limited it to materials,\n(I had better get him to give it to me at noon) and then give\nthem all the relief labor they could use. But I thought he\nsaid 45% on materials.\nMr. Bell: I thought he said a 45% grant including all\nthe labor.\nRegraded Uclassified\n59\n-4-\nHM,Jr: Anything for me on the overhead of the various\nagencies? Remember?\nMr. Bell: I have forgotten it if you did.\nHM,Jr: I will tell you again. You were going to take\nB. sheet and go back to July 1\n.....\nMr. Bell: Oh, yes!\nHM,Jr: ... and have the various number of people employed\nin the several emergency agencies and as the money goos down,\n18 personnel coming down.\nMr. Bell: We had to send to the field for some of that.\nHM,Jr: What else?\nMr. Bell: That's all. There is a little concern on the\nHill about this economy program.\nHM,Jr: Which way?\nMr. Bell: Cannon called me up last night and said --\nCannon is pinch-hitting for Taylor.\nHM,Jr; What State does he come from?\nMr. Bell: Missouri. He says the Tabor stuff is going\nout all over the country and all of these Democrate are\ngetting letters from their constituents criticising them\nfor not cooperating with the Republicans in this economy\ndrive.\nHM,Jr: Swell!\nMr. Bell: To show the absurdity of the situation: one\nof his men -- one of the letters he got was from & man who\nsaid he was on WPA and he wanted more money from WPA --\nwanted higher wages and at the same time insisted that he\ncooperate with the Republicans on the economy drive.\nHM,Jr: In other words, the heat 1s being turned on them.\nMr. Bell: Yes. But he says the thing that is worrying\nhim -- two points in the President's message, as to how he\nRegraded Uclassified\n60\n-5-\n18 going to meet the deficit in 1938 has not gotten across\nat all and I told him you and I talked about it and said\nif we could get some bill which he could veto we might bring\nthis home. He said, 'That's a good idea'. And he said,\n'I hope you can get one', but he wants to attach to the\npresent deficiency bill the 10% cut. I am to ask the Pres-\nident this morning if he 16 agreeable to having that go\nthrough.\nHM,Jr: Dan and I have been watching for & nice juicy\nbill for the President to veto and then with a big speech\ngive them a veto message 80 it will let them know he means\nwhat ne says. How about Gibbons' request for an appropri-\nation for the New York Fair?\nMr. Bell: That Fair and Exposition thing is just &\nplain racket. Every city in the country is trying toout-\ndo the other. We are paying all the administrative IX-\npenses for these Fairs.\nHM,Jr: Anything on your desk?\nMr. Bell: No.\nHM,Jr: You know, they Just won't believe it. I use\nthe same example -- the Alliee kept saying, 'You keep telling\nus the American troops are coming. We don't believe it.\nEach month is going to be next month.' And tney wouldn't\nbelieve it until they actually saw the list of killed. It's\nthe same way with this. They are not going to know until\nthe President publishes the first casualty list and then they\nare going to believe it. It's true. They won't believe it.\nMr. Bell: I would like to see it happen to an appropria-\ntion bill.\nHM,JR: I bet I know which one. You are out for blood\nin a big way!\nMr. Bell: I want to shoot a whole battalion all at once.\nMr. McReynolds: You want one of these large Department\nbills.\nHM,Jr: He has his eyes on & departmental bill and if he\nkills that -- Mac, where is our Treasury bill?\nRegraded Uclassified\n61\n-6-\nMr. McReynolds: That was ruined before it ever got to\nthe Committee?\nHM,Jr: How far along 1e it?\nMr. McReynolds: Conference.\nHM,Jr: You nad better watch it. This fellow Bell is on\nthe warpath.\nMr. McReynolds: I am watching 1t, but Danny ruined that\nbefore it ever went up.\nMr. Lochhead: I haven't those other figures yet.\nMr. Taylor: Nothing.\nMr. Gibbons: I would like to tell you something I heard\nSaturday night.\nHM,Jr: Stay right behind.\nMr. Upham: You said you might want to see me before\nHM,Jr: I think you had better start out just like I said.\nI would not only see the banker fellows. I would see the\nFarm Credit, the HOLC and the Federal Housing, Bo you get\nall around the thing. I suggested to Cy that he start and\nswing down through Richmond, Atlanta, Texas, New Orleans,\nSan Francisco and Seattle and take a plane back, and send\nin a letter and let us know what's going on.\nMr. Upham: Mr. Gaston has already asked if he can go in\nmy place.\nHM,Jr: Better get a little dope on the farm stuff. The\nPresident got a letter from an orange grower in Florida send-\ning a check for $101.00 and he said he thought the President\ncould use it better than he because he's getting paid for\nsomething he had done all his life. Said, Why should he take\nmoney for that? I thought I would take my check -- I can't\nsay 'disabled' -- but Iwant to use a very carefully chosen\nword -- the children at Warm Spring could 12 use it a great deal\nbetter than I could and send it to the Warm Springs Founda-\ntion for the children down there.\nMr. Gibbons: Physically underprivileged.\nRegraded Uclassified\n62\n-7-\nHM,Jr: Something -- not underprivileged.\nMr. Gaston: You spoke about the Wagner Housing Bill.\nThe only thing the President has said in his press confer-\nences 16 that this would be pretty much of a blue-print\nplan and also he said that he is firmly convinced that\nthe whole cost should be the grant and then he also said\nthis other thing about using the Public Works revolving\nfund.\nMr. Bell: The decision for the locality to buy the land\nis the most important decision he has made.\nMr. McReynolds: All the housing people tell me when it\ngoes in that way you don't have to worry about financing,\nbecause there won't be any program.\nMr. Gaston: I fixed up something for Mackellar, but the\nman on the air tonight 1s Cummings.\nHM,Jr: That's your worry.\nMr. Oliphant: I would like to tell you, before lunch,\nabout my talk with Wallace Saturday. It will take four\nor five minutes.\nMr. Bell: (To Mr. Oliphant) Herman, may I ask what is\nthe condition of the refund to the Philippines?\nMr. Oliphant: There has been sent to Quezon & draft of\na letter which he 18 going to reply to us, asking us not to\npay it for the present. For the time being, not to pay to\nthe Philippines the $46,000,000.\nHM,Jr: I think it's B. \"gyp\". I swear it 1s. I know\nthe Army does not want it, but I still think ....\nMr. Oliphant: The Army would like to have it for an\narsenal.\nHM.Jr: But not for the Philippines.\nMr. Oliphant: An arsenal in the Philippines. They did\nnot want the political government to have it, but they would\nlike to have it for an arsenal.\nHM,Jr: I listened to it last year and if ever a Government\nRegraded Uclassified\n63\n-8-\nwas entitled to it, they are. I mean, a moral obligation\nthat they are entitled to it.\nMr. Oliphant: Absolutely.\nMr. Gaston: It's their gold reserve.\nMr. Oliphant: No. This is the other thing -- this is\nthe cocoanut 011.\nMr. McReynolds: Processing tax collected.\nHM,Jr: On, I thought you were talking about the other\nmatter.\nMr. Magill: The Railroad Retirement 18 taking ite normal\ncourse before the Ways and Means and I notice that this\nDoughton bill for repealing that provision for reporting\ncorporate officers' salaries 18 going to be taken up under\nB. rule, I suppose to be passed.\nHM,Jr: I haven't read your letter yet on your talk with\nthe Attorney General, but when he sat down ne said, 'I had\n8. fine conference'\nMr. Magill: When did he say this to you?\nHM,Jr: At Cabinet. 'And I don't think there is any\nreal difference between us.\n(Mr. Magill laughed aloud\nat this remark.) I said, 'I am sorry, Homer, I haven't\ntalked to either of the men. So he said, 'Well, we are\npractically together.' I had better see both of you this\nmorning.\nMr. Oliphant: Did the Federal Trade Commission thing\nclear at Cabinet?\nHM,Jr: It cleared. Wallace raised one objection. He\nsaid something about rice in prices and he changed it to\nput in the word the \"seeming\" rise of retail prices. Put\nin the word \"seeming\" and the word \"retail\".\nMr. Oliphant: And the White House will send it?\nHM,Jr: Will send it. The thing that surprises ne on\nprices -- food prices are 10 points lower today than they\nRegraded Uclassified\n64\n-9-\nthey were a year ago, which is surprising. It is All\ncleared.\nMr. Oliphant: That's a good piece of work.\nHM,Jr: The Attorney General handed it to me and wanted\nme to present it. He did not want to present it. (Mr.\nOliphant laughed aloud at this remark.) But you certainly\nwould have gotten a big kick to hear him talking about 'his\nbrief' against the Aluminum Company. (General laughter\nfrom the group.) 'You can't imagine the work it takes to\ngo into & thing like this.' I was feeling devilish and I\nsaid, By the way, do the people's names who work on this\never appear on the brief? 'Oh, yes, and he showed me Homer\nCummings and switched over to the other list and it mentioned\nRobert Jackson last.\nMr, Oliphant: I Just happen to know how much time he put\non it!\nHM,Jr: 'God! The time it takes!' And he did say one\nthing and I gave him a pat on the back. He turned and said,\n'Mr. President, another thing against Mr. Mellon -- Aluminum -\nand you might get another art gallery out of it.' So I gave\nhim 8 pat on the back and I said, 'Homer, that's pretty good\ncoming from you.' I got the idea that a certain fellow by\nthe name of Robert Jackson, who spent about nine months work-\ning on the Mellon income tax case, somehow or other got the\nidea that the Board of Tax Appeals thought the Administration\nhad lost interest and, purely by accident, before the Board\nof Tax Appeals hand down the decision, he wants to show that\nthe Administration has not lost interest and, therefore, he\nfiles another claim against Mr. Mellon and the Aluminum Com-\npany to show that the Administration 18 interested. The\nfact that it came down before the Board of Tax Appeals de-\ncision 1s pure accident or coincidence. Just an accident\non the part of Robert Jackson! Am I right? He's a smart\nboy. He's got his whole reputation in that thing. So he\nfiles this other thing and everything 18 fine and shows\nMr. Mellon 18 still Mr. Mellon and the Board of Tax Appeala\nread it and now I say that Mr. Jackson's chances of winning\nit are increased about 1,000 percent. Never occurred to\nBob!\nMr. Oliphant: No:\nMr. Magill: Hell, no!\n000-000\nRegraded Uclassified\nNoted\nDivident\n65\nFEDERAL RESERVE BANK\nOF NEW York\nApril 26, 1937.\nATTENTION: Mr. Lochhead\nSir:\nThere is enclosed herewith copy of the summary\nof a speech delivered by the Japanese Minister of Finance\nat the Conference of Clearing Houses held in Tokyo on\nApril 20, 1937.\nRespectfully\nWhen\nL. W. Knoke,\nVice President.\nThe Honorable,\nThe Secretary of the Treasury,\nWashington, D. C.\nEnc.\nISWEOJA\nBECEIAED\n1881 RSA\nTSG: TS RSA\nVIDART\nnão\nservice - - --- -\nRegraded Uclassified\nThe Summary of the Speech\n66\nof the Minister of Finance\nDelivered at the Conference\nof Clearing Houses Held in\nTokyo on April 20, 1937.\n1. The purpose of our financial and economic policy is to promote\nthe welfare of the country. In view of our poor natural resources\nand increasing population, the expansion of our foreign trade must\nbe the guiding principle. Accordingly it is necessary to promote\ntrade with other countries, to develop shipping and fishing indus-\ntries and to encourage emigration. To attain these purposes it is\nadvisable to make reciprocal arrangements with foreign countries by\npeaceful and gradual means.\nEconomic nationalism is still prevailing in the world and is\nimpairing foreign trade and jeopardizing the peace of the world.\nTherefore if an international economic conference is held in the\nfuture, we will gladly participate in the conference with B view\nto clarifying the situation and to making foreign countries better\nunderstand our country.\nof\nThe urgent necessity for the present is to improve the producing\npower of industry, to develop industries as a whole and to promote\nforeign trade so as to enable the Government to meet the increased\nexpenditures. The increase of national expenditures ought to be\nlimited within the producing power of industry.\n3. The Government is prepared to carry out taxation reform in the\nnear future. The increase of taxes, however, should not retard the\ndevelopment of industries. In revising custom duties, the Government\nintends to protect industries which require protection from the view\npoint of national policy and to give careful consideration to the\nbalance of payment.\nRegraded Uclassified\n67\nC\n?\n68\n2.\n4. It is important not to make drastic changes in financial\nmatters and not to take radical measures which affect financial\ninstitutions. However, in view of the great responsibility of\nfinancial institutions with respect to the development of the pro-\nducing power of industry, the consumption of national loans, the\nencouragement of savings and investment within Manchuria and China,\nit is desirable that they collaborate and cooperate among them-\nselves, and also discourage speculative employment of funds. As\nto monetary policy, neither the expansion of currencies to the ex-\ntent of exceeding the economic need of the country nor the strin-\ngency of money inimical to the smooth operation of the financial\nworld is advisable. The amount of currencies should be appropriate\nto the situation.\n5. The balance of payment is reflecting all aspects of finance\nand economics and should be taken into consideration by the entire\nnation. The Government has decided to send gold abroad and increase\nfunds for the purpose of maintaining the present rate of yen ex-\nchange. However, we can not rehy simply on gold shipments. The\nurgent necessity of today is fundamentally tò improve the balance\nof paymentso as not to impair the foundation of the currency system.\nWhen the producing power of the industry develops favorably, the\nmaintenance of the yen exchange rate at the present level will not\nbe a difficult task.\n03V13038\nTest TS ASA\nTMJMTHA93G YRUZA39T\nall to\n- will - - -\nRegraded Uclassified\n69\nLNS\nGRAY\nLondon\nDated April 26, 1937\nRec'd 2:50 p. m.\nSecretary of State,\nWashington.\n247, April 26, 7 P. m.\nFOR TREASURY FROM butterworth.\nReplying to a question (*) House of Commons this after-\nnoon Charcellor of the Exchequer announced that he had\ndecided in the general interest of local authorities and\nother borrowers to acquaint the market with his intention\nto \"advertise on Vednesday morning details of an issue to be\nmade on Thursday of two and a half per cent national defense\nbonds to the amount of 100,000,000 pounds at 99 and one-\nhalf. This will be a short to medium term security redeem-\nbefore\nable\n/\nthe end of 1948 by annual drawings at par of not\nless than 20% of the amount of the loan, the first drawing\nbeing in the autuar of 1944; subscriptions will be payable\nby installments over three months and the first dividend\nwill be 13 shillings per cent on the 15th September 1937.\nIn order that small investors may have an opportunity of\nparticipating I have arranged for a separate issue of reg-\nistered bonds in amounts of five pounds and multiples of\nfive\nRegraded Uclassified\n70\nLMS 2-Jo. 247, April 26, 7 P. m., from London.\nfive pounds up to a maximum of one thousand pounds to be\nmade through the Post Office Savings Bank and Trustee Sav-\nings Bank\".\nMr. Chamberlain also indicated that \"the proceeds of\nthe issue until required for financing the defense program\nwill be available for reducing the floating debt and will\nin any case cover the estimated expenditure of eighty million\npounds to be made this year from borrowed monies\".\nThe London Stock Exchange was decidedly weak again today\nbut the amount of business transacted bore no relation to the\nprice declines; inasmuch as no brokerage firm can advise its\nclients how any particular stock is to be taxed under the\nnew. national defense contribution there are no buyers, while\nat the same time there are both nervous sellers and forced\nsellers. Thus far there is no reflection in the House of\nCommons, aside from a numerically small die-hard Tory group,\nof the somewhat bitterly critical reaction now current in\nthe City.\nThe foreign exchange market was also active today as\nwell-informed dealers report that the Bank of France will\nhave lost as much as two million pounds today.\nBINGHAM\nHPD: WYC\n(*) Apparent omission.\nRegraded Uclassified\n71\nApril 26, 1937\n3:15 p.m.\nPresent:\nMrs. Klotz\nMr. Magill\nMr. Oliphant\nMr. Taylor\nMr. Seltzer\nMr. McReynolde\nMr. Bell\nMr. White\nHM,Jr: Bell, I don't like to bring up these unpleasant\nthings, but I thought after having lunched with the President\nyou might B.B. well have the worst.\nThis is on the Housing bill. The President said on a\nmillion dollar project that the city should buy, out of its\nown budget, $200,000. That leaves $800,000. The Federal\nGovernment will give a grant of 45%, which 18 $360,000.\nThen, he said, we will give 10% of relief labor, which 18\n$80,000 -- 10% of the $800,000 -- leaving a contribution of\n$440,000. Now on re-cap, the city puts up $200,000; the\nUnited States Government puts up $440,000; the balance of\n$360,000 should be raised on first mortgage, and I said,\n'What else do we contribute?\" and he said, 'Nothing.' And\nhe said, 'Why?' and I said, 'They won't like it.' He said,\n'If they don't like it, they're crazy!' I said, 'Is that\nreally all you are going to give them?' So he said, 'WHAT!\nHenry, you and I could build on that basis and if they can't,\nthey're crazy.'\nMr. Bell: You didn't have a Senator present.\nHM,Jr: No, but I have it in his own handwriting.\nMr. Bell: I don't Bee any initials!\nHM,Jr: That's the President's last. And when I said,\n'Mr. President, this won't do;they won't like 1t,' he said,\n'Anybody that don't like that 18 crazy.' Well, they are\nasking for 100%. And he said, \"Well, if they don't like\nthat, they don't get anything. They can take it and like\nit.'\nRegraded Uclassified\n72\n-8-\nMr. Bell: This ie 56 - 44.\nHM,Jr: It's 44% grant by the Government and 50% by\nthe local community.\nNow, I want volunteers. Who 18 going to break it\nto Senator Wagner? I'll tell you what we'll do. If\nVac does not come through with that memo that I am wait-\ning for in 24 hours, he's the candidate to see Senator\nWagner.\nWell, anyway, there it 10. I'll move on. Isn't\nthat good news?\nMr. Bell: 0. K. That's fine.\nHM,Jr: Now, the other thing 1s this, and you can\ncarry the ball on this, Magill. The President wants,\nwhen he comes back, to send either a message to Congress\nor a letter to Pat Harrison and Doughton in which he 18\ngoing to go into detail as to what the $600,000,000 is\nthat we are short of revenue -- possibly use Professor\nCrum's letter -- but anyway, he wants to say flatly that\nour estimates and our method of estimating were correct,\nbut the citizens -- that's the word he used -- found 8.\ntrick way of finding loopholes. And then he wants us\nto 80 into considerable detail as to what those loopholes\nare, particularly elaborating on his friend Colonel Schick.\nHe's got that fellow on his mind. (Shick razor.)\nAnd here's what 18 new. He wants to make B. recom-\nmendation to Congress, now, the 12th of May, that these\nloopholes be closed and that they be retroactive. And\nhe said he does not want to wait until next fall and he\nwants to particularly, where it 18 true, to show the items\nwhich are held up by Court action and go into B. description\nof Just what the Court has done. And this thing -- some-\nbody he read -- Ray Tucker or somebody said that the Pres-\nident and the Secretary of the Treasury did not know how\nto estimate taxes and it's gotten terribly under his skin.\nSo I told him about the one in the Times on Turner Catledge, who\nwrote a perfectly straight story, but the headings were\n'Treasury's Blunders Make Budget Balance Difficult. That's\nin the Times editorial section. But he wants to hit this\nand he said, \"Don't wait until I come back. If you get\nany good stories on how people evade taxes, send them down\nto me by radio.\" He said, \"I have been telling the Colonel\nRegraded Uclassified\n73\nSchick story to everybody who comes to the house. People\nget awfully angry about it and incensed to think that &\nUnited States army officer would become a Canadian citizen\nand move his fortune to the Bahama Islands.\nNow I did not argue with him that his meesage wasn't\ndry yet that he would make recommendations in November 8.8\nto loopholes, but he 18 very much excited about it and he\nwants to have those loopholes closed now and retroactive.\nHe thinks it's too late. I didn't argue with him because\nne was all steamed up. He had Just seen some congressman\nabout flood relief. He's turning him down on 8. flood re-\nlief bill.\nSo I thought, Ros, if you would carry it and work with\nHerman Oliphant and with Haas -- joint cooperation, but\nsomebody has to carry the ball. But I wanted to do the\ntwo things and BO I thought it was a pretty good meeting.\nMr. Bell: Fine!\nMr. Magill: of course, it's mostly 8. matter of getting\ninformation from these field investigations.\nHM,Jr: Then he asked me something which I could not\nanswer and did not attempt to answer, and that was that he\nsaw some ruling about Internal Revenue on foreign corpora-\ntions and ne said, \"Are you sure that will stick?\". I\nsaid, \"I don't know.\" Something he saw. But I don't\nknow whether everybody has seen Crum's report or not, but\nI am giving you the stuff. This means no housing bill -\nat least no money.\nMr. Bell: You don't have to go below the second line.\nNo housing.\nHM,Jr: I said to him, \"I didn't get all of this kidding\nwhen I came into the room the other day.\" I said, \"What\nwas it all about.\" I said, \"I didn't get 1t.\" He said,\n\"Didn't you understand?\" and I said, \"No.\" So he said,\n\"I was getting back at Wallace at the statement he had made\nthat he wasn't going to get any money and I thought the way\nto do it was to take it out on you and Bell, and Wallace\nwould get it.\" I said, \"I wish you would give me a signal\nnext time.\" But did you get it, Bell?\nMr. Bell: No.\nRegraded Uclassified\n74\n-4-\nHM,Jr: I couldn't get it.\nMr. Bell: I thought he wanted to let us know we were\nlicked before we started.\nHM,Jr: He turned to Wallace and said, \"I don't want to\ndo anything to hurt Wallace.\" I just saw Wallace and he's\ngoing along with us on everything. Even now he's talking\nabout taking some out of his $500,000,000, 80 I have nothing\nto complain of and I thought you fellows would like to know.\nMr. Bell: I intended to call them over this afternoon,\nand go over it, but I have not had a chance.\no0o-o0o\nRegraded Uclassified\nyou 2x\n#\n1,000 , ano\nLand 200 11120\nBALANCE\n810\nWe gand 45% 360, AND\nand pay major\nof inter\nForm 10%\n11\n80, 11.0\nFur Cuntrib = H 440, was.\nImming : City pays\nin tach fortand A 200, 100.\n11.5 pays in tash 440, ano.\nBalmer AG finand\n360, was\n1, was pas\nRegraded Uclassified\n76\nApril 26, 1937.\n3:35 p.m.\nH.d.Jr:\nHello\nOperator:\nChairman Eccles. Go shead.\nH.M.Jr:\nHello Marriner?\nEccles:\nYes sir.\nH.M.Jr:\nHow are you to-day?\nE:\nWell I'm all right. (Laughs) How are you by now?\nH.M.Jr:\nOh I'm all right. What did you spend?\nE:\nWell now - sh - I guess you got the report on the\nbill market.\nH.M.Jr:\nNo I haven't.\nE:\nThe - an - well the - I got a preliminary report.\nH.M.Jr:\nYes I've got it before me - I didn't realize it.\nE:\nWell it was - the preliminary in New York was 72\non the nine months and 63 on the short bills - it\nwas a little less than last week on the short and\nslightly over on the long\nH.M.Jr:\nYes.\nE:\n.....SO that the average would be just about the\nsame or maybe slightly less than last week\nH.M.Jr:\nYes.\nE:\n.....SO that we're over that hump.\nH.M.Jr:\nYes.\nB:\nAh - the - ah - we - we told the dealers this morning -\nindicated to them that if they found that they were\nlong on long bills and were having - have any difficulty\nin disposing of them - marketing them during the week\nthat we would be prepared to help out.\nH.M.Jr:\nYes.\nRegraded Uclassified\n77\n- 2 -\nE:\n\"n - we don't know how many bills they bought but we\nassume, of course, they did - they were in the market\nand did subscribe to some extent.\nH.M.Jr:\nYes.\nE:\nNow - ah - what we would do then tomorrow and Wednesday\nand Thursday during the week would be to, if they found\nthat they were having difficulty distributing their\nlong bills, we would either take some off their hands\nfor cash or on an exchange for short bills. In other\nwords, if they found that they could readily sell\nshort bills\nH.M.Jr:\nYes.\nE:\nand they - they - in that case they would, of\ncourse, sooner have short bills than cash.\nH.M.Jr:\nYes.\nE:\nWe would then switch give them some short bills and -\nin exchange for the long bills.\nH.M.Jr:\nYes.\nE:\nAnd - and that - that apparently was helpful, of\ncourse, in the situation.\nH.M.Jr:\nWell you fellows got your teeth into this thing\nSaturday. How much weight has George Harrison lost\nthe last 48 hours.\nE:\n(Laughs) Oh he looked all right this morning.\nH.M.Jr:\nIs he sitting next to you now?\nE:\nNo he's gone back.\nH.M.Jr:\nCould he hear me this morning?\nE:\nNo.\nH.M.Jr:\nOh.\nE:\nNo.\nH.M.Jr:\nAll right.\nE:\nNo he didn't hear you. Nobody heard you.\nRegraded Uclassified\n78\n- 3 -\nH.M.Jr:\nAll right.\nE:\nThe - ah - the - ah - the bonds to-day were - they\nwere just selling all over the lot.\nH.M.Jr:\nYes.\nE:\nAn - we bought 17 million.\nH.M.Jr:\nGood.\nE:\nOf bonds.\nH.M.Jr:\nSwell.\nE:\nAnd the - the - an - market was off - ah - in the\nshort bonds from two and - up to as high as, I think,\n7 or 8/32d's in the longest ones.\nH.M.Jr:\nBoy you're watching this bond market these days,\naren't you?\nE:\n(Laughs)\nH.M.Jr:\nRemember when I used to call you up and you'd\nE:\nWell hell I know but\nH.M.Jr:\ngive me a three day old quotation.\nE:\nwe had no occasion to do anything about it.\nWe were so far removed from it that there was nothing\nelse to do.\nH.M.Jr:\nYes, that was my money in those days.\nE:\nIt wasn't anybody's money.\nH.M.Jr:\nSure.\nE:\nWasn't any money going in.\nH.M.Jr:\nYeah.\nE:\nWhat?\nH.M.Jr:\nThe days I used to put in 40-50 million in a day and\nI'd call you up and you say \"Huh.\"\nRegraded Uclassified\n79\n- 4 -\nE:\nWell I know but you - ah - you didn't want us in at\nthat time. We went in on B partnership basis feeling\nyou got interested in it.\nH.M.Jr:\nI love to hear you talk quotations.\nE:\nWell anyway\nH.4.Jr:\nIt warms the coccles of my heart.\nE:\nNow - an - you'll be interested in this - I - I think\nthat the bond market will possibly continue to go down.\nH.M.Jr:\nYes.\nE:\nAn - maybe I'm wrong but it's - it's just my hunch\nthat it will be put down and - because they've -\neverybody's talked this 3%\nH.M.Jr:\nYes.\nE:\nThe - there's a sit-down strike. (Laughs) That's what\nit amounts to on the part of the insurance companies\nand the big investors and they've put out - and I talked\nto - Walter Cummings called me from Chicago this\nmorning\nH.M.Jr:\nYes.\nE:\nand Walter said - ah - ah - the banks throughout\nthe middle west and customers were talk - talked to\nhim during the last week and again this morning and\nit was their general feeling - because of the propaganda\nthat had been put out from New York, he said - that the\nbond market is going to 3% and he said there wasn't any\nof the banks that he knew of that were required to sell\nat all to meet any reserves. He said they all had ample\nreserves and practically all of them had excess reserves.\nH.M.Jr:\nYes.\nE:\nSo that the only reason they would sell the bonds would\nnot be because they had any other place in the world to\nput their money but would be merely because they thought\nthey could buy them cheaper.\nH.M.Jr:\nYes.\n:\nBecause they could sell them on a - on a 2-3/4 yield\nand buy them later on & 35 yield - of course that -\n80\n- 5 -\nin other words they were speculating to that extent.\nE:\nNow he said the insurance companies - ah - and, of\ncourse, we know that - and the big institutional\ninvestors who had wanted 3% right along are just\nsitting back and are anxious to have the country\nin general help them get that rate.\nH.M.Jr:\nYes.\nE:\nNow - an - so I sald they may go to 3%.\nH.M.Jr:\nYes.\nis\nHowever, the minute they start their buying they\ncan't any more keep them at 3% than they can fly\nbecause there just isn't enough places to put the\nmoney they've got - an - and, of course, they'll\ngo back up again.\nH.M.Jr:\nYes.\nE:\nNow - ah - I - we decided this morning here - the\nCommittee - that during the balance of the week\nwe would just continue to operate like we did to-day.\nH.M.Jr:\nSwell.\nin\nWe wouldn't - we couldn't take the market and, of\ncourse, we wouldn't try but that we would be in the\nmarket and - ah - buy securities and undertake to\nkeep it orderly.\n4.M.Jr:\nGood.\nE:\nAh - so I say if it should go down there\nH.M.Jr:\nYes.\nE:\nit's my hunch that we'll - we'll see a darned\ngood - a - a much better bond market a little later\non.\nH.M.Jr:\nYes.\nE:\nThat it's just one of those periods that - ah -\nthe propaganda has caused everybody to feel that\nthey're going to make profit by selling now and\nbuying later. Somebody is going to get fooled.\nH.M.Jr:\nYes.\n81\n- 6 -\nE:\nNow - ah - the - this was an interesting phase -\nand I've heard it before and possibly you have -\nthat - ah - the Treasury was going to have to do\nsome long-term financing in June.\nH.M.Jr:\nYes.\nE:\nAnd - ah - therefore that they - and they'd likely\nhave to pay 3%\nH.M.Jr:\nYes.\nE:\nbecause the investors that know wouldn't come\nin for less than three now - that no one would take\nless than 3%\nH.M.Jr:\nYes.\nE:\nand - ah - the tendency, therefore, would be\nto wait with the expectation that they could get a\nhigher rate when the Treasury's financing had to be\ndone in June.\nH.M.Jr:\nYes.\nE:\nNow - ah - of course, I think that to do any\nlong-term financing at all in June - at least unless\nthe situation was - was entirely different - ah -\nwould be a mistake and let the bill market - after\nthe first of June there will be a lot of excess\nreserves.\nH.M.Jr:\nMarriner, listen, old man, let's wait till the first\nof May and then we'll begin worrying.\nE:\nOh yes.\nH.M.Jr:\nThen we'll begin worrying. Let's get through this\nweek. I think this is going to be your hardest week\nand if you keep plugging the way you did to-day -\nSaturday, see\nE:\nYes.\nH.M.Jr:\nah - let's see where we are next Monday on the\nfirst but don't let's worry about our 15th of June\nbecause - don't let anybody tell you I've made up my\nmind about anything.\nRegraded Uclassified\n82\n- 7 -\nE:\noh well I knew that. I was - I was merely telling\nyou the - of some of the propaganda that they're\nputting out with an effort to knock down the bond\nmarket.\nH.M.Jr:\nAnd don't forget that Walter Cummings was the first\nbanker to sell a big block of bonds that we knew of.\nE:\nYes.\nH.M.Jr:\nThat he sold 25 million along - between the first\nand seventh of March and it's the fact that he'd sold\nit and I'd heard about it is the r eason that I stiffened\nmy price on the exchanges for the 15th of March.\nBurgess told me that Walter Cummings had dumped 25\nmillion and he was the first fellow to do it.\nE:\nAh-ha. Ah-ha.\nH.M.Jr:\nAnd when he went down to Warm Springs to see the\nPresident complaining about the bond market I said,\n\"You ask Walter Cummings why he sold before anybody\nelse did.\"\nE:\nAh-ha.\nH.M.Jr:\nDon't forget it either.\nE:\nWell I knew that he'd done that.\nH.M.Jr:\nYes.\nE:\nAnd I'm not - Walter Cummings' report was merely -\nand I don't know whether it was New York or not -\nmaybe\nH.M.Jr:\nYou're coming over for lunch tomorrow.\nE:\nWell I'd like to.\nH.M.Jr:\nO.K.\nE:\nAll right - one o'clock.\nH.M.Jr:\nRighto.\nE:\nAll right. Goodbye.\nRegraded Uclassif\n83\nLAZARD FRERES\n120 BROADWAY\nNEW YORK\nLAZARD FRÈRES & Cre\nPARIS\nLAXARD BROTHERS & Co.I.ro.\nLONDON\nNEW YORK April 26, 1957.\nTELEORAPHIC ADDRESS\nLAZARD. NEW YORK\nHon. Henry Morgenthau, Jr.,\nSecretary of the Treasury,\nWashington, D.C.\nDear Henry,\nIn view of the friendly and open-minded mamer\nin which you received me on the occasion of my last visit\nto Washington, I feel warranted in writing to you at some\nlength on the subject that we discussed. I do this the more\nreadily in that I was much impressed with your approach to\nthe problem, which seemed to me entirely without pre-conceptions\nand purely based upon a desire to find a sound solution of\npresent difficulties.\nMy impression was that, among your other concerns,\nyou were extremely interested in the subject of \"hot money\".\nI think that the great flow of gold to this country is in measure\ndue to a movement of capital in our direction which is the re-\nsult of political and economic uncertainties in other parts of\nthe world. Because of the removal for the time being of the\nimminent danger of a European war, I would expect this cause to\ngradually assume diminishing importance.\nBeyond this, however, there is another factor\ndifficult to appraise but which I consider of great moment.\nthat is the fact that the American price level has never anything\nlike fully adjusted itself to the revaluation of the dollar that\nhas already taken place. In my opinion, a gradual rise in the\ncommodity price level to accomplish such a readjustment should\nnot only be welcomed, but should be facilitated. Until this re-\nadjustment takes place, there will be no stopping the flow of gold,\nbarring a new gold policy.\nRegraded Uclassified\n84\nE\nFor the reasons stated when I was with you, I\nconsider & change in the price of gold as a brake on gold imports\nan unsound conception and one which you will be extremely reluctant\nto adopt. Now that we, for a long time, have had de facto stabiliza-\ntion on the basis of $35. per fine ounce, I feel that any tampering\nwith the gold price would introduce an element of the greatest con-\nfusion and uncertainty into the world and the domestic economy; and such\na step would be fraught with the greatest danger. I can see the\npressure under which the constant influx of gold must be placing you,\nand yet I am satisfied in my own mind that to yield to this pressure,\neither through refusing to buy gold, through attempting to place an\nimport tax on its importation, or through excessive handling charges,\nwould be in fact jumping from the frying pan in'to an extremely hot fire.\nI would hesitate to predict how much of our recovery would be jeopardized\nby such & fire once it was lit. I know how much considerations of this\nsort weigh with you, and I em hopeful that your thinking will not take\nyou in this direction.\nSince I last spoke to you, there has been a further\nand material drop in commodity prices. This has now reached a point\nwhere, as you know, it is creating a considerable nervoumess and\nhesitancy in the business world. Furthermore, the Government bond\nmarket has become as much & matter of concern to outside observers\nlike myself as it must be to the Treasury Department. I am told by\nbanking friends in New York that they have many orders to sell Govern-\nments and that there are few bona fide bids other than from the Federal.\nThis, taken in connection with your new program of selling Treasury\nNotes weekly, creates 8 situation of some tension and one that I think\nis getting near the point of requiring drastic action on your part, It\nis so much easier to revive confidence when it has had merely a little\nsetback than after it has turned into pessimism and despondency, the\nface of 8 declining business activity and a tendency towards growing\nunemployment. I would consider neither of these latter possibilities as\nextremely remote, barring action by Washington.\nMy feeling is that this situation could be readily\nturned ebout if you would abandon the policy of gold sterilization and\ndeposit in gold certificates with the Federal the equivalent of the\ngold now sterilized. This would have an immediate and an electric effect\non the bond market, both for Government and corporate issues, and would\ngo a long way towards throwing into reverse the feeling of apprehension\nthat has been growing all too rapidly in the last few weeks. It would\nbe reflected in the commodity market by substantial advances. Washington\nbas been critical of advances in the commodity market until quite re-\ncently; yet I cannot avoid the feeling that they should now be concerned\nrather about further declines than about a new recovery. While I quite\nsympathize with their desire to react from to time against speculative\nexcesses wherever they may appear, I feel that in the long run we will\nonly reach B. sound position if gradually the price level is allowed to re-\nadjust itself to the present price of gold. Such a readjustment in itself\nwould correct many of the disequilibrie in our system.\nRegraded Uclassified\n85\n- 3 -\nThere will always be a lag between a rising\ncost of living and the rate of wages and salaries. Somethimes\none will out-run the other and at other times vice versa. But\nhaving in mind the extent to which there is a tendency to re-\ndistribute through wages, salaries and dividends to en ever-\nincreasing number of individuals a constantly larger share of\nthe annual productivity, I would expect this to gradually take\ncare ot itself in the general upsurge of an economy which is\nturned towards increasing activity based upon an enormous amount\nof necessary work throughout the country waiting still to be\ndone. Such an upsurge will do more than anything else to solve\nthe problem of \"bot money, and at the same time it will do more\nthan any other thing to bring about budgetary equilibrium. It is\nobvious that anything which causes a material setback in this tendency\nwill have immediate and unpleasant implications for the budget.\nThis letter, as you see, is addressed to other\nphases of the problem than those which I went into with you in some\ndetail when I was in Washington. I have not changed my view about\nthe question of the free coinage of gold, but I agree with you that\nthe phases of the problem touched upon in this letter are of more 1m-\nmediate importance. In the end, they all have some pointsof inder-\ndependence.\nI am at your disposal at any time to discuss this\nor any other questions with you, should you so desire.\nWith kindest regards, I am,\nYours sincerely,\nJust Julan le\nFA/B.\nRegraded Uclassified\n86\nJS\nGray\nPARIS\nDated April 26, 1937\nRec'd 4:09 p.m.\nSecretary of State,\nWashington, D.C.\n530, April 26, 6 p.m.\nFROM COCHRAN.\nFrench control sold fair amount of sterling at 111.15.\nDollar has become a little more offered. The control sold\na few at 22.55. Rentes dealined about 1.70 francs and the\nnew 1937 four and one half national defense bonds sank\nto 94.31. stock market bad.\nis\nToday's market nervousness/due in part to week-end\npolitical developments and most particularly to insistent\nand recurring demand of Jouhaux and his laborers that ten\nbillion france be borrowed by the Government to finance\npublic works and especially to take care of the twenty\nodd thousand employed in finishing the Paris Exposition\nstructures. The idea of \"work billà\" after the German\nexample which could be discounted by contractors with\nthe bank and later rediscounted at the Bank of France is\nbeing pushed while earlier ideas of capital levies and\nnationalization of insurance and other business are\nreviving.\n\"ith French Parliament assembling tomorrow, Govern-\nment may soon face a bitter debate on general policies.\nThe Minister\nRegraded\n87\n- 2 -\nFrom Paris #530\nThe Minister of Finance will undoubtedly be required to\nadvertise the Finance Committee's detailed information with\nrespect to the state of the Treasury, disposition made of\nfunds recently borrowed, etc.\nBULLITT\nSMS:RGC\nRegraded Uclassified\n88\nApril 27, 1937.\nH. M. Jr. called to see the Vice-President this\nmorning. The Vice-President told H. M. Jr., that as\nSecretary of the Treasury he has the responsibility\nof the budget and the time may come when he may have\nto resign if he does not get the co-operation of the\nPresident on \"spending\". H. M. Jr. told him that he\ndoes not threaten but if the President does not carry\nout his promise to stop spending, he will resign.\nThe V.P. told H. M. Jr., that for two months he has\nlaid the ground work for the curtailing of spending but\nthat the President would not listen. He also said, \"Henry,\nfrankly, I am talking to the President through you\".\nH. M. Jr. replied that he understood.\nH. M. Jr. asked the V.P. whether he had confidence in\nhim and the Vice-President answered, \"Henry, I am your\nfriend and I am proud of you. You can always count on me\".\nRegraded Uclassified\n89\nApril 27, 1937.\n9:58 a.m.\nH.M.Jr:\nHello\nOperator:\nGovernor Harrison - go ahead.\nH.M.Jr:\nHello\nHarrison:\nHello Henry?\nH.M.Jr:\nGood morning George.\nH:\nI was disappointed not to see you yesterday. On\naccount of this daylight saving thing I had to rush\noff as soon as my meeting was over.\nH.M.Jr:\nI see. What were you - afraid to get caught in the\ndark.\nH:\nWell I'll tell you. It gets me home so late. I\ndidn't get home as it was till pretty near 11.\nH.M.Jr:\nI see.\nH:\nAnd I - it cuts an hour off on the night train so\nI have to skip that if I can.\nH.M.Jr:\nYes.\nH:\nAh - I - everything is about the same as last night's\nclosing.\nH.M.Jr:\nwell I haven't. I haven't - I don't watch the bond\nmarket as closely as I used to.\nH:\nI see.\nH.M.Jr:\nI let Marriner and you do that.\nH:\nAnd -\nH.M.Jrt\nSeriously.\nH:\nWhat's that?\nH.M.Jr:\nI'm serious.\nH:\nWell I think that's right.\nH.M.Jr:\nYes.\nRegraded Uclassified\n90\n& 1 1\nH:\nThe - an - and I'm glad you don't bother about it.\nH.M.Jr:\nYes.\nH:\nAh - the - an - ah - - - the difficulty is there's\na\nthere - that I wanted to mention to\nyou there - judging by the evidence of the last three\nor four days\nH.M.Jr:\nYes.\nd:\nthere's a good deal of liquidation coming from\nthe middle west and far west\nH.M.Jr:\nI see.\nH:\nfor the first time.\nH.M.Jr:\nAh-ha.\nH:\nAh - that's the reason that - usually quiet in the\nmornings - it's been quiet in the mornings for three\ndays now and then there's - ah - the west wakes up -\nah - we get soaked and it's been quiet again to-day\nbut we're fearful that we will get soaked again this\nafternoon the same as we did yesterday. Of course,\nyesterday was a bad day in everything.\nH.M.Jr:\nAh-ha.\nH:\nAnd a good deal of rumor or talk has been around town\nabout collapse of prices and securities in London.\nH.M.Jr:\nAh-ha.\nH:\nAh - which some people rumored I guess we've had\nno evidence of any justification to the rumor.\nH.M.Jr:\nYes.\nH:\nThat somebody's commission in - ah - houses - were in\ntrouble over there.\nH.M.Jr:\nA h-ha.\nH:\nNow whether that's had anything to do with added\npressure I don't know.\nRegraded Uclassified\n91\n- 3 -\nH.M.Jr:\nWell I wanted to ask you just what the various\nworries were in New York - if you could - tell\nme what are some of the financial people worrying\nabout in New York?\n\":\nWell I don't know but I'll tell you what I've done -\nI've just started to-day having a series of -\nwell I began as a matter of fact on Friday before\nI went down there and they had only one then but\nI'm having now a series of talks with the principal\nbanks just to find out - because I can get a collection\nof that.\nH.M.Jr:\nI'd like to know\nH:\nAnd I'm having two or three of them come in to-day\nagain and after I get 8. better cross-section of it\nI'll sum it up for you but I just wanted to know\nmyself.\nH.M.Jr:\nBecause I - I - all I keep. hearing is they're worried\nbut I don't know what they re worrying about.\nH:\nWell I'll tell you - one man - and I think it's better\nfrom your standpoint than mine not to ask me who it is -\nsome day I'll tell you came - came on Friday and I spent\nan hour with him and, frankly, his only worry was the\ngeneral one - fundamental one - of what the world and -\nand the U. S. too but the world was a whole was going\nto do about gold because he thinks we're getting into\nan awful Jam on it.\nH.M.Jr:\nAh-ha.\nd:\nAnd he says that with America and England being forced\nto buy gold at prices that are not justified in\nrelation to other world prices - gold that we don't\nwant - and the way he figured it out - that it will\neither continue to come here and increase excess re-\nserves or increase government debt and he just thinks\nand expresses damnfoolishness for the world - for England\nand this country to have to go on at that rate buying\ngold that they don't want and all the rest of the world\nis dumping on these two countries. Now he says funda-\nmentally he thinks that's the most dangerous thing in\nthe situation and that thoughtful people are getting more\ncautious about it and getting more\nat the\nPresident.\nH.M.Jr:\nWell that - would that mean there would be more or\nless gold come this way?\nRegraded Uclassified\n92\n- 4 -\nH:\nYou mean his feeling that way?\nH.M.Jr:\nWell I mean if they're are enough people feel that way.\nH:\nWell I'll - I'll try to puzzle that out. I don't think\nso because you see most of it is coming not because\npeople here are attracting it but rather because people\nin the other parts of the world that don't want it are\nselling it to us because they think they're getting a\nvery good price.\nH.M.Jr:\nWell I'd be very much interested after you talk to the\npeople - ah - ah - if you - if there's any general\nideas as to what's the matter I'd like to have them.\nH:\nYes, well I'll - I'll - well I thought I'd just make\nthis survey just to see what's itching them all.\nH.M.Jr:\nOf course, from the standpoint of the United States\nTreasury - ah - I'm not worried\nH:\nYes.\nH.M.Jr:\nbecause the things that are happening don't affect\nus.\nH:\nYes.\nH.M.Jr:\nSo there's nothing - ah - for me to worry about unless\nthe worries get sufficient that it slows up business.\nH:\nYes.\nH.M.Jr:\nAnd, of course; that hasn't happened.\nH:\nNo I don't think it's happened and to the extent we've\nhad any slowing up I think it's been\nH.M.Jr:\nSo - ah - ah\nH:\nBut I do think from - ah - evidence that you get\neverywhere that there is a trend of firmer interest\nrates all over the world.\nH.M.Jr:\nWell - ah - that - that may be so although I see the\nBritish are selling B 1948 - 2-1/2% bond so that don't\nlook as though interest rates were so firm.\nRegraded Uclassified\nS3\n- 5 -\nH:\n1948.\nH.M.Jr:\nThat's what they - that's what they offered yesterday -\n1948 - 2-1/2%.\nH:\nYes, that's 11 years.\nH.M.Jr:\nAt 99-1/2.\nH:\nYes.\nH.M.Jr:\nWell let's see what happens beginning next Monday\nwhen - when - after we've passed the famous May 1st date.\nH:\nYes, well I think that we're seeing that now. I think\nthat we're closer to that.\nH.M.Jr:\nAll right George if you get anything give me a ring,\nwill you?\nH:\nYes, I will.\nH.M.Jr:\nThank you.\nH:\nGoodbye.\nRegraded Uclassified\nMEMORANDUM\nS4\nApril 27, 1937\nTo:\nSecretary Morgenthau\nFrom: Dr. Burgess\nTreasury bonds were quiet today with little change in\nprices. Volume of trading on the board was emall and there\nwas not a great deal of activity in the over-the-counter\nmarket. Opening bids on the board were 1/32 under yesterday's\nclose and there was little variation from this level through-\nout the session. The long bonds closed unchanged to 2/32 off\nand the rest of the list was unchanged to 1/32 off. The\nguaranteed group W&B also quiet but showed fairly large price\nchanges; the F.F.M.C. bonds were mixed and the H.O.L.C. bonds\nwere down 5/32 to 7/32 on sales. Government bond turnover on\nthe board was $691,000 compared with $3,643,000 yesterday.\nThe note market was quiet and steady with few changes in quota-\ntions. Several middle maturities closed 1/32 down on the day,\nthe two longest issues 1/32 better and the rest of the list\nwas unchanged.\nDomestic bonds were dull apart from a little activity in\nthe second grade rails, and price changes were generally small.\nIn the second grade group rails were emall fractions better on\nthe day, industrials were firm to last night's closing level,\nand utilities were small fractions off. High grades were\nrather mixed with a firmer tendency.\nThere was moderate and general activity in the foreigns with\nfew price changes of consequence. Argentine 4ge were off 1/2\npoint; Canadian bonds were unchanged to & shade lower, while\nAustralian and Japanese issues firmed slightly.\nNo purchases for Treasurv today.\nRegraded Uclassified\n95\nADDRESS OFFICIAL COMMUNICATIONS TO\nTHE SECRETARY OF STATE\nWASHINGTON, o.e.\nto\n1804\nDEPARTMENT OF STATE\nWASHINGTON\nIn reply refer to\nFE - 694.006/8.\nApril 27, 1937\nCONFIDENTIAL.\nThe Secretary of State presents his compliments to\nthe Honorable the Secretary of the Treasury and encloses\nfor his confidential information a paraphrase of a tele-\ngram (No. 119) of April 23, 1937, from the American Ambas-\nsador at Tokyo in regard to trade policies of Japan.\nEnclosure:\nParaphrase.\n03V13038\n1 is\nVRITENINT\n\\ 1 \\ \\\nNoted\nA. Lochhead\n(nox\nRegraded\nUclassifie\nI\n96\nDEPARTMENT OF STATE\nDIVISION { ( FE\nBUREAU\n(\nENCLOSURE\nTO\nLETTER DRAFTED\nADDRESSED TO\nSecretary of the Treasury\nS6\n(CONFIDENTIAL)\nPARAPHRASE\nA telegram (No. 119) of April 23, 1937, from the\nAmerican Ambassador at Tokyo reads substantially as follows:\nOn April 21 the Minister for Foreign Affairs remarked\nat a farewell dinner given in honor of the Kadono Economic\nMission that, although it may not be possible to restore com-\npletely international free trade as it existed in the past,\na check should be put on the trend toward extreme trade protec-\ntion. The Foreign Minister said also that Japan should take\npart in the movement in Europe and America for freer trade\nbetween the nations.\nAccording to reports in the press of April 22 the\nMinistry of Finance has decided to retain in force after\nJuly 1 the measures adopted on January 8 for import exchange\ncontrol and to expand the scope of the measures in order to\nrestrict gradually imports into Japan of luxury goods and\nnon-essential materials.\nThe attention of the Department is invited to the\ninconsistency between the two policies above mentioned\nin case the Department should have occasion to have con-\nversations with the mission while it is in the United\nStates.\n694.006/8\nNoted =\nA. Lochhead\nRegraded Uclassified\n97\nApril 27, 1937.\n10:25 a.m.\nH.M.Jr: Hello.\nOperator: Mr. Knoke.\nH.M.Jr: Hello.\nL. W.\nKnoke:\nGood morning, Mr. Secretary.\nH.M.Jr: Hello Knoke. How are you?\nK:\nQuite well, thanks.\nH.M.Jr: Ah - Knoke, have you talked recently to England or\nto Holland.\nK:\nWell I'm expecting a call from Holland now.\nH.M.Jr: Good.\nK:\nThey put it in for ten minutes after eleven.\nH.M.Jr:\nAre they calling you?\nK:\nYes, they're calling me.\nH.M.Jr:\nGood and are you going to talk to England today?\nK:\nAh - well if you think I ought to.\nH.M.Jr:\nWell I - I'd like to know what they're all worrying\nabout. If you can find out, you know.\nK:\nYes.\nH.M.Jr:\nIf there's anything particular that's gone wrong or\nis there - ah - what's all the shooting for, you\nknow?\nK:\nYes, well I'll - surely I'll ask that question. I'm\nafraid that (laughs) this situation will last for a\nwhile, Mr. Secretary.\nH.M.Jr: Why?\nK:\nWell because - ah - ah - you see the - it will -\nprobably the rumors will come up and the rumors\nwill call for a denial and the more rumors and\nthe more denials probably gradually the more\nhard-boiled the market will get.\nS8\n2 I I\nH.M.Jr: Yes.\nK:\nAnd that, after all, is the experience that has -\nthat anybody always has had. The first denial\nis the most effective; the second is - is not\nquite as effective and so it will - and so it\ncontinues.\nH.M.Jr:\nWell do you think these rumors that they're going\nto drop the price of gold are coming from abroad?\nK:\nFrom where?\nH.M.Jr:\nFrom abroad.\nK:\nOh I'm sure they are not coming from here.\nH.M.Jr:\nYes.\nK:\nWell that I'm sure of because - ah - at least I\nhave no reason to assume that anybody here is\nspreading those.\nH.M.Jr:\nWell that's what I think.\nK'\nWell at least .....\nH.M.Jr:\nSome of the people here in the Treasury don't agree\nwith me. I think that they're being manufactured\nabroad.\nK:\nThey what?\nH.M.Jr:\nI think the rumors are coming mostly from abroad.\nK:\nWell that's what I think.\nH.M.Jr:\nYes.\nK:\nThat's what I said. I don't think they come from here.\nH.M.Jr:\nNo.\nK:\nThey at least - ah - let me put it this way. I have\nno reason whatever to assume that they come from here.\nI have no indication of any kind.\nH.M.Jr:\nWell this is the way I feel and I told this to Governor\nHarrison a little while ago. While these rumors are\nbothersome and they upset the markets and so forth and\nso on - but as far as the United States Treasury is\nconcerned they really don't affect us.\nRegraded Uclassifie\n99\n- 3 -\nK:\nYes.\nH.M.Jr:\nAnd while - what I'm trying to do as Secretary is\nto be - to help keep the market stable see, and orderly.\nIn the final analysis all of this - what's going on\nhere for the last couple of weeks really doesn't touch\nus. I mean there's nothing really to worry us.\nK:\nWell no - I guess.\nH.M.Jr:\nI mean the stock market falls four or five points;\nit doesn't affect us and always - because it hasn't\nslowed up business, you see?\nK:\nYes, well, of course, the one thing - ah - one\nrespect in which it seems to me it does affect us\nis the - the - ah - continued increasing amount of\ngold coming over.\nH.M.Jr:\nWell why worry about it, Knoke?\nK:\nWell - ah\n.....\nH.M.Jr:\nSupposing we get a billion dollars of gold - what of\nit?\nK:\nWell - (Laughs)\nH.M.Jr:\nNo I want to get that over to you. What of it?\nNow look -\nK:\nYes.\nH.M.Jr:\nWe're spending seven billion dollars next year - seven\nbillion three hundred million dollars.\nK:\nYes.\nH.M.Jr:\nSupposing I have to spend seven million dollars on\ninterest to sterilize a billion dollars worth of gold.\nWhat of it? Why should I worry?\nK:\nQuite so, Mr. Secretary, but I'm not\nH.M.Jr:\nNo but I want to get that over to you. I mean I want\nto get it over to you\n......\nK:\nYes.\nH.M.Jr:\n.....\nso that you can get it over.\nRegraded Uclassified\n100\n- 4 -\nK:\nYes.\nH.M.Jr:\nThere's nothing in this situation which gives me any\ncause for worry. If I get a billion dollars worth of\ngold and sterilize and it costs me seven million dol-\nlars in order to insure the financial structure that\nthis gold doesn't go into our blood-stream, see?\nK:\nYes.\nH.M.Jr:\nKeep it out of our blood-stream.\nK:\nYes.\nH.M.Jr:\nWhat is there to worry about?\nK:\nWell - ah - may I - ah - say how I think the market\nis\nH.M.Jr:\nPlease, always tell me and then tell me what you think.\nK:\nAh - the way the market argues is that as the sterilized\ngold mounts up someday there will be a kick from up in\nthe Capitol and the same old argument. They say, \"Well\nthis is nothing but a bonus to the banker\" and - ah -\nin Patman's language and in Coughlin's language - a\nbonus to the banker.\nH.M.Jr:\nWell all right - let me take care of that. I took care\nof it in 133, 134, and 135.\nK:\n(Laughs)\nH.M.Jr:\nNo, but I'm telling you.\nK:\nYes.\nH.M.Jr:\nI mean I want to get this over to you that neither\nthe President nor I are worried about the present\nsituation because there's nothing in the fundamental\neconomic structure of this country which it harms.\nWe're going ahead; we have our strikes, yes; we have\nour labor troubles, yes; but the business moves forward.\nAh - the New York Times business index constantly goes\nup. I mean what is there fundamentally for me to worry\nabout? That's what I'd like to have some New York\nfinancier tell me, because I can't see anything.\nK:\nThat isn't I think\nH.M.Jr:\nPardon me?\nRegraded Uclassified\n101\n- 5 -\nK:\nThat isn't what you want to worry about - it's - ah *****\nH.M.Jr:\nWell I can't worry because they worry.\nK:\nWell that is just it - the - quite so you can't but\nthe effect of the - the accumulated effect of their\nworrying is what worries me.\nH.M.Jr:\nTrue but what you want to know is - there's only two\npeople in the United States that can change the price\nof gold, and I'm one of them.\nK:\nMr. Secretary, I said to the Chase yesterday I was\nwilling to bet there would be no change this year and\nI was willing to bet there would be no change next\nyear, and I said, \"Politically I can't think any\nfurther than that.\"\nH.M.Jr:\nWell what I'm getting at is - ah - I want you to\nknow that I'm not worried about five hundred million;\nI'm not worried about a billion dollars worth d' gold\ncoming over here, see?\nK:\nYes.\nH.M.Jr:\nAnd I - but I can't worry because some fellow down\nthere worries.\nK:\nYes.\nH.M.Jr:\nNow the only thing that Archie brought up is whether\nwe ought to step in and buy some gold in London\nourselves.\nK:\nYes.\nH.M.Jr:\nI don't know whether that would help or not.\nK:\nWell I - I think it - ah - yes, I think it would\nhelp because it seems to me the continued discount\nof the London price indicates that supply - that\nalthough demands has picked up considerably yet it\nis not up to supply.\nH.M.Jr:\nWell, think that over.\nK:\nWell we - he and I discussed it yesterday afternoon\nand I thought it would be - expressed the feeling\nthen\n102\n- 6 -\nH.M.Jr: Well you talk to London; you talk to Holland, will you?\nK:\nYes.\nH.M.Jr:\nAnd - and talk to Cariguel too.\nK:\nYes.\nH.M.Jr:\nAnd after you've talked to them give me a ring.\nK:\nAm I at liberty to indicate what you told me?\nH.M.Jr:\nAre you at liberty?\nK:\nYes.\nH.M.Jr:\nAbsolutely.\nK:\nAll right, sir.\nH.M.Jr:\nI mean absolutely.\nK:\nAll right.\nH.M.Jr:\nI mean I - I wouldn't give that to very many people\nbut I give it to you. You mean abroad and at home?\nK:\nAbroad.\nH.M.Jr:\nYes, you can use it - you can use it anywhere where\nyou think it's necessary.\nK:\nAll right, sir, and I'll call you later on.\nH.M.Jr:\nYes, because that's the way I feel. I mean - the\npoint is I can't worry because some other fellows\nare worrying and there's - there's nothing that\nI can see that I should worry about.\nK:\nWell I shall do my darndest to get that across.\nH.M.Jr:\n0. K.\nK:\nAll right, sir.\nH.M.Jr:\nAll right, thank you.\nRegraded Uclassified\n103\nApril 27, 1937.\n10:57 a.m.\nHello\nH.M.Jr:\nHenry Morgenthau, Jr.\nYes.\nH.M.Jr: You tell Major Berry, when he comes back, that I have\napproved his request for the 15% differential for the\nmen in the Bureau of Engraving.\nApproved his request - I beg your pardon?\nH.M.Jr: On the 15% differential - he knows what I mean.\nYes.\nH.M.Jr: In the Bureau of Engraving - night workers. Question\nof unions.\nAll right I surely will. Allright I surely will.\nH.M.\"r:\nI have approved it.\nYou've approved it.\nH.M.Jr: Yes.\nAll right I'll tell him when he comes in.\nRegraded Uclassified\n104\nApril 27, 1937.\n10:58 a.m.\nHello\nOperator: Just a minute please.\nH.M.Jr:\nPut him on.\n0:\nHe's on.\nH.M.Jr: (Aside to Miss Roche: \"Thanks Miss Roche\")\nHello\nH.M.Jr:\nHello Butterworth.\nB:\nGood afternoon Mr. Secretary.\nH.M.Jr:\nCan you hear me.\nB:\nAbsolutely.\nH.M.Jr:\nAll right. Butterworth - what I want you to do if\nyou have the contacts - I wish you could talk to\neither to some of the American\nB:\nI can't hear you sir.\nH.M.\"r:\nCan you hear me now?\nB:\nA little bit better, yes.\nH.M.Jr:\nIf you know any of the American brokers in London -\nbrokerage offices - do you know any of them?\nB:\nYes - yes I do.\nH.M.Jr:\nI wondered if you could sort of talk to them\nB:\nYes.\nH.M.Jr:\n....and find out why they think the people are selling\nAmerican stocks, see?\nB:\nWhy they're selling American stocks?\nH.M.Jr:\nYes, if they have any reason.\nRegraded Uclassified\n105\n- 2 -\nB:\nYes, well I - I know that there's been a spilling\nover of the liquidation here.\nH.M.Jr: Yes.\nB:\nI'll tell you what I mean - brokers took the position which\noccurred here in the last week.\nH.M.Jr: Yes.\nB:\nAnd then from\nspeculators and investors\nfound themselves in a position where they had to\nundertake some forced liquidation.\nH.M.Jr:\nI see.\nB:\nNow they - if they liquidated their English\nstock\nwhich had declined considerably in value -\nH.M.Jr:\nYes.\nB:\nThose were several reasons that I reported you know.\nH.M.Jr:\nYes.\nB:\nThey would have to do so at a great sacrifice\nH.M.Jr:\nYes.\nB:\n....and so they were inclined to liquidate some\nof their American holdings\nH.M.Jr:\nI see.\nB:\nparticularly the sort of well known market\nleaders such as U. S. Steel and New York\nCentral and International Nickel.\nH.M.Jr: Yes.\nthose\nB:\nThe- particularly / national stocks which are\nquoted in large amounts both here and in New York\nH.M.Jr:\nI see.\nB:\nwhich is an active market in both places.\nH.M.Jr:\nI see.\nRegraded Uclassified\n106\n- 3 -\nB:\nAnd that I know has been going on.\nH.M.Jr:\n\"h-ha.\nB:\nI don't think they've been liquidating their American\nstocks from - in the last few days on the basis of\nH.M.Jr:\nAh-ha.\nin\nI think it was temporary rather than a permanent thing\nI.M.Jr:\nWell the thing that I wanted was: What was their\nparticular worry - not only American stocks but what\nare they worrying about, see?\nB:\nOh I see.\n1.1,3r:\nI mean - what are the people in the markets - what\nare they worrying about abroad and in the United\nStates, see? I mean if - if you could find out - I\nmean - ah - I know they are worrying about a lot of\nthings but I - I can't find out what their particular\nworries are.\nB:\nI don't think they're particularly worred about the\nAmerican scene. I think their worry has been internal\nmatters here.\nS.V.Jr:\nWell could you find out more about it and send me a\ncable on it?\nB:\nI could indeed. Would you like - like me to tell you\na little bit about the atmosphere at the present\nmoment?\nH.V.\"r:\nYes.\nB:\nAh - in brief the English market has improved to-day.\nB.M.Jr:\nGood.\nE:\nAnd people are feeling better in anticipation of the\nstatement which Mr. Chamberlain is making to the House\nof Commons to-day\nH.M.Jr:\nI see.\nRegraded Uclassified\n107\n- 4 -\nB:\nregarding the national contribution pact.\nOf\narrangements of this pact\nhas - ah - hit the market so hard is because it's\nconnected in the peoples minds with the wartime\nfinancing.\nH.M.Jr: Yes.\nB:\nThis\npact.\nE.M.Jr:\nAh-ha.\nB:\nAnd it's going to hit people\nH.M.Jr:\nYes.\nB:\nFor instance, if they come here on 1933, 134 and 135.\nH.M.Jr:\nYes.\nB:\nA good many of the heavy incomes have been - and so\non were very depressed during those - so that if that\nis true it would carry the\nthey will\nhave to pay a rather large tax.\nH.M.Jr:\nI see.\nB:\nA very good\nis that the - the whole\nposition is somewhat clearing up\non the basis\nof the assessment\nwhich was on the\nthree million pounds\nthat\ntwenty - twenty-five million pounds\nbut the particulars\nas to how it is going to be\nworked out has not been made clear.\nH.M.Jr:\nI see.\nB:\nIf those were cleared up I think that they will be\nlikewise clearing up the\nH.M.Jr:\nAh-ha. Well if you don't mind - I don't quite get it\nvery well over the telephone.\nI wish you'd sit down\nand write me a cable on it.\nB:\nI certainly will.\nRegraded Uclassified\n108\n- 5 -\nH.M.Jr:\nNow we here, as far as the Treasury goes, we have no\nparticular worries but there are an awful lot of other\npeople who are worrying and I'm trying, by calling up\nyou, calling up Cochran and New York, I'm trying to\nfind out what are people worrying about in the various\nfinancial centers\n3\nB:\nYes.\nH.M.Jr:\nand see if any of it makes any sense and - so\nif you just talk and see - I mean if you can pin them\ndown, see?\nB:\nYes.\nH.M.Jr:\nAnd if you can and never mind how foolish it sounds -\nwhy just send it along.\nB:\nYes I will.\nH.M.Jr:\nAnd we're trying to pick it up from the different\ncenters.\nB:\nAllright. Well I'll see if I can 't get you off a\ncablegram tonight.\nH.M.Jr:\nThank you very much.\nB:\nOn this - Mr. Secretary.\nH.M.Jr: Yes.\nB:\nYou got my report of the conversation on Friday?\nH.M.Jr:\nOn what?\nB:\nOn Friday.\nH.M.Jr: Yes.\nB:\nWas that satisfactory the way it was put?\nH.M.Jr:\nYes quite.\nB:\nIt was.\nH.M.Jr:\nYes.\nB:\nWell thank you so much.\nRegraded Uclassified\n109\n- 6 -\nH.M.Jr: Yes, it was all right.\nB:\nThank you very much.\nH.M.Jr: Goodbye.\nB:\nGoodbye.\nRegraded Uclassified\nFEDERAL RESERVE BANK\nOF NEW YORK\n2)\n110\nFICE CORRESPONDENCE\nDATE April B, 1937.\nCONFIDENTIAL VILES\nSUBJECT: TELEPHONE CONVERSATION WITH\nFacks 1. -3\nDE WEDERLANOSCHE BANK.\nMr. de Jong called me at 11:51 and referred to his cable-\ngram of today, by which he had canceled his previous instructions to\nsall guilders at 5476 or better, and gave us a new order to sell for\ntheir account further guilders 25,000,000 at 5484 less charges, that\nis 54831 in cases where w sall through agents. If we made sales\nwithout paying brokerage or commission to agents, he would be satis-\nfied to receive 54851 also. de Jong was at great pains to point out\nthat changing the price did not nom & fundemental change in their\npolicy. All they intended to do was to follow the market rather than\nstick to one rate irrespective of demand or supply. That being so,\nthey were quite likely to change their rate again in the near future\nor, for that matter, to change it a number of times. In that case,\nthey would send us a telegram quoting us the new rate. I asked how\nthe dollar was behaving and de Jong said it was very much offered.\nI asked how he explained the weakness of the dollar and he ascribed\nit to the same old runers.\nI took this opportunity to refer to our telephone converse-\ntion of April 9, when I had repeated to his what the Secretary of\nthe Treasury had told no over the telephone, namely that neither the\nPresident not he contemplated 8 change in the gold price. I nentioned\nthat I had had a similar call from the Secretary this merning, repeating\nthe same statement and I added that, personally, I was very consid-\nerably impressed with what the Secretary had told no. de Jong thanked\nme.\nBe the sentiened that he unsted no to know that in all\nRegraded Uclassified\n111\nFEDERAL RESERVE BANK\nOF NEW YORK\nFICE CORRESPONDENCE\nDATE April 27, 1987.\nCONFIDENTIAL FILES\nSUBJECT:\nTELEPHONE CONVERSATION\nL. V. Knoke\nWITH DE HEDERLANDSCHE BANK.\n- 2 -\nprobability we would receive substantial amounts of dollars for their\naccount, which they were not going to ask us to convert into gold.\nThis, however, did not apply to dollars with which we might credit\nthem against our sales of guilders in this market. The latter, we\nwere to continue to convert into gold as heretofore. I pointed out\nthat if he accumulated dollars without at once converting them into\ngold, conversion under the present arrangement could not take place\nat 8 future date. de Jong assured no that he fully understood the\nsituation.\nLEK:KMC\nBECEINED\nTax\n/ I - 1 2 - / /\nRegraded Uclassified\n112\nApril 27, 1937.\n10:58 a. n.\nHello.\nOperator: Just 8. minute please.\nH.M.Jr: Put him on.\nOperator: He's on.\nH.M.Jr: (Aside to Miss Roche: \"Thanks Miss Roche.\")\nHello.\nH.M.Jr:\nHello Butterworth.\nB:\nGood afternoon, Mr. Secretary.\nH.M.Jr:\nCan you hear me?\nB:\nAbsolutely.\nH.M.Jr:\nAll right. Butterworth - what I want you to do if\nyou have the contacts - I wish you could talk to\neither to some of the American\n.....\nB:\nI can't hear you sir.\nH.M.Jr:\nCan you hear me now?\nB:\nA little bit better, yes.\nH.M.Jr:\nIf you know any of the American brokers in London -\nbrokerage offices - do you know any of them?\nB:\nYes - yes I do.\nH.M.Jr:\nI wondered if you could sort of talk to them\nB:\nYes.\nH.M.Jr:\n..... and find out why they think the people are sell-\ning American stocks, see?\nB:\nWhy they're selling American stocks?\nH.M.Jr:\nYes, if they have any reason.\n113\n22 I I\nB:\nYes, well I - - I know that there's been a spilling\nover of the liquidation here.\nH.M.Jr: Yes.\nB:\nI'll tell you what I mean - - brokers took the position\nwhich occurred here in the last week.\nH.M.Jr: Yes.\nB:\nAnd then from\nspeculators and investors\nfound themselves in a position where they had to\nundertake some forced liquidation.\nH.M.Jr: I see.\nB:\nNow they - if they liquidated their English stock\nwhich had declined considerably in value -\nH.M.Jr: Yes.\nB:\nThose were several reasons that I reported you know.\nH.M.Jr: Yes.\nB:\nThey would have to do so at a great sacrifice\nH.M.Jr: Yes.\nB:\n.... and so they were inclined to liquidate some\nof their American holdings\nH.M.Jr:\nI see.\nB:\n.....\nparticularly the sort of well known market\nleaders such as U. S. Steel and New York Central\nand International Nickel.\nH.M.Jr: Yes.\nB:\nThe - particularly those national stocks which are\nquoted in large amounts both here and in New York\nH.M.Jr: I see.\nB:\n.....\nwhich is an active market in both places.\nH.M.Jr: I see.\n114\n- 3 -\nB:\nAnd that I know has been going on.\nH.M.Jr:\nAh-ha.\nB:\nI don't think they've been liquidating their American\nstocks from in the last few days on the basis of\nH.M.Jr:\nAh-ha.\nB:\nI think it was temporary rather than a permanent thing.\nH.M.Jr:\nWell the thing that I wanted was: What was their\nparticular worry - not only American stocks but what\nare they worrying about, see?\nB:\nOh, I see.\nH.M.Jr:\nI mean - - what are the people in the markets - what are\nthey worrying about abroad and in the United States,\nsee? I mean if - if you could find out - I mean - ah -\nI know they are worrying about a lot of things but I -\nI can't find out what their particular worries are.\nB:\nI don't think they're particularly worried about the Americar\nscene. I think their worry has been internal matters here.\nH.M.Jr:\nWell could you find out more about it and send me a cable\non it?\nB:\nI could indeed. Would you like - like me to tell you a\nlittle bit about the atmosphere at the present moment?\nH.M.Jr:\nYes.\nB:\nAh - in brief the English market has improved today.\nH.M.Jr:\nGood.\nB:\nAnd people are feeling better in anticipation of the\nstatement which Mr. Chamberlain is making to the House\nof Commons today\n.....\nH.M.Jr:\nI\nsee.\nB:\n.....\nregarding the national contribution pact. Of\narrangements of this pact has - ah - hit the\nmarket so hard is because it's connected in the\npeople's minds with the wartime financing.\nH.M.Jr: Yes\nB:\nThis\npact.\n115\n- 4 -\nH.M.Jr:\nAh-ha.\nB:\nAnd it's going to hit people\nH.M.Jr:\nYes.\nB:\nFor instance, if they come here on 1933, 134 and 135.\nH.M.Jr:\nYes.\nB:\nA good many of the heavy incomes have been - and so on\nwere very depressed during those - so that if that is\ntrue it would carry the\nthey will have to pay a\nrather large tax.\nH.M.Jr:\nI see.\nB:\nA very good\nis that the - the whole position is\nsomewhat clearing up\non the basis of the assessment\nwhich was on the three million pounds\nthat\ntwenty - twenty-five million pounds\nbut the particulars\nas to how it is going to be\nworked out has not been made clear.\nH.M.Jr:\nI see.\nB:\nIf those were cleared up I think that they will be\nlikewise clearing up the\nH.M.Jr:\nAh-ha. Well if you don't mind - I don't quite get it\nvery well over the telephone. I wish you'd sit down\nand write me a cable on it.\nB:\nI certainly will.\nH.M.Jr:\nNow we here, as far as the Treasury goes, we have no\nparticular worries but there are an awful lot of other\npeople who are worrying and I'm trying, by calling up\nyou, calling up Cochran and New York, I'm trying to\nfind out what are people worrying about in the\nvarious financial centers\n.....\nB:\nYes.\nH.M.Jr:\nand see if any of it makes any sense and - so\nif ..... you just talk and see - I mean if you can pin them\ndown, see?\nB:\nYes.\nRegraded Uclassified\n116\n- 5 -\nH.M.Jr: And if you can and never mind how foolish it sounds -\nwhy just send it along.\nB:\nYes I will.\nH.M.Jr: And we're trying to pick it up from the different\ncenters.\nB:\nAll right. Well I'll see if I can't get you off a\ncablegram tonight.\nH.M.Jr:\nThank you very much.\nB:\nOn this Mr. Secretary.\nH.M.Jr: Yes.\nB:\nYou got my report of the conversation on Friday?\nH.M.Jr: On what?\nB:\nOn Friday.\nH.M.Jr: Yes.\nB:\nWas that satisfactory the way it was put?\nH.M.Jr:\nYes quite.\nB:\nIt was.\nH.M.Jr: Yes.\nB:\nWell thank you so much.\nH.M.Jr:\nYes, it was all right.\nB:\nThank you very much.\nH.M.Jr:\nGoodbye.\nB:\nGoodbye.\n117\nApril 27, 1937.\n11:54 a. m.\nH.M.Jr: Hello.\nH.Merle\nCochran: Hello Mr. Morgenthau.\nH.M.Jr: Hello Cochran. How are you?\nC:\nAll right, thank you, how are you?\nH.M.Jr:\nOh pretty well.\nC:\nHaven't heard your voice for some time.\nH.M.Jr: No. Cochran why I'm calling up is I wonder if you\ncould make a few inquiries as to what people are\nworrying about as far as the finances of the world\nare concerned, see?\nC:\nYes.\nH.M.Jr: We're getting all kinds of rumors; some of them\ncredited; some of them London - I mean I wondered,\nfor instance - I mean what are the New York banking,\nrepresentatives of the New York Stock Exchange people\nin Paris - what are they worrying about, see?\nC:\nYes,\nH.M.Jr:\nWhat are the French people worrying about?\nC:\nYes.\nH.M.Jr:\nIn other words, I'm trying to collect the various\nworries and then see if they make a picture, see?\nC:\nYes - yes.\nH.M.Jr: Now, of course, I know about the gold and all that\nand every day we deny it\n....\nC:\nYes.\nH.M.Jr:\n.....\nand we'll keep on denying it.\nC:\nYes.\n- 2 -\n118\nH.M.Jr:\nBut I wondered if you could visit around in the next\nday or two and then send me a cable and give me what\nthe people are worrying about.\nC:\nSurely, I can do that.\nH.M.Jr:\nEven though they may sound foolish.\nC:\nSurely.\nH.M.Jr: Have you got any ideas of your own what . - or have\n-\nyou got any worries.\nC:\nWell I haven't any particularly, no. But when I was\nin Basle, for instance, on the gold proposition -\nH.M.Jr: Yes.\nC:\nAt that time your\nH.M.Jr: Yes.\nC:\nThey were afraid that it left the door open to some-\nthing and they thought that it might necessarily\nH.M.Jr: Yes.\nC:\nAnd since then it's been the market collapse more than\nanything to the effect of the President's statement\non commodities.\nH.M.Jr:\nI see.\nC:\nAnd, of course, London had such a bad day yesterday\nand they've had this\nproposition put on to\nthem and\nbudget.\nH.M.Jr: Yes.\nC:\nIt's just given them the worst move they've had in\na long while.\nH.M.Jr: Yes.\nC:\nThen the loans coming out yesterday at a fairly low\nrate - this - it's all upset them.\nRegraded Uclassified\n119\n- 3 -\nH.M.Jr: Yes.\nC:\nAnd then - then they fear that the American operators\nmight\nin their own market.\nH.M.Jr:\nYes.\nC:\nThey think that if they had a little more\n- a little more confidence that it would\nspread over here.\nH.M.Jr:\nYou mean the stock market? Are you talking about\nthe stock market?\nC:\nThat's it.\nH.M.Jr: Yes.\nC:\nThat if the American operators had more faith in\ntheir own market\nH.M.Jr: Yes.\nC:\n......\nthat the confidence would be reflected on\nthis side.\nH.M.Jr: I see.\nC:\nI'll - I'll get in touch with some of the Treasurers\nhere tonight or certainly in the morning.\nH.M.Jr: Yes.\nC:\nAnd, of course, after this week-end I could give\nyou quite a lot when I'm down at Basle.\nH.M.Jr:\nAh-ha. Well -\nC:\nYou remember I go there on Saturday night.\nH.M.Jr:\nThat's right.\nC:\nThat ought to leave Monday and Thursday - then I have - -\nno - Sunday and Monday. Then I had your wire yesterday -\nSunday rather\nH.M.Jr: Yes.\nRegraded Uclassified\n120\n- 4 -\nC:\n..... saying that you approve\nfor me.\nH.M.Jr:\nThat's right.\nC:\nI have no inkling of that at all but there's a good\nman on that Committee.\nH.M.Jr: Yes.\nC:\nby him\nso I'd only\nbe there two or three days.\nH.M.Jr: Yes.\nC:\nAnd I expect to get the Annual Report out by\nbefore I go down.\nH.M.Jr: Good.\nC:\nAnd they're going to have a very expansive chapter\non gold.\nH.M.Jr: Yes.\nC:\nOn that I think there's probably some recommendations.\nI can cable a summary of that before I go then I'll\nget a cable off by airmail from Basle to Paris before\nI leave there for\nH.M.Jr:\nAll right, well send anything along - along those\nlines.\nC:\nI'll send you one from Paris before I go\n++++++\nH.M.Jr:\nRight.\nC:\n..... along this line.\nH.M.Jr:\nAnd you'll be interested to know that we've practically\nmade up our minds to go to Hawaii this summer.\nC:\nOh is that so.\nH.M.Jr: Yes.\nC:\nI just sent you another bunch of booklets this time\non\nRegraded Uclassified\n121\n- 5 -\nH.M.Jr:\nWell\nI\nC:\nH.M.Jr: Hawaii has no troubles just now and we think it looks\npretty good.\nC:\nFine.\nH.M.Jr: Yes.\nC:\nWell I mean this summer is not going to be pleasant\nover here.\nH.M.Jr:\nNo we think that Hawaii looks very nice.\nC:\nI think personally you're headed in the right direction\nbut I'm sorry you're not going to be here in person.\nH.M.Jr: Yes.\nC:\nBut for a holiday this is not going to be the place.\nH.M.Jr:\nNo that's what we thought.\nC:\nWhen would you go then - - July or August?\nH.M.Jr:\nWe'd be there the month of August.\nC:\nThere the month of August.\nH.M.Jr:\nYes. I thought you'd like to know it on account of\nyour own plans.\nC:\nThen what I should do - I should stay here for the\nsummer, I think, then later get the holiday\n.....\nH.M.Jr: Good.\nC:\nat\nH.M.Jr:\nGood.\nC:\nfor some rest probably.\n....\nH.M.Jr:\nAll right.\nRegraded Iclassified\n122\n- 6 -\nC:\nBut I'll get off this cable in the next day or two.\nH.M.Jr: Fine.\nC:\nAnd one thing - I can speak\nwith the French.\nH.M.Jr:\nI wouldn't take very much - I mean if - - if any govern-\nment could hear it all right.\nC:\nOh well that doesn't matter. I meant personally.\nH.M.Jr:\nWhat's that?\nC:\nMy friend here is giving a dinner on Thursday night.\nH.M.Jr:\nGiving a dinner Thursday night.\nC:\nAnd which I hope by this time\nbecause\nand he's invited him and Auriol and, I think, all the\nmembers of this Control Committee.\nH.M.Jr: Yes.\nC:\nAnd he's been good enough to invite me along too.\nH.M.Jr: Yes.\nC:\nSo I may hear some interesting things:\nH.M.Jr:\nWell you might drop me a letter.\nC:\nH.M.Jr:\nWhat's that?\nC:\nit might be for some specula-\ntion.\nH.M.Jr:\nWell you might drop me a letter.\nC:\nthis Thursday night.\nH.M.Jr: I say after it you might just write me a personal letter.\nC:\nYes.\nRegraded Uclassified\n123\n- 7 -\nH.M.Jr: Did you hear what I say?\nC:\nYes.\nH.M.Jr:\nYou might write me a letter.\nC:\nSurely.\nH.M.Jr: Yes.\nC:\nAll right I'll\nH.M.Jr: O.K.\nC:\nThere's nothing else here. Everything is going\nall right.\nH.M.Jr: Thank you.\nC:\nGoodbye.\nH.M.Jr: Goodbye.\n124\nApril 27, 1937.\n12:57 p. m.\nH.M.Jr:\nKnoke?\nL.W.\nKnoke:\nI had all three on the 'phone.\nH.M.Jr: Yes.\nK:\nAnd in each case I referred to our telephone con-\nversation the 9th of April when I'd spoken to them\nabout what you had told me at that time and I - I\nmentioned that I had again this morning discussed -\nthat you had discussed the situation with me\nH.M.Jr: Yes.\nK:\n.... and that you - ah - that I heard very strongly\nthat there was nothing - ah - there's no change\ncontemplated anywhere.\nH.M.Jr: Yes.\nK:\nAh - I then asked - ah - I suggested to Bolton that\nhe let me know just - along what lines people argue\nin Europe\nH.M.Jr: Yes.\nK:\n.....\nand I asked the same question of Cariguel and\nthey both promised they'd let me know if they heard\nany new arguments. Meanwhile, this is what Bolton\nsaid. It was a kind of a whispering campaign\nH.M.Jr: Yes.\nK:\nmostly among academic circles\nH.M.Jr: Yes.\nK:\n(Laughs) What he called the \"Semi-intelligentsia,\"\nH.M.Jr: Yes.\nK3\n.... economists .....\nH.M.Jr: Yes.\nRegraded l\n125\n- 2 -\nM\n....\nah - who - ah - based their argument primarily\non rising tendency of commodity prices.\nH.M.Jr: Yes.\nK:\nAh - Cariguel said while there was very little in - in -\nah - Paris - the hotbed for all this talk was London\nH.M.Jr: Yes.\nK:\n.....\nand - ah - ah - as far as the Bank of France was\nconcerned, of course, they had never and were not taking\nit serious now - that's the way he put it.\nH.M.Jr:\nI - you talked to Amsterdam?\nK:\nI talked to Amsterdam also and repeated the same thing.\nH.M.Jr:\nYes. And they - what did they say?\nK:\nAh - well they didn't - ah - I didn't go into full\nlength\nH.M.Jr: Yes.\nK:\nbecause Amsterdam would probably give me what\nLondon was giving.\nH.M.Jr: Well everything that I've heard this morning; I talked\nto Butterworth in London and to - ah - Cochran - and\nit all heads up in London as near as I can make out.\nK:\nYes, that's what Cariguel said too.\nH.M.Jr:\nYes. Well if they give you anything - let you know\n....\nK:\nWell they both promised that they'd let me know and I\nexplained to them of how much value it was to us to\nunderstand the psychology of the fellows abroad and\nto know how they were arguing - would they please bear\nme in mind and they both promised it.\nH.M.Jr:\nOf course, I feel that the shoe is pinching in England\nand - ah - all these arguments about changing the price\nof gold would help their situation and I've thought so\nnow for some time.\n126\n- 3 -\nK:\nWell I just wonder which, of course, would mean a\nlower sterling rate, wouldn't it?\nH?M.Jr:\nYes.\nK:\nI just wonder whether, with the present expenditure\nfor armaments,\nH.M.Jr:\nYes.\nK:\nah - sterling rate at this level isn't really\none that fits into the whole picture.\nH.M.Jr:\nI don't know. Well evidently it doesn't - otherwise\nall this rumor wouldn't be coming out. I don't\nK:\nWell of course, there is - that rumor I think - there's\nalways the speculative element -\nH.M.Jr:\nWell there's more than\nK:\nHe spoke of private banks - I'm sure he had in mind\nLazard Freres - ah - Cariguel denied that he thought\nwhat happened of Lazard Freres business it was not\nat the moment at least of a particularly speculative\nnature.\nH.M.Jr:\nAh-ha. Well - ah - what did they think - Lazard Freres\nwas doing something?\nK:\nWell that is a - ah - what's his name - Bolton didn't\nmention him by name.\nH.M.Jr: Yes.\nK:\nHe spoke of private banks in Paris and in London.\nH.M.Jr:\nI see.\nK:\nAnd Cariguel furnished the name\nH.M.Jr:\nYes.\nK:\nand said that he didn't think it was Lazard -\n....\nLazard was doing that business just now.\nH.M.Jr:\nNo - - ah\n.....\n127\n- 4 -\nK:\nHe rather protected Lazard on that.\nH.M.Jr:\nI see. - ah - well thank you very much.\nX:\nI'm dictating a brief report on the talk.\nH.M.Jr:\nYes. Well I don't think it's - I don't think it's\nLazard because as a matter of fact Mr. Altshcul was\ndown here the other day for the first time since\nI've been here - asked to see me.\nK:\nYes.\nH.M.Jr:\nAnd - ah - he - ah I gather very strongly that he\nthinks it would be a mistake to change the price of\ngold.\nK:\nYes, I see.\nH.M.Jr:\nAnd - ah - ah I - ah - I didn't get anywhere the\nidea that - that - that he thought we ought to change\nit. I mean I listened to him. I didn't talk - I\njust listened.\nX:\nYes, well I had the impression that of the two\nCariguel probably knew more about Cari - about Lazard\nbusiness than Bolton.\nH.M.Jr:\nYes, well I got the very distinct impression from\nMr. Altschul that - that - ah - I was just reading -\nI've got a letter here from him. I'll just read you\nwhat he says.\nK:\nYes.\nH.M.Jr:\n\"Now that we for a long time have had defacto stabiliza-\ntion on the basis of $35 per fine ounce I feel that\nany tampering with the gold price will introduce\nelement of the greatest confusion and uncertainty to\nthe world and the domestic economy and any such step\nwill be fraught with the greatest danger.\"\nK:\nYes.\nH.M.Jr:\nAnd that's in writing.\nK:\nYes, I see.\n128\n- 5 -\nH.M.Jr:\nSo that's how they feel.\nK:\nYes.\nH.M.Jr:\nCouldn't put it any stronger than that.\nK:\nNo.\nH.M.Jr:\nWhat?\nK:\nNo - - no.\nH.M.Jr:\nI mean this is a summary of what he told me.\nK:\nYes.\nH.M.Jr:\nI don't think\n......\nK:\nI have: the highest respect for Mr. Altschul's opinion.\nI think he's extremely intelligent and\n.....\nH.M.Jr:\nWell - so he put it all in writing and - ah - so - ah -\nhe - ah - whatever the rumor is I don't think it's\ncoming from that source.\nK:\nYes - yes.\nH.M.Jr:\nAll right.\nK:\nRight, sir.\nH.M.Jr:\nThank you.\nK:\nGoodbye.\nFEDERAL RESERVE BANK\n129\nOF NEW YORK\nFICE CORRESPONDENCE\nDATE April 27, 1937.\nCONFIDENTIAL FILES\nSUBJECT: TELEPHONE CONVERSATION\nL. 1. Encke\nDM\nWITH BANK or ENGLAND.\nI called Mr. Bolton at 12:24 to ask how things looked\nover there nov. Be expressed the opinion that in London and on the\ncontinent stock and commodity markets were beginning to look a\nlittle bit steadier and that the principal liquidation seased to be\nover. A lot, however, depended upon statements by the Chanceller\nin the budget situation, which were expected some time during this\nweek. Business in dollars had been tremendous this morning, stock\nbrokers and Japanese banks being the principal sellers. The supply\nof gold resulted from dishoarding and from the sale of newly-mined\ngold. Sellers continued to believe that we would lower our gold\nprice. I asked Bolton whether he could explain to no along what\nline these arguments ran. If we had a better understanding on this\npoint, maybe something could be done about it. Bolton then explained\nthat it looked to him like 1 kind of a whispering campaign carried\non by intellectual and seademic circles, with a good deal of talk about\ncommodity prices on the part of some economists who insisted that secure\nor later commodity prices would have to be lowered and that this could\nbe best accomplished by means of a oubt in the gold price. I referred\nto our telephone conversation of April 9, when I had spoken to his\nabout a telephone call I had just received from the Secretary of the\nTreasury, in which the latter had repeated to no most emphatically\nthat neither the President nor he contemplated a change in the gold\nprice. I continued to say that I had this morning had a similar -\nversation with the Secretary of the Treasury and that the Secretary\nhad repeated his previous statements, which had personally impressed\nRegraded Uclassified\n130\nFEDERAL RESERVE BANK\nOF NEW YORK\nFFICE CORRESPONDENCE\nDATE April 27, 1937.\nCONFIDENTIAL FILES\nSUBJECT TELEPHONE CONVERSATION\nL. I, Knoke\nWITHBARK OF ERGLAND.\n- 2 -\nme very considerably, with the result that I felt very strongly that\nthe Secretary was not worrying about the gold inflow nor about the\npresent or future sise of the amount sterilized, nor about the inter-\nest charge thus incurred, which was certainly of no consequence com-\npared with the fact that he had to find $7,000,000,000 next year.\nThe Secretary had added that the President was equally as determined\nas he was, that there should be no change in the price. Bolton thought\nthat the difficulty was that a great many people (and notiody knew #-\nactly who they were nor from where they got their information , were\nsure that something was going to happen, feeling that where there was\nso much moke there must be some fire. It was a very difficult kind\nof argument to fight, he thought, but be would do his best to keep ne\nposted and particularly to let me know if any new arguments made their\nappearence.\nLWK:KMC\nDIVIDEN\nRegraded Uclassified\n131\nFEDERAL RESERVE BANK\nOF NEW YORK\nFFICE CORRESPONDENCE\nDATE April 27, 1937.\nCONFIDENTIAL FILES\nSUBJECT TELEPHONE CONVERSATION\nL. 1. Knoke\nWITH BANK OF FRANCE.\nI called Mr. Cariguel at 12:50. They had had a busy\nmorning, he said, with the frame sround 444 1/2 and further fluetus-\ntions depended on what would happen here and what official statements\nmight be made. In Europe, and particularly in London, rumors were\ncirculating that we would interfere with the gold contents of the\ndollar; so far Paris had not joined in this talk. I referred his\nto our telephone conversation of April 9, when I had discussed with\nhim a telephone call received from the Secretary of the Treasury in\nWashington, in which the latter had repeated to no most emphatically\nthat neither the President nor he contemplated a change in our gold\nprice. I continued that I had this morning had a similar conversation\nwith Mr. Morgenthau and that Mr. Morgenthau had repeated his previous\nstatements, which had personally impressed no considerably, with the\nresult that I felt very strongly that he vas not worrying about the\ngold inflow nor about the present or future sise or amount of the\ngold sterilised, nor about the interest charge thus incurred, which,\nhe said, was certainly of no consequence compared with the lat fact that\nhe had to find 7 billion dollars next year. The Secretary added that\nthe President was equally determined that there should be no change\nin the price of gold. Cariguel said that he had originally thought\nthat these various runers had come from America but now he began to\nwonder whether they did not originate in London. The public was very\ncredulous and prone to pay a good deal of attention to this talk about\nlower prices.\nI suggested to Cariguel that, if ⑉ had a better understanding\nRegraded Uclassified\n132\nNISC 12 60M 8-36\nFEDERAL RESERVE BANK\nOF NEW YORK\nOFFICE CORRESPONDENCE\nDATE April 27, 1937.\nCONFIDENTIAL FILES\nSUBJECT: TELEPHONE CONVERSATION\nTO\nL. W. Knoke\nWITH BANK OF FRANCE.\nFROM\n- 2 -\nof just what these arguments in favor of price changes were, we might\nbe able to do something about it. Would he, therefore, help no and\ngive me a ring next time he came across a new argument or rumor -\nwind\nthere was - new. He promised that he would do so but warned\nse that it was a hard job to trace these rumors. At the Bank of\nFrance they had never taken them seriously.\nLWK:KMC\nBECEIAED\nTear e YAM\nTHUNTRA930 YRU2A397\n150 12 sty -\n- as al Name house\nRegraded Uclassified\n133\nKLP\nPLAIN\nLondon\nDated April 27, 1937.\nRec'd. 2:42 p.m.\nSecretary of State,\nWashington.\nRUSH\n248, April 27, 8 p.m.\nFOR THE SECRETARY OF TREASURY FROM BUTTERWORTH\nYour telephone call came during my daily market\ninquiries here which I have since completed but there is\nlittle to add to what I then said,\nBriefly the present position must be regarded in the\nlight of its antecedents, viz, the initial nervousness\nengendered by the \"commodity price scare\" which was further\naugmented by the \"gold price scare\" brought to B. head by\nProfessor Sprague's speech in Paris. As reported in\nmy 224, April 17, 2 p.m., gold mining shares were seriously\naffected and since then two small failures have occurred in\nJohannesburg, the only market where there has been no\nattempt to control speculation, and there have been rumors\nof further difficulties. As also reported in that telegram\nthe downward movement in commodities aroused in its course\na number of other bear factors such as the effects of stock\nloss\nRegraded Uclassified\n134\n- 2 -\n#248 from London - April 27, B p.m.\nloss orders and hedge selling which caused much forced\nliquidation. On top of this and just after the difficult\nStock Exchange settlement account terminating on April 15\nhad been arranged came the impact of Chamberlain's budget\nspeech with its national defense contribution tax, the exact\nincidence of which the City was not then able and is not yet\nable fully to asses. Its imprecision, its resemblance to the\nhated war time excess profit tax, its apparent inequalities\n(the severity with which it would fall on recently recovered\nindustries such as shipping, steel and engineering) and the\nfact that it hits primarily common stocks caused an immediate\ndecline on the London Stock Exchange. In the given\ncircumstances each decline in turn brought about further\nforced liquidation culminating yesterday in a \"buyers\nstrike\". Therefore those who had to raise cash were forced\nto turn to the active New York market. As I mentioned on\nthe telephone London's repatriation of funds by the sale of\nNew York stocks has no connection with the American soene\nas such but is entirely due to technical causes arising out\nof the recent declines in commodities and stocks in London.\nNone of the American brokers consulted here reports sales\nof American stocks by British insurance companies or invest-\nment trusts and on the contrary several have received buying\norders today at certain price limits. However it is to\nbe\nRegraded Uclassified\n135\n- 3 -\n#248 from London - April 27, 8 p.m.\nbe expected that in view of the recent past and the\ngrowing nervousness about the French situation London\nbrokers may take occasion to improve their clients'\n&\nmarginal positions which in some cases will doubtless\nnecessitate further sales in New York. Conditions in\nthe London Stock Exchange were better today and prices\nadvanced and there is a general feeling that the \"worst\nis passed.\"\nThe demand for dollars in the late afternoon was due\n(1) to buying by Holland as a result of purchases of American\ncommon stocks (2) recurrence of the rumors in the gold market\nthat something might be done in the United States to affect\nthe price of gold.\nBINGHAM\nHPD\nRegraded Uclassified\n136\nRB\nGRAY\nParis\nDated April 27, 1937\nRec'd 3 P. m.\nSecretary of State\nWashington.\n540, April 27, 5 p. m.\nFROM CO CHRAN.\nFrench control yielded some sterling today. Dollars\nwere a little casier due to their being offered against\nsterling. French rentes up 35 to 70 centimes without much\nbusiness being done. Rest of market quiet.\nToday witnessed a lull permitting some recovery from\nyesterday's unsatisfactory situation. Last evening\nfollowing a Cabinet meeting Minister of Finance stated that\nthe Government is maintaining its position of rejecting\nthe idea of a new long term loan. He also denied rumors\nthat there were to be resignations from his stabilization\nfund committee (Rist, Rueff and Baudoin had each been\nreported as resigning). The press says that Auriol also\nsaid that the French financial situation was witnessing some\nimprovement rather than deteriorating as some alleged.\nAuriol will be heard tomorrow by the Finance Committee\nof the Chamber, on Thursday by the Finance Committee of the\nSenate\nRegraded Uclassified\n:\n137\nRB\n-2-#540, April 27, 5p. m. from\nParis\nSenate and on Friday there will be general parliamentary\ndebate on Government's policies.\nBULLITT\nCSB\n03VIT038\nNow is SSA\n1878762930 Y2UBA111\n\" 6% W issue\nNO - -\nRegraded Uclassified\n138\nApril 27, 1937\ntty dear Mr. Attorney General:\nMr. Magill and Mr. 011phant have reported to - fully\non the extended conference which you had with them last\nFriday concerning the possibility of the settlement of the\ntax cases against 8. M. Smith, E. M. Smith Company, and\nMalter a. L. Smith of Los Angeles. They outlined to as\nfully the suggestions as to a settlement, which are now being\nmde to you on behalf of the taxpayers. In view of the -\nusual character of these cases, it seems to IN that, as in\nformer tax cases of like seriousness, any consideration of\nthe settlement of civil liabilities at present is untimely\nand that these oriminal cases should be pressed to trial OF\nplea and sentence. Thereafter the collection or settlement\nof the tax liability can be taken up.\nI hope that you will consur in this view, in the light\nof the additional information which Mr. Magill and Mr. Oliphant\ngave you, but if you do not, I should like for us to discuss\nthese 06000 with the President, as indicated in my letter of\nApril 15, 1957.\nSincerely yours,\nThe Honorable\nThe Attorney General of the United States\nRM/egh\n% m\nFILE COPY\nRegraded Uclassified\n139\nApril 27, 1937\nThe Honorable,\nThe Attorney General,\nWashington, D. C.\nMy dear Mr. Attorney General:\nI am returning herewith a number of letters ad-\ndressed to Mr. Keenan by Mr. M.L. Igoe, United States\nAttorney for the Northern Judicial District of Illinois,\ncontaining criticisms directed at certain officers of\nthe Treasury Department. with these I enclose a memo-\nrandum given my by the responsible officers of this De-\npartment commenting upon Mr. Igoe's charges. I believe\nthat you will agree with me, after examining this nemo-\nrandum, that there is no basis for Mr. Igoe's suggestions\nof improper conduct on the part of officers of this De-\npartment.\nSincerely,\n(Signed) H. Morgenthau, Jr.\nSecretary of the Treasury\nHNG/mff\nInitiated: Graves, McReynolds, Helvering and Oliphant\nRegraded Uclassified\n140\nApril 26, 1937.\nMENORANDOM FOR THE\nThe Department has received from the Department of Justice a\nnumber of letters addressed to Non. Joseph 2. Keenan, Assistant to\nthe Attorney General, by Michael L. Igoo. United States Attorney\nfor the Northern District of Illinois, containing complaints\nagainst the Treasury Department, more especially against certain\nof the Department's officials headquartered at Chicago.\nThese letters have been sent here informally pursuant to an\nunderstanding reached noss time ago between Mr. Xeenan and Mooors.\nCliphant And Helvering. to the effect that Rr. 1800 would rebalt\nin writing whatever grounds he might have for complaining of the\nactivities of Treasury agencies at Chicago.\nIn accordance with your request, & synopsis of the complaints\ncontained in Mr. Igos's letters, with the Department's comment\nwith respect to each specific criticiem, is submitted below.\nAllered Unfriendly Attitude on the Part of\nTreasury Officials at Washington.\nMr. Igoe begins his first letter. which is dated March 25, by\nindicating that it is his distinct inpression that the officials of\nthe Treasury Department in Vashington feel that at all hazards they\nmust uphold their subordinates In the field regardless of the serite\nof any controversy which may arise. Be bases this, he anys, upon\nhis experience is two specific instances: namely. the case of Halph\nCharges\nN. Oyler and the so-called Barney Franklin case. After discussing\nthese two cases at 6000 length, he has the following to any\nDept's. Reply to Igoe's\n\"From the statements above made, I believe you will\nagree with - that all of the difficulties between the\nTreasury Department and myself could have been ended\nlong ago If there had been A disposition on the part of\nthe officials of the Treasury Department to deal ex-\npaciently and fairly with such difficulties when they\narose. It is because they did not do so that - find\nourselves in the situation which now confronts us.\nRegraded Uclassified\n141\n- 2 -\nInsuranch as Its. Igon evidently feels that the attitude of the\nofficials of the Treasury Department toward the two cases nantional\nhave had math to do with the strained relations between his office\nand this Department, they will be doolt with here in SOME detail.\nthe Dylor Crea.\nRalph II. Oyler, now District Supervisor, of Marcetics.\nat Detroit, Mich. was formarly on duty in the same expecity at\nChioago. Mr. Igne states that he comminicated to Mr. Whoms or\ntain information pointing to improper contuct on Cylor's part. Re\nsays further that If the facts which he submitted to Mr. Gibbons\nwere proven, as he understands they ware, Cylor should have soon\nmembrily coparated from the Service. As calls attention to the\nfact that Oylar still retains his position. to his (Igoo's) and\nresement. 1tr. Iges obviously feels this the officials of the\nTreasury Department in Washington ware not interented in retaining\nCylor in the face of his (Igne's) representations.\nCOMMIT\non Div St, 1933, the Purmer of Sarootics at Chicago submitted\nforge reports to the United States Attorney for the Northern Juli-\netal District of Illinois, charging the following persons with\nviolations of the Federal Inrootic Drag Lawst (1) Denjamin Creach,\nIvan He Partos, and Villiam Paymel (2) India Howard and Charles\nPorter Nitcholl; (3) Hal Price Rentley and Marvin Hardins and (4)\nA. to Barroni and Junes The reports were Sevend upon in-\nvestigations mile during June and July, 1933, at the Arlington\nPark race truck, Chicago, w agents of the Pursons of Marcotics TUP\nder the direction of Mr. Cylar. then District Supervisor at Chiengo,\nand the violations charged aross onst of the alleged \"doping\" of\nrade horses.\nMr. Cylor yes trunsferred from Chicago to Betroit on November\n1. 1933, but before his transfer, on Augment 18. 1933, all the Date\nnons namel above wore indicted in the Foderal District Court at\nChicago. The indictments were secured my Itr. Lealio R. Salter,\nSpecial Assistant so the Attorney General, who had charge of these\ncason for the Government from their Inception and no. as will be\ncoan, finally secured convictions against Howard and witchell.\nRegraded Uclassified\n142\nthe defendants in the Howard case ward Indic Howard, owner and\ntrainer. m/. Charles 2. Mitchell, his stable foreman. In the\nsmires of their Investigations, Federal Marantic agents observed on\nreserve Instances that Jane before meing horses of the Homest\nstable ware civen an injection from a notal agrings. They finally\nnotral the syrings on one socasion Just as its sentants ware should\nto be atministered, and at the and time they nelsed erven bottles\nfrom beness In the Howard stuble. The agrings and the bottles was\nall found to contain heroin. On the prossedings in court, 4 me\nston to the was filed and overraled. On the trial,\nboth defendants wire found cullty on June 30, 1934, and on July 3.\n1934, Howard - find $300 and conteneed so ton 40ys in Jall, and\nMitchell the fined $100 and nontened to five Ange In Jail. The jatl\ncontances ware responded and the defendants placed on prohation for\none your. Noth defendants appealed, and the direuit Court of Appeals\nfor the Soventh Circuit affirmed the judgment of conviction January\n39, 1930. They petitioned the United States Suprese Court for on\ntiorari, which was denied April 20, 1935. An has been eath, this\ncase was tried X Mr. Salter, Special Assistant to the Attorney Gan-\noral, the liberine argued the Government's and before the Circuit\nCourt of Appeals.\non Jane 20, 1934, the cosss against the other persons above\nnamed were continued for trial until the September, 1934, term of\ncourt, the United States Attorney's office advising that nation\nwould be deferred In those cases until the Howard date and been\nfinally adjudicated. As has been seen, shie was disposed of\nan April 2, 1935. Mr. Igos successed so the office of District\nAttorney in June, 1935, and these three anams TOTO panding at that\nitm, with no obstaole now in the way of their prosention.\nThe defendants In the so-called treach case word Ronjarda\nCreoch, whome wife visa the owner of 3 stable of horses. Ivan F.\nParker, Creech's non-in-law and trainer of the stable. and William\nPagme, a colored stable boy. During their Investigations, Federal\nSureette agents on fourteen occasions observed the administration\nso horeos of the Creed: stable, gast prior to racing. of the com\ntente of a motal ayringe. This me usually w Paster. with Page\nassistance, but on at least one occasion Creech also - observed\nto participate. A search of the stables use made on July 28, 1932,\nand 120 crains of heroin and 16 grains of cocaine found thereon.\nAfter the fimil disposition of the Howard ass, this case EM not\nfor trial on January o, 1936. However, on November 36. 1935,\nParts and Pagma withdrew their previous pleas of not cullty. and\nentered pleas of cullty. Parks VV fined $500 and Payme $250. on\nthe sand car. on mation of the United States Attorney, the case VM\ndisnissed as to defendant Creech. this disposition was nide with-\nout consultation with the Date or the District Super-\nvisor at Chicago, and the latter officer did not learn of the termin-\nation of the case until January 3, 1934, when she was informally ase\nvisal by Accistant United states Attorney Batley.\nRegraded Uclassified\n143\n- 4\nIn the Barroni and Berhes case, it had been observed on too 00-\ncasions that a stableman entered & horee's stall with a syringe and\nInter Came out and rinsed the syrings with vater. The officers did\nnot actually see anyone use the syrings and there is no avidence to\nshow what was contained therein. The officers 414, hovever, seise\nfrom the tack room of the Barroni stable, a number of bottles of 4\nliquid which proved, upon analysis, to contain heroin.\nIn the Headley and Bardia case, the officers observed the con-\ntests of a metal syrings administered to horses in some five in-\nstances and a number of bottles were seized in the tack room of\nHeadley's stable of a liquid which proved, upon analysis, to contain\nheroin.\nThe Barroni and Hezhas once and the Headley and Hardin case\nwore set for trial on November 30, 1938, the Barroni-Hexhen care\nto be tried first. Barroni and flexhen filed motions to suppress\nas evidence certain property seized in the tack room, on the ground\nthat the search and seisure vore unlawful. Upon hearing arguments,\nJudge Woodward rendered a memorandum opinion granting the motions of\nBarroni and Hexhom and when the case vas actually called for trial,\nit was dismissed in December 2, 1936, for want of prosecution. 30-\ncause of the ruling on the admission of the evidence as to Barroni\nand liexhes, the CASE of Headley and Hardin was also dismissed on\nthe was date for want of prosecution.\nThe Creech case was undoubtedly the strongest of the three\ncases remaining after the disposition of the Howard case, and it vsa\nthe opinion of the Commissioner of Marcotics that a vigorous prose-\noution of this case by the Government would have resulted in the\nconviction of all three of the defendante named therein. Early in\nJanuary, 1935, the Commissioner called the disposition of this case,\nas above described, specially to the attention of Assistant Secretary\nGibbons, stating, assong other things, that there had been rumore that\na great deal of money had been reported ready to secure the closing\nof the 05.00 without prosecution. Mr. Igon happened to be in\nTashington about this time, and the dissatisfaction of the Commis-\nsioner of Narcotice with regard to this miter was communionted\npersonally to him by Mr. Gibbons in n conference at the Intter's\noffice in the Treasury Department. which was attended also by the\nAssistant Commissioner of Narestics in the Commissioner's absence.\nRegraded Uclassified\n144\n- 0 -\nThere is no record of what transpired at this conference.\n\" is apparent, however, although Mr. Gibbons now has no such\nrecollection, that Mr. Igee on this occasion must have conveyed\nto Mr. Gibbons certain information pointing to misconduct on the\npart of District Impervisor Cyler in connection with one of the\nheree-doping asses here referred to. It 1s apparent also that\nsome agreement was reached by Mr. Iges and Mr. 01bbons to the of-\nfeet that Oyler's supposed nisconduct would be made the subject\nof an investigation by the Intelligence Unit. On January 31,\n1936, Mr. Gibbons made a formal recommendation to this effect,\nto the Secretary. from which the following is quoted:\n\"District Attorney Igon advised m that he had\nheard that the Narcotic District Supervisor at Detroit,\nMr. Oyler. had advised the Chief of Police of Lexington\nor Louisville, Contudity, over the telephone that he 414\nnot think that one of the defendante In question could\nbe convicted, notwithstanding, be protested the final\nsollon taken by the District Attorney.\"\nPursuant to Mr. Gibbons' recommendation, the Intelligence Unit\nof the Bureau of Internal Revenue was directed to male an investige-\ntion of Mr. Cyler's alleged miscondust, and a final report of the\ninvestigation was delivered to the Department on May 14, 1936. This\nreport, which was signed by Special Agent J. 4. Jordan, contains the\nfollowing:\n\"In compliance with request of Assistant Secretary\nGibbons, the closing of the Benjamin Greech 'horee doping'\nrase track case at Chicago, Ill., and alleged questionable\nnotivities of Mr. Cyler with reference to the Barroni and\nHeadley race track cases, were taken up with United States\nAttorney Michael L. Igoo at Chicago, n.\n........\n\"U. a. District Attorney Michael 7. Igoo informed -\nthat Attorney T. 3. McGrath. who represented Donjanin\nCreech, Ivan H. Parke, and William Payme to the Cresch\n7604 track case, had salled at his office on January 6,\n1936, and inquired as to whether Mr. Oyler, the Marcotte\nAgent in Charge of the FAGE track investigation, had been\nto Mr. Igoe's office that day to advise his that Mr. Oyler\ndid not think there vas sufficient evidence to secure a\nconviction in either the Barroni or Headley - that\nMr. McGrath did not represent either of the parties, but\nwas down in behalf of 6 mutual friend of theirs and his,\nRegraded Uclassified\n145\n- s\nnamely, William 11. Schnidt, - Inisiness nan of Chicago,\nundertalor, and also angaged in the maine who had\nboon very friendly with both Mr. Headley and Mr. Burront\nfor 5 partod of yours, and who had been a aliont of At-\ntorney for twenty years. The U. n. Attorney\nadvised Attorney that in ass not know Mr. cylor\nand that the Latter had never called on him.\n\"Attorney T. 3. McCrath informed me that on Junuary\n17, 1935, 117. filliam X. Schnd &t and into his office,\nundorpanied Y Hal Price Handley, defendant in one of the\nmon track dasse, and introduced the latter. During the\ncorrersation, 117. Modrath inquired how they wase Informed\nthat Mr. Girr was contag to Chiengo and day he was coine\nto success dismisial of the Handley use Barront daten to\nthe 11. 5. Attorney. Therepon, Mr. Ha2 Price Handley\ntold Mr. Mc0rath the following story:\n\"IOn daturiay, Junuary 4. 1036, Dylar called the\nChief of Police at Lexington and mini the Chief to are\nmays a moeting between Cylar and Headley. The Chief sur\nHondley and Headley advised him that in was not intervated\nin mosting Ovier at any I'm or any place. insisting that\nCyler had done his & creat injustice in involving him in\nthe marcotic picture because has had navor permitted the\n11.90 of narcotics on any of his horees except as nicht have\nboon prescribed in a medicine w a Licensed voterinarian.\nthe Chief of Police called Oyler at Detroit and so advised\nhime Gylar then minted to know if the Chief would not and\nto Detroit AS he wanted to tell him monthing. The Chief\nthen tell Oylar he could not (in book to Mondley because\nMonthay would not talk about the case and that If the Chief\nwanted to talk about the Drugo the would have to see Vallace\nHuir, attorney for Handley. Mr. thir told the Chief he\nsould no to Detroit and são what Oyler had to any. the\nChief arrived in Detroit Junuary 3th. not Oylor and it va\nat that time that Oylan said 3ve 414 not think there 123\nmufficient evidence to try the Barroni nnd Howlley cases\nand that he VAS cotae to Chicago to so viving the United\nStates District Attorney in this District and he wanted\nMr. Handley to know that be W doing this ao that Handley\nwould appreciate his friendliness in the natter. Chief of\nPolice left for Laminaton on have January 3th and after\nleft for chicago on Funday. Junuary oth.\nRegraded Uclassified\n146\nRegraded Uclassified\n- 7 -\n\"Cylor, nome time during the work of January oth,\nadvised the Chief that just before he est on the truin\nto & to Chicago, be received a tolegram so done to\nVashington which accounted for the reason of not doing\nwhat he had advised them he was going to do.\"\n\"This statement of Attorney Modrath's Was correhorated\nw Villiam 2. Schmidt. Attorney went on to any this\nhe know there WAS no fix in the Greech case: that Mr.\nBehmidt is on Headlay's and Barroni's bond, and West noither\nhe nor Mr. Schmidt here over heard about any attenge on the\npart of Mondley or Barroni to fix their case; that the\nabove statement of facts Le accurate and can be rolled upon\n1005: and that he received $1,200 as his fee in the Creech\namo.\"\nIt is assund that the foregoing etatements mão to Special\nAgent Jordan by Mr. Igon and Attorney substantially compriss\nthe information conveyed to Mr. 01bbons w Mr. Igoo at their earlier\ninterviews. At any rate, the investigation mile by Special Agent\nJordan along the line of developing whether Hondley's\nstatement, as reported w Attorney Medreth, appearing to Implionte\nGyler in AN attempt to effect a settlement of the original case at\nthe time pending against Headley, could be substantially corro-\nborated.\nCorroboration for this statement could not be hade Chief of\nPolice Thompson of Laxington, Kentucty, interviewed w Special\nAgent Jordan on Harch 17, 1935, at Lexington, and in the course of\nthe Interview made the following statements\n\"I have known Halph Cylor for years and Harry\nAnalinger, the Commissions, is an eld-tine friend of\nnine. I never tallord with Oyler over the phone About\nthe Hondley anso, and Cylor never called m on the\ntelephone from Detroit. I don't know where you not\nthis story, but shoever told it is a cools-eyed liar.\"\nUpon being informed that his statement VM at variance with\nstatements attributed to his w Mr. Hoadley, and in the course of\nthe SAM any. Chief Therpeon the following signed statement to\nSpecial Agant Jordans\n147\nRegraded Uclassified\n- 8 -\n\"About theme years ago when Mr. Handley was indicted\nfor have anrootion in his stable, he asked - to halp\nhim to investigate to find out the facts in the also, M\nto his knowledge he nover had my nurcotion around his\nracing stables and all his employees accured him there\nMM nono found around his barns.\n\"I have known Mr. Headley all my life and he and I\nhave boon personal friends all our lives, ml knowing\nhis standing in this community, I Visa what he was\nmaying was the truth.\n\"I mãe several trips to Chicago. balload to several\ncity desoctives and & les of other people I loss, to não\nIf I could find out what they found agrount Xr. Mendley's\nstables, as Mr. Headley was contions to find out whother\nhis exployees were telling the truth or not.\n\"Ab different times when Shie case was not in Chicago,\nI we there and realy to testify as a character witness for\nMr. Nandley. but every time It was not. it was always done\ntimed: and (F) also Intended to todas several of the best\ncitizens of this city to also testify as character vitnasses\nfor him\n\"Alone about the Christmas holldays of last year, I\nmás a trip to look over the traffic conditions in other\ncities: I went to Cincinnati, Toledo, Detroit, Chicago,\nIndianapolis, and Louisville. Just before I started\nthis trip, I called Mr. Headley and Mr. Mair and told\nthan I was going your Detroit and Chicago both. and I\nwould by and fint out hother the case WAS going to be\ntried 07 continued, 90 that - world know whether to\ntake the character witnesses or not. So I put in & call\nfor Mr. Cylar and asked his is he me going so be in\nChicago or Detroit about that time, and I think he said\nin Detroit: und when I arrived in Detroit, I - him and\nasked his whother the 00.00 was going to be tried or con-\ntimed again, M I wanted to notify Mr. Mair no we could\nent our character witnesses up there. He told - that he\nand not know and wouldn't know until he got to Chicago\nnn/L consulted the District Attorney's office whether is\nIRMS coine to so trint 07 continued.\n\"I don't know anything nore about It now than I and\nthree years age, as to what they found in Itr. Houllay's\nstable, as Mr. Cylor and no om also has given no any\ninformation on the subject.\"\n148\n- 9 -\nIt will X noted that Mr. Readley was mith to have teld Her\nModrath that Cylar Ind called Chief Thompson from Detroit on Jan-\nMARY 4. Dut in his stoned statement, Chief Thorgison says that it\nVILA her the called Oyler, and not after the called him Appearantly\nluving this discrepancy in mind, Apecial Agent Jordan said to\nThorpson when the latter (The him his alemed statements \"Tora\nstate here that you 414 talk with Mr. Cylor over the phone from\nDetroit.\" To this Thropson replinds \"Yon, I called hts W to\nmix A date to now him there, but he nover called - from Detroit\nmy time.\"\nOn March 34, Special Agent Jordan also secured signed state-\nnonta with regard to this matter from Healley and Mr. Neudley's\nattorney, Mr. Vallace Mutr. Mr. Healthy's statement rends M 502-\nlovel\n\"About the first of the year 1936, Emast Thompson,\nChief of Police of Laxington, RT.. called and told BD\nhe me going to several cities, including Detroit, on\nnome police business, and wanted to know If I mented him\nto nee Mr. Oyler while he was in Detroit, and I referred\nhim to my attorney, Mr. Matr. I am advised that he 4th\nsall Mr. Mair and Mr. Hair told his that it would be all\nright for him to see Mr. Oylar, and to fint out whether\nmy cruse was going to be disposed of on Jamery 9 or not.\nwity recollection is that Chief Thorpens returned to\nLexington the following Monday and comminicated with Mr.\nMair, and that I called Mr. Huir and Mr. their tald no\nthat the case would not be tried on the 9th, and that\nhe understood Mr. Cyler was going to Chicago and that\neverything was all right. I took from this statement\nof Mr. Mair to mann that my case would be disposed. of\nin the sure my as the Creach case.\nas short time after that I want to Chicago on some\nother business. and while there I called Hr. William S.\nSchmidt, whom I have Imount for a lane Mm. and who is\nRV personal friend and the voluntarily signed my bont at\nthe time I who intiated. I atd not call with\nreference to the came, but Just to talk with him. Schmidt\nnot - down town about noon for lunch and augusted that\nbefore bunch I 5 with his to are Attorney 7. B.\nwho TEMB his larger and friend, and who had represented\nCreach.\nRegraded Uclassified\n149\n- 20 -\n\"I want with Scholds to 190 Mr. Heleath and 416 not\ntalk to him AS v attorney and have novez employed Its\nMotruth to represent M in NY my. In the course of\nthe conversation, Mr. McCrath tell no that In law 1150\nKiskland and Mr. Regves. 17 Chicago attorneys, ant also\nlove 112. That, who represented Marroni, and that the\nothins of profession provented him from saying anything\nconcerning another Immyor's case, but he would be very\nglad to advise with olthor of those contlemen, If they\ncalled wor him.\n\"I told 1/5 McGrath that 1 VM not guilty in this\ncase, had nover at rarge time permitted the use of -\ncotics on my horses, and had never permitted nurcotics\nin any form to be in a stable. I sold his that Chief\nThompson was & 11fe-long friend, and had tried to find\nout what the Government was claiming AS against 30, int\nhad arror been able to get any information. I also told\nhim about Thompson's trip to Detroit, and that Thompson\nbefore Leaving had been in comminication with Mr. Muir,\nand wanted to know about his seeing Cylar while in Detroit,\nand when Thorpson date book be sald Oylar was going to be\nin Chicago in a Any or two. I 414 tall Mr. Modrath that\nThompson not said that Cylor would 300 the District no\ntorney and reconnent the dismissal of RV case, but after\nwards I talked with Hr. their and I found out that I had\nevidently misunderstood the maning of It. This non-\nvermation All the whan no told - over the phone that\n'the case would not be trind, and overything would be\nall right', taking from this that case von coing to\nbe having in nint the dismissal of the Greach\ncase, but I mimmidersted ltr. Nutr, and litre Shir mays\nwhat he mont to tall me the that avalythine would to all\nright, so that I work not vorry about RV Grea at that\ntime.\"\nMr. Miris statement is INS follows:\n\"M the time Chief Thompson TME going to Detrols,\nhe called me q and told na he - gotac to advoral\ncities on nomo business, Including Datroit, and wanted\nto know If I thought It would be well for his to -\nMr. Cylor while In Datroit. I told him It would be\nentirely all right for his to seo Mr. Cylor and to Mr\ncertain, If 1so could, whether the case the coing to be\ntried on Junuary 9 or not.\nRegraded Uclassified\n- 11 -\n150\n\"In A day 07 two Thompson ruturned to Loxington,\ncalled 99 and told me to had asso Oylar, best that he ase\nnot find out from him whether the Case would be tried on\nthe 9th, but that Cylar the going to Chicago and would\nbe at the Metrict Attorney's office.\n\"mooiving this information, I telephoned to our\nattorneys in Chicago and told then that Mr. Oyler as\ncoing to be at the District Attorney's office and for\nthem so got in touch with the District Attorney and -\nif our area could not so Alsposed of along the lines of\nthe Grooch case.\n\"I told Mr. Headley, over the telephone, that the\ncase would not be tried on the 9th, but that everything\nwould so all right. After talling hts this, be the in\nchicago on nome business and he tells ISS that be had a\ntalk with Mr. Schmidt and Mr. McGrath, in which he told\nMr. MoOmth and Mr. Schmidt to the affect that Cylor was\nreposed to come to Chicago, and that Two wis going to\nrequest the District Attorney to diamise the CASO, Mr.\nHealthy was to have motten this information from\nm, best Mr. Readley was missnism about this and staintor-\nproted R anying to his that the dase would not be triad,\nbut everything would be all right.\"\nAttention is particularly invited to the fast that while Mr.\nSendley states he are initiate to Mr. MoOrath that Oylar planned\nto have the case against his dismissed, has not says that this vis\na misstatament. Doth Mr. Meadley and Mr. Mair now state in write\nInc that the former signaterstood the latter, who had not Intented\nto convey any main impression M that received w Mr. Headley and\npassed on to Mr. There Le clearly TV) avidence to support\nthe statement that Mr. Cylor pronised to tain action locking to\nthe dismissal of this case, or that he had oxpressed himself M\nfeeling that the CASH VISA a wast on.\nIn considering the statements which have been mde with\nrespect to the Handley once, it 19 vall to rocall that this case\nma mile in July, 1933, and that during the acures of the investi-\ncation n. Special Assistant to the Attorney Genoral - assigned to\nhandle it. The obtained the Inlictment and aftermats tried and\nconvicted Inste Howard, one of the defendants in another case made\nat the time as the Headley case. The latter case remained\npending in the office of the United States Attorney at Chicago from August,\n1033 to December 2, 1938, when It was called and dienlesed. During\nthis entire period the once was called for trial several times, end\non no coonsion was postponsent requested or suggested w Mr. cyler.\nRegraded Uclassified\n151\n12 + 4\nThere 1m. moreover, considerable room for doubt whether the\nstatements originally attributed so Mr. Readley by Altorney McGrath\nwould have afforded grounds for the dismissal of Cyler even if they\ncould have been corroborated by substantial evidence, eince they\nosen to imply only that Oyler had become convinced that there TM\nnot sufficient ovidence to try the case pending against Headley.\nand that it vas his Intention so to advise the United States At-\ntorney who had the case in charge. Had these statements been nb\nstantiated, there, of course, would have been a question whether\nMr. Oyler's alleged action was judicious and discrest, but over if\ntrue, on their face they certainly de not imply corrupt misconduct.\nNovever, the stories finally told w Thompson, Readley, and Muir,\nas represented by their written statements now in the Department's\nfiles, as the result of questioning by Special Agent Jordan, are in\nas entirely different version from the account given by Attorney\nMoornth, and they do not corroborate in any particular the state-\nsente alleged by Attorney McGrath to have been made to him by\nHeadley in 60 far at those statements may be said to reflect on\nMr. Cyler. In these circumstances, and upon the recommendation of\nSpecial Agent Jordan and the Chief of the Intelligence Unit of the\nBureau of Internal Revenue, the Department reached the conclusion\nthat It had no basis for taking notion of any kind against Mr.\nCyler.\nThe Barney Franklin Case.\nMr. Igoo repeats the complaint which he has previously made\nwith respect to this case, based on the fact alleged by him that\nMr. followley deliberately and knowingly transmitted to the\nChicago DAILY HE#3 a letter which he (I@00) had written to Tellowley\nrecommending the acceptance of an offer in compromise submitted w\nthe defendant in the case of United States vs. Barney Franklin.\nAgain Mr. Igoo oriticises the officials of the Treasury Department\nat Washington for their failure to discipline Yellowley for making\nthis letter public.\nCOMMENT\nAlthough the facts in this notorious case are well known, 11\nis believed that they should be reviewed briefly here. On June 19.\n1934, the defendant. Darney Franklin, the propristor of n rathskeller\nin the Loop district in Chicago, was arrested in possession of an\nillicit rectifying plant La the basement of his barroom premises.\nAt the time of his arrest, certain quantities of untaxpaid spirits,\ncounterfeit strip stamps, fraudulent labels, etc., ways found on\nthe promises. It was evident that Franklin was not only defrauting\nthe Government of 11s revenue, but was also cheating his patrons by\nselling them spurious liquor.\nRegraded Uclassified\n152\n- 13 -\nDetween June 19 and September no, 1934, eight adjurnments UTTO\nobtained from the United States Commissioner before the defentant\nwas held for the Grand Jury. On November 2, 1934, the defendant YAS\niniteted. On December 10, 1934, A demirrer vas filed to the indiot-\nment. The decurrer was overruled on Jamuary 16. 1935, at which time\nn plan of not milty was entered and a motion mile to suppress the\nevidence. This notion use dented on April 26, 1935. Natween April\n25, 1935, and September 30, 1935, the trial of this case was as-\njourned five time. On October 15, 1935, the United States Attorney\nrecommended to the There and Penalties Unit 05 the Department of\nJustice the acceptance of an offer in compromise in the STATE of\n$2,600 rede w the defendant, Pronidin, in mathsfrotion of All civil\nand original liability. This offer vas rejected by the Texter and\nFonalties Unit on the recommendation of the Alcohol Tax Unit of the\nTreasury Department. The case me wijourned from time to time from\nFebruary 15, 1236, to November 30, 1936, at the request of Amaistant\nUnited States Attorney Classer, who assigned MS the reason for his\nrequest the fact that nn offer in compromise submitted by the as\nfondant was under consideration.\nthe asses the finally onlled for trial before Sullivan in\nthe District Court on November 30, 1936. AS this time the defendant\nwithdrew his plan of not guilty and pleaded guilty to one count in\nthe indictment upon the understanding that N enepended sentence should\nbe given on all other counts and that there should be a fine of\n$1,600 on this one count. This arrangment was recomented in open\ncourt w Assistant United States Attorney Glasser. It 10 a conspion-\nous faot that the amount of the fine 50 recommended vas the same as\nthe nument offered in compromise of the miter, which had been -\nJested by the Department of Justice.\nThan this recomendation was mis w Assistant United States At-\ntorney Flasser, the Court, of its own notion, took the matter under\nadvisement and adjourned the Mr of sentence until December 10, 1936.\nOn December 9, 1936, the Secretary of the Treasury protested\npersonally to the Attorney General against Olasser's recommentation\nfor the disposition of this date w 5 fine, and it is understood\nthat the Secretary's protest was promptly conveyed to United States\nAttorney Igos. Notwithstmnding the fact, when the care can w for\nsentence on December 10. Assistant United States Attorney Glasser TO-\nnoved his earlier recommendation, and the Court imposed a Cine of\n$1,650 against the defendant in accordance therewith.\nRegraded Uclassified\n153\n- 14 -\nAs will be seen from the foregoing. the Barney Franklin 0000\nWAS pending in Chicago from June, 1934, until December, 1936. In\nconnection with the offer in compresise above reforred so, Mr.\nIgoo, on Catcher 15, 1935, addressed the following letter to Mr.\nTollowleys\n\"Please fint enclosed cashier's check in the\namount of $1,650, which has been submitted to If by\nthe above-nased defendent (Frunklin) as m offer in\ncomprondes of the above entitled 000190.\n\"I have accepted this check from the defendant with\nthe distinct understanding that it is his liability only\nand not no to his codefendant.\n\"I recommend the neceptance of this offer for the\nreason that I think it 10 substantial and In view of the\npast record of the defendant 16 is probably & better\nsettlement than 100 could receive through the courts.\n\"Hespectfully,\n(Stgned) and Tre Igoe.\"\nIn response to this letter. Hr. Tellowley advised Mr. Igoo, on\nNovember 13, 1935, that he could not concur in the acceptance of\nthis offer, and recommended that Franklin be prosecuted.\nIn an article which sppeared in the Chicago DAILY of May\n15, 1935, the above letter was quoted. rent. 18 was Mr. Ipe's name\ntion that & dogy of the letter had been furnished the HENS w Mr.\nYollowley. Acting on this assumption, Mr. Inco addressed the follow-\ninc letter to Mr. Yellowley under date of May 16, 1936:\n\"I will thank you to advise - at your carliest\nconvenience, your authority for giving to the prees\nmy letter to you of October 15, 1935, which appeared\nin the Chiongo Daily Hows of May 15th, 1936.\n\"Haspectfully,\n(Signed) \"Michasl L. Igoe\nUnited States Attorney.\"\n154\n- 15\nRegraded Uclassified\nTo this, Mr. Yellowley replied as follows, on Your 20:\n\"In reply to your inquiry w letter of May 16th, I\ndesire to advise that no part of the article referred\nto, which appeared in the Chicago Daily Have of October\n15, 1936, vas siven out w m or by any namber of 7\nforce.\n\"Very truly yours,\n(Signed) us. 0. Tellowley\n\"Mstrict Supervisor.\"\nOn May 19, Mr. Ige responded to Mr. Tellowley's letter ad follows:\n\"A further examination of the article appearing\nin the Chicago Daily News of May 15, 1936, together\nwith investigntions más by this office, cause no to\nconcluis that the statements in your comminication of\nMay 19, 1936, are not truthful. I shall govern myself\naccordingly.\n\"Respectfully,\n(Signed) #Wichuel L. Igoo\nUnited States Attorney.\"\nMr. Igoo promptly reported this incident to the Attornay General,\nand a conference Wills arranged for Mr. Igoa with officials of the\nTreasury Department at Mashington, in the course of which Mr. Igon\ninstated won Yellowley's removal for his supposed nation in midne\nlis. Igen's letter public.\nMr. Igoo's present complaint 1s, of course, a 23926 reiteration of\nhis former charge. but it is to be noted that although he indicated in\nhis second letter to Mr. Tellowley that he had mdo certain investign-\ntions in the promises, he has furnished m information or evidence\nwhatsoever tending to show that the lotter published by the DAILY YOUR\nwas in fact mão public to 115. Tollowley or by anyone in Mr. Tellowley's\norganisation. In his present letter AS in his previous complaint,\nMr. Igoo plainly states that his belief that Mr. Tollowley made his\nlotter public reste solely upon the fact that the HTM article in which\nthe letter was quoted was uncomplinentary to hin (Ime), coupled with\nthe further fact that at the time of the incident a former reporter\nof the MRSS. Mr. Charles Johners, was on duty in Chicago as the\n155\n- 16 -\nTreasury Department's \"publicity Agent.\" Mr. Yellowley entegorically\ndenied having given the letter to the XEVS, and such Investigation\nas this Department was able to name at the time afforded no basis for\nthe conclusion that he had any part in the traisaction complained of.\nA representative of the Department who called on the City Editor of\nthe Chicago DAILY yours for information M so the source of the letter\nin question, was not with 5 declination to give out the acures from\nwhich the letter cans but THE positively told that it 41d not smanste\nfrom angone in the Treasury Department.\nUnder the foregoing circunstances, the Department are not foal\nat the time of Mr. Igoe's original complaint and does not now feel\nthat it had any bests for action against Mr. Yellowley in connection\nvith the matter.\nAllowed Insfficiency of\nthe Alachol Tax Unit AL Chicago\nMr. Loss maises sertain complaints of inefficiency on the part\nof the Alcohol Tax Unit at Chicago. These complaints are somewher\ninformatio. but they my fairly be classified M follows:\nOperators of large stills are seldom If over appro-\nhanded: only ninor defendants are arrosted.\nInvestigations are see long delayed.\nCases are frequently spoiled w illegal entry won\nthe premises of the violators.\nCocupational-tax stamps are sold to vendors of we\ntaxpaid spirits.\nCharacter of defendants in limor cases.\nMr. Igoo enyst The record indicates that operators of lazys\nstills in this district are selden If ever approhonded. In practi-\nonly every CASO in which a large still is involved. only minor do-\nfendants are arrested. This situation has been commented upon w\nall of the Indges in this district.\" No says also that this situation\nwas commated upon w both the February and March, 1937, Grand Juries,\nand refers to letters which he received from the foremen of those\nGrand Juries containing such comment. In then goes on to support\nthis complaint w citing three particular cases called for trial in\nMarch, 1937, in which he ene. or implies, that there visa adverse\ncomment by the Court won the chaos as presented w the Alcohol the\nUnit.\n156\n- 17 -\nCOMMUNITY.\nMT. Igoe's reference to the oriticisms of the February and\nMarch Grand Juries need scarcely be taken seriously. It is known\nto the Department that the letter signed by the foreman of the\nFebruary Orand Jury was written by Assistant United States Attorney\nGlasser, and signed by the foreman at his (Glasser's) solicitation,\nand 11 is reasonable to premise that the March letter originated\nin this - way. is is of course obvious that the members of a\nOrand Jury sitting for a one-month's term, and dealing only with\nsuch few selected cases as the District Attorney chooses to bring\nbefore it. would hardly be in & position to say of their own knowl-\nedge that the Alcohol Tax Unit apprehends only the smaller violators\nand overlooks the principal defendants.\nAs to Mr. Igoe's statement to the effect that all of the\njudges in the Chicago district have commented on the failure of\nthe Alcohol Tax Unit to apprehend important violators, the Depart-\nment knows of three Cases only in connection with which the Court\nmade comment which might be construed as in may way reflecting\nupon that Unit. These are the three cases referred to in Mr.\nIgoe's letter, which vors called for trial, respectively. on\nMarch 1, March 2, and March 3, 1937, as follows: U. 1. 71.\nFrank Schaaffer, \" al.; U. 3. vs. Frank Sidote, at al.; and\nU. 3. vs. Klasr 1. Soltwodel. These cases will be discussed below,\nwith particular reference to such comments M wore made from the\nbench at the time of trial.\nV. 8. 74. Trank Schweffer. at al.--Tois 0889 originated with\nthe seisure, on January 1, 1936, of an illicit distillery on the\nfarm of George Subin, near Hinedale, Illinois. As the result of\ns subsequent open investigation, the Alcohol Tax Unit was able to\nconnect eight defendants with the violation, all of whom, including\nthe defendant Schaeffer, were indicted on December 10, 1936. On\nthe trial of this case on March 1, 1937, two Government witnesses,\nnamely, Falter and stave Subin, some of the owner of the farm on\nwhich the still was seised, failed to identify the defendant\nSchaeffer when called to the stand for this purpose. Upon this\ndevelopment, which CAMP as a surprise to the Government, Judge\nWilkerson unde the remark, as Mr. Igoe says. that there vas ovidently\nsomething wrong with the Government's case. It is not seen how this\nconsent from the bench can be construed either as reflecting upon\nthe Aloohol Tax Unit, or as bearing particularly upon Mr. Igoa's\ncontention that the Alcohol fax Unit apprehends only minor do-\nfendants. This was no more than the not uncomes occurrence of\nRegraded Uclassified\n157\n- 16 -\nGovernment witnesses changing their testimony. Following the\nseisure of the atill in this case, the witnesses Valter and Steve\nSubin had unde sworn statements to revenue officers connecting the\ndefendant Schaeffer with its operation, and they had identified\ntwo different pictures of this defendant. It is not supposed that\nJudge Filkerson's remark was intended to impute neglect to anybody\nfor the witnesses' repudiation of their testimony at the trial,\nbut it might well be observed that it was no less the duty of the\nUnited States Attorney than of the Alcohol Tax Unit to anticipate\nthis event. Had Mr. Igon called these witnesses and made their\nstatements of record before the Grand Jury at the time of the in-\ndictment. they would undoubtedly, under fear of prosecution for\nperjury, have adhered to their original testicony when the case\nwent to trial.\nU. 3. 11. Prank Sidote, of al.--This case had ite inception in\nthe seisure of B. large alcohol distillary on December 17, 1936, and\nthe arrest, at the time of the seisure, of four defendants, namely.\nFrank Sidote, Joe Cieero, Wike Ponicki, and Jundo Rose. One addi-\ntional defendant, John Tenuti, was connected by subsequent investi-\nention. All five defendants were indicted on December 10, 1936.\nOn March 2, 1937, the defendants Sidote, Cicero, and Ponicki on-\ntered pleas of guilty before Federal Judge Sullivan. Mr. Igoe\nstates that the Court at this time expressed doubt, in view of the\nyouthfulness of the defendants, that they had any real responsibility\nfor the operation of the distillery, and that he postponed contence\nuntil March 19, 1937, with instructions to the defendants that they\nshould assist the Government in identifying the actual owners of the\nstill. A subsequent investigation promoted by the Court's remarks\ndeveloped the fact that the actual owner of the still was one\nFrancesco Buggeri, now in Italy. and that the defendant Ponicki was\nlikewise financially interested. These facts were given to Judge\nSullivan when the case 0489 up for sentence on March 19, at which\ntime he again continued the case with a rearrk to the effect that\nthe people he was after were the ones who profited from the illioit\noperations.\nU. 8. 75. Elmer y. Solinedel.-This 10 one of several substan-\ntive cases that grew out of the supervision by officers of the\nAlcohol Tax Unit of the telephone of one Pete Modorowies, a well-\nknown alcohol distributor in the Chicago area. The Case jacketed\nagainst Modorowies was not successfully concluded due to the fact\nthat the wire supervision was discovered by the telephone company\nand had to be abandoned before sufficient evidence could be obtained\nRegraded Uclassified\n158\n- 19\nto incriminate his. The defendant Soltwadel, however, was arrested\non January 24, 1936, while transporting 75 callons of alsohol, as\nthe result of information secured from supervising Moderovier's\ntelephone. This case was called for trial on March 3, 1937. at\nwhich time, after n motion to supprees the evidence had been denied,\nthe defendant entered & plea of guilty. After the plea of guilty\nhad been entered, it appears that counsel for the defendant advised\nAssistant United States Attorney Glasser that his elient, the do-\nfendant Soltwodel, was of the opinion that the Hodorovies ones had\nbeen \"fixed,\" supposedly by an Alcohol Tax investigator by the name\nof Coleman. This information was conveyed by Mr. Classer to Federal\nJudge Barnes, who after a conference in chambers called the Alcohol\nTax officers to the stand and asked them why Hodorowies had not been\nbrought in as a defendant. As these officers were not familiar with\nthe Hoderowies matter, and were therefore not able to answer the\nJudge's Tuestions to his satisfaction, A conference was arranged in\nchambers by Judge Barnes with the head of the enforcement branch of\nthe Alcohol Tax Unit in Chicago, who advised the Court that 11 had\n60 far been found impossible to develop sufficient evidence to justi-\nty the submission of a conspiracy case involving Modorowies and his\nassociates. Be also advised the Court that the case against\nHodorowies had originally been handled by Investigator Coleman, who,\nprior to the conclusion of the investigation, had been dropped from\nthe service as the result of a routine character examination unde by\nthe Civil Service Commission, and that the statement of the defendant\nSoltwedel was the first intimation which officers of the Alcohol Tax\nUnit had had of any alleged attempt to \"fix\" the case. After this\nconference, Judge Barnes expressed himself Ad fully antiefied with\nthe explanation made.\nIt than appears that in the three instances cited by Mr. Igos\nin support of his statement to the effect that the Federal Judges\nhave all commented adversely upon the alleged failure of the Alcohol\nfax Unit to bring in important defendants, the supposed adverse\ncomment had to de only with the danes instantly before the Court\nand had no reference to the general situation which, according so\nMr. Igos, exists in the Chicago district.\nThe personnel of the Alcohol fax Unit assigned to duty in the\nNorthern Judicial District of Illinois comprises 42 investigators or\nenforcement agents. In addition to this personnel, special investi-\ncators, to the average musber of about 12, are assigned to duty in\nthis judicial district, charged specially with the investigation of\nimportant ayndicated operations in violation of the revenue laws\nrelating to distilled spirite, wine and beer. A fair indication of\nthe volume of the work done by this force of nen one be gleaned from\nthe following statistics showing results of their operations against\npersons involved in the illioit manufacture, transportation, and\nsale of distilled spirits during the calendar years 1935 and 19351\nRegraded Uclassified\n159\nStill Beigures, etc., in the\nNorthern Articial District of Illinois\n:\nCalandar year\nItem\n:\n1935\n#\n1936\nI\nI\n#\nI\nHurber of still soired\n:\n3301\n174\nNumber of persons arrested\n-\nname\n417\nAverage still commoity. callons\nI\n3001\n354\nGallons of mach moised\nI\n1,020,6241\n678,304\nGallons of distilled spirits soland\nI\n35,348:\n30,840\nNumber of automobiles selsed\nI\n50Γ\n36\nValue of property soised\nI\n$354,8131\n$335,017\nI\n:\nThese statistics are given hare not A8 having any direct banz-\nIng won Mr. Isea's charge that the Alcohol Pax Unit luss m/a no\nhandway against important operators, but stoply to give some fair\nidea of the extent of the problem which has confronted the Alcohol\nthe Unit Ln the Chicago urua. In the Chicago district, as in all\nother districts, the operations of the Alcohol Tax Unit met largely\nbe based upon complaints and information from public-spirited citi-\nsone, and from police and other local peace officers. It is satnly\nby Investigating such complaints and w following w much information\nthat the revenue officers Are snabled to loaste and mairo illicit\nstills And to apprehend these attanting the plants, at well as those\nencaged ta the complumentary operations of unlawful transportation\nnot salo. It is well lovern that, particularly in matropolitan areas\n11:00 Chicago, the persons approhended while directly involved in\nthese operations as often paid employees of the real proprietors\nand managers of the illicit enterprises) and n. proper ultimate or\njective of the Thurams of Internal Revenue is to determine by Invoice\ntigation who these propriators and nanagers are and to obtain legal\nevidence of their complicity. This is not easy to do, and the Do-\npartment mins DO clain that In the Chienge ATEA or any other area\nit is completely authorsful in reaching this ultimate objective.\nThere will always be Instances, As fairly illustrated by the three\ncases which have been cited by Mr. 1gos, In which Use Department will\nfail to reach the principal defendants. It night of course be said\nthat moh dames should be nore thoroughly investigated and never\nprocented for presecution until the real persons in interest have\nboen implicated. 34:1 to follow such & course would be to tio w the\nrelatively small force which is available on a limited mmber of\ncases, and this would be to allow other violators to run respont\nwhile the investigation of this limited member of CASSE - nation-\nloualy pursued. The Department's deliberate policy in this respect\nRegraded Uclassified\n160\nH\n19 to selse all illicit distilleries and to apprehend all violators\nof which 18 has knowledge, regardless of their rank and status, with\nthe greatest possible dispatchi and to employ its limited force of\nspecial investigators upon investigations calculated to develop ori-\ndance against the malers of these rings and andicates whose\nfacturing and selling operations now the mont widespread and, there-\nfore, the most damaging to the Inderni revomo.\nThis policy Le followed in all districts, and with the result\nthat in most metropolitan centers 11km Chicago, the illicit traffic\nIs lapt at a minimum by the sheer physical process of destroying 12-\nlogal plants as they are found and promossing those who operate thes,\nand by the constant pressure which is through compirany casse\nnote scatnst important muminotures and distributors of the syndl-\ncated type.\nIn the nature of things, however, a large proportion of those\napprehanded by the Purona of Internal Deveme in purcuing this policy\nwill be in the chtegory referred to by 1tr. Igoa AS minor defendants-\nnot only parsons who are the employees of large violators trut persons\nwho operate on their own account in n small way. whother as INITI-\nfactures, transporters, or vandors. Considering the country an a\nwhole, It is probably correct to any that minor defendants of this\ntype involved in alcohol-tax chass probably outmumber the so-called\nmajor defendants in the ratio of at lesst ton to one.\nIt is of course not intended Your the foregoing to leave the 1>-\npression that the Department has any choice in the matter of approve\nhanding minor defendants and reporting thees to district attorneys\nwith a view to their prosecution. The applicable statute requires\nevery fraudulent violation of the revenue laws, regardless of its\nimportance, to be 60 reported. the Innguage of the statute to as\nfollows:\nTitle 25, the 1645(b). U.S.C.-It shall be the duty\nof every collector of internal reverate having knowledge\nof any willful violation of any Law of the United States\nrelating to the revenue, within thirty days after coming\nInto presession of mush knowledge. to file with the dis-\ntrict attorney of the district in which any panalty,\nor forfeiture may be insurred, a statement of =11 the facts\nand circumstances of the 0329 within his knowledge, together\nwith the news of the witnesses, forth the provi-\nsions of law believed to be no violated on which reliance\nmy be had for condemation or conviction. (R.S. 100. 3164:\nPob. 34, 1919, c. 18, moo. 1317, 40 Stat. 1146; Fob. 36, 1936;\nC. 27, 900. 1115, 44 Stat. 117.)\n-Now district supervisor, Aloohol The Unit, Burosu of Internal\nRevenue in once of violations of liquor-tazing laws. (10t of March\n3, 1927, n Stat. 1382, and regulations issued therounder.)\nRegraded Uclassified\n161\n$1\nBefore loaving this phase of the mitor, it should be said that\none of the most valuable instruments which the Government has at its\ncommand In dealing with major violators of the Federal liquor laws,\nin the vigorous prosecution. convistion, and inprisonment of minor\ndefendants who are connected with those major violators, whether as\nemployers or as customers. If the attitude of the prosecuting offi-\ncars and the courts toward these ninor figures to one of under\nImmienay, the Government has no pressure which It our bring to hear\nupon those persons with a view to foreing a disclosure of their\nprincipals or their sources of supply. This point is well illustrated\nby the Schaeffer and Sidote Chees referred to above. where It is\nevident that & thront of severe punishment against the ninor defendants\nwho had been approhended, olther w the District Attorney or by the\nCourt. would have brought to 11/300 the identity of the real principals.\nIt should be obvious that in any district where ainor defendante can\nnormally expect to be discharged without prosecution, or if prone-\nouted or pleading cuilty lot off with a surpended sentence on the\nground that they are not principals, the Government to deliberately\nabandoning the meet effective neass which it has at Its disposal to\nidentify novil locate the important violators. The best results ugainst\nmajor violators AT6 naturally obtained in those julicial districts\nwhere these facts AFC understood by the prosscuting officers, and DOB-\nversely the pearect results are ashieved to districts where the pross-\nouting officers are AVOIRE to hardling asses against so-called minor\ndefendants.\nThe remults of unjer investigations in the Chicago district have\nnot been added by any effort on the part of the District Attorney to\nput preseure upon ninor defendants In the namer here suggested. The\nmoord shown that a much larger member of violators are released with\nout trial in the Northern Indicial District of Illinois than In any\nother metropolitan 1296 in the United States. The record shows also,\nhowever, that dospite this handless there have been many instances\nin the Chicago district where in commotion with large still soirures\nthese financing and directing the illicit operations, and those supply-\nthe the your anterial for purposes of illicit manufacture, have been\ninvolved by the investigations of the Alcohol Tax Unit, and reported\nto the United States Attorney for prosecution. A for of these CASSS\nwill be described below.\nCasa Ho, 3611-K. William J. Joriman, at al.-2his case originated\nwith the seizure of a clandostine alcohol distillary on Pobruary 19,\n1935, in A warehouse building operated by the Continental Warehouse\nCompany. Chiengo. The distillary had a daily producing capacity K\nRegraded Uclassified\n162\n- 00 -\napproximately 4,000 gallons not Will other of the largest illicit plants\nover noined In the entire country. Subsequent investigation developed\nthat the must notorious liquor ring in the Chicago area VGS behind its\noperations. The corn VPO which TM utilized as the basis of the useh was\nmurchased in ten's-ear lots through an slaborate coverturane arrangement.\n21 finished alcohol not only fount its way Into the Chiengo mrint, but\nvas shipped In druna to distributing are In other midmatern cities.\nAs the result of an extensive open investigation, & case report VIS\nmidital to the United States Attorney in Chinago on May 16, 1935.\nnaming 25 individuals and 7 corporations M defendants, and including\nalong with the persons who were responsible for the namifacturing and\ndistributing operations, those who MM furnished the hollors, Lanks,\nand other equipment used in the construction of the distillery. and\nthese the supplied the row materials from which the illicit product VAS\nanministured. The met important defendent was one William J. Torizon,\nthe nonacine director of the warehouse convery. and long A well-known\nflows In the illicit alcohol meket in the City of Chicago.\nCare No. 30-4-11 Pront Salam, at al.-This case had its incoption\nor March 31, 1935, with the seisure of a Large illioit alcohol distillory\nconstating of one 1,500-gmllon still, and one 1,000-cmllon still. One\narrest WILE mde at the time of matsure. As the result of subsequent\nInvestigation, A 0020 report was submitted to the United States Attorney\non August 5, 1935. recommending the prosecution of nine defendants, in-\ncluding four important principals, as follows: David Stern, Frank\nSalam, Fred Hlusenthal, and San Rieff. Defendant Storm maintained an\noffice In n., from which he was in telephone communication\nwith the premises on which to distillary vas located and from which he\nsupervised the hamling of rew materials to the plant and the disposition\nof the finished product. Defendant Salam rented the premises on which\nthe distillary vas located and supervised its construction. Defendants\nBluenthal and Moff furnished the zur mtorials from which the illicit\nproduct - manufactured. The remaining five defendants ware employees.\nGase No. 3803-M. Anthour Hicali, at al.-This and involves &\nLarge combination headed X the four !ffcelt brothers, with headquartors\nat Galmot City, Ill., n. minute of Chicago. An the result of an union-\ncover investigation began in April. 1935, four large distillaries Do-\nLonging to this combination ware unised in the northwrn part of Indians,\nangaged in the annufacture of alcohol, shiefly for male in the City of\nChicago. Imploye worrdh merate eiro cocured from the United States\nin Chiengo, based upon the telephone conversations Intor-\ncosted, and calling for domunitary instrumentalities of the crime.\nOvert note in pursuance of the vara found to have been\nnitted both in the Northern District of Indiana and in the Northern\nDistrict of Illinois. At the conclusion of the investigation, a\ndefandants were reported to the United States Attorney in the Northern\nRegraded Uclassified\n163\n- 36\nDistrict of Indiana under date of December 6, 1935, for prosecution.\nThe more important defendants word the Viceli brothers, who from\ntheir headquarters at Calumot City curried on a wholesale liquor\nbusiness on an axtensive scale, namifacturing and selling untaxpaid\nspirtte in large quantities, purchasing and nains automobiles and\ntruce for health the alcohol, and consrally directing and mon-\nviolag the illicit operations.\nCase No. 3849-K. Jong h Vani. of al-mis case involves the\nVani conbine, a notorious of alcohol distillors in the Chicago\narea Two distilleries WOTE meised in connection with this GILSO,\none on November 22, 1934, and another on June 26. 1930, and those two\noperations word connected by subsequent Gyen Investigation. Fourteen\ndefendants yoro reported to the United States Attorney at Chicago on\nFebruary 26, 1930, including Joneph Vani, James 7uni, Torg Corno, and\nPalmer A. Melone, se principals. There persons ware the owners of\nthe distilleries, supervised their construction ml operation, paid\nthe employees working in the plants, brought THE materials to the\nstills, and disposed of the finished alcohol. All four of thene to-\nfendants had original records. Three other invortant defendants were\ninvolved In this 0810 as l'ontenante of the principals, who assisted\nin renting the distillery premiums, in purchasing oquipment and M-\n>lion, and in otherwise facilitating the conspiracy. The remining\nseven defendants ware still operators, trust drivers, not other ninor\nemployees.\nCode No. 4517-N. Pater Dowine, at Al---This case involved the seizure\nof two large alcohol distilleries operated on different premises,\none on December 37, 1935, and the other on May 5, 1935, the two\nselmures being commented by subsequent investigation. A report me\nsubmitted to the United States Attorney at Chicago in this onse on\nNovember 3, 1936, recommending the prosecution of eight defendants,\nincluding the following principals: Peter Domino, Frank Theodore,\nTheodora Ingresta, Frank Increasia, and Anthony Donino. These\nfive individuals were all financially interested in the distillaries,\nword responsible for renting the prenises on which they wire loanted,\nannual the distilleries to be set w and operated, hired and paid the\ndistillery myloyes, and disposed of the alcohol mondactured. All\nthese individuals have criminal records, having been convicted and cent\nto the penitentiary on a complracy charge In 1931. The remaining\nthree defendants in this case were persons employed as still operators\nand truck drivors.\nRegraded Uclassified\n164\nCase No. 320-M. Rainar. 11 al.-This case involves a\nconspiracy to violate the Interval-revemue Thing on the part of a Ingree\nalcohol manufacturing and distributing syndicate, commonly referred to\nAS the Brurerman-Tainer combine, and known to be the second largest\n- which has operated in Chicago and visinity since repeal. The\nIntroductory phases of the case vor. handled through the medium of\ntelephone supervision. More than 1,600 telephone calls relating to\nthe illicit business of the organisation were intercepted during the\nundercover Investigation. A 4,000-gallon alcohol plant ville solued in\nthe nourse of the investigation, and other overt note were astabltshed.\nCorn migar was utilized AS the basis of the mash for the distilling\noperations in this plant. which was purchased through the usual nover-\nhouse aystem Over 537,000 pounds of corn sugar were purchased from\nthe Corn Products Sales Company from about July 1, 1935, to August 15,\n1935, by this syndicate. After the open investigation the instituted,\n195 withouses wore interviewed, and 50 statements reduced to writing.\nFive special investigators were engaged over a period of months in\ndeveloping this case, beginning in Amount of 1935. Evidance was nib-\nnitted to the United States Attorney under date of May 18, 1936, against\nB1 individuals and corporations including the following important do-\nfentants: HARRY Allen %. Mainer, Mayage Suche, Ben yoid.\nSam Ininer, Arnold Invorman, and Charles Vins. These ware the princi-\npale and their chief lieutenants. Harry Brancrman and Allen M. Mainer\n1702°F the financial backers. directors of all operations, and the -\nployers of the authordinates.\nIn addition to these persons, thirtoon individuals ware reported\nto the District Attorney in this case for having furnished mterials\nto the unitists or having connired with the syndicate to the and that\nthe materials might be received and properly covered. Thirteen other\npersons were named in the case report as comprising the (Troup which\nnatually operated the distillary. owned or leased the premises houstng\nthe operation. purchased vehicles for the syndicate, and supplied needed\naquipment. A member of other defendants were included, se truck drivers.\nconvoys of the trucks used in transportation, and minor employees.\nCase yes 41.50-M. Dooxee at Al--This case involved the\noperation of a Inrge alcohol distillary on two different promiss, -\nclaiming in March, 1935, up to the date of its soirure on Catober 20,\n1935, by a well-lawn Italian combination. Under date of March 26,\n1937, & case report was mubmitted to the United States Attorney in the\nNorthern District of Illinois naming 17 defendants. including the\nfollowing principals: George Saladine, 3am Surage, Charles Fanno, and\nJoa Messinn. These four defendants financed and owned the distillery\nand directed the ontire illioit enterprise. The defendants Savage,\nPanno, and Messina had long criminal records, including may violations\nof the liquor 1ws. The other defendants ware largely still operators,\ntruck drivers, and compants of the prodess on which the distillary\nwas located. Thile those latter individuals are regarded as ninor co-\nfendants, 11 should be said that motically all of then have long records\nME liquor violaters.\nRegraded Uclassified\n185\n- 20\nIt should not be understood that the foregoing represents all\nthe cases which have been made in the Chicago district in recent\nmonths which have involved important violators. As will appear in\n& later connection, 38 conspiracy 04868 rere referred to the\nDistrict Attorney at Chicago for presecution during the 34-months\nperiod from January 1. 1935, to December 31, 1936. Among these\nGATER will be found a considerable mumber, in addition to those\nabove described, which contain evidence against the larger figures\nin the illicit alcohol traffic in the Chiengo area. A total of\nthree hundred and fifty-three defendants were named in these casse,\nand AB examination of the situation justifies the conclusion that\nthe Alcohol fax Unit at Chicago, while of course not uniformly wuo-\ncessful in the investigations which it has ands with a view to\nreaching the major illicit operators. has during the last two years\nreported to the District Attorney evidence which involves the most\nimportant of the individuals and groups engaged in the illicit\nliquor racket In the Chioago district. Attention in invited parkie-\nularly in this connection to the Torkman, Braversan-Vainar, and\nMiceli cases, implioating what undoubtedly are the three most\nnoterious alcohol syndicates which have operated in the Chicago\narea since the repeal of Prohibition.\nAlloced Delar in Completing Investigation.\nMr. Igon the complaint that \"investigations are long do-\nlayed.\" He says that, In many cases, in submitting reports to him\nthe Alcohol Tax Unit requests that the cases be not presented to the\nGrand Jury because an investigation 10 under may, and he implies that\nin frequent instances cases Are lost by renson of the disappearance of\nthe necessary witnesses due to the long lapse of time. He supports\nthis charge by citing one case only. that of HATY Solla. with respect\nto this case, he says that this woman operated a still from which\nalcohol was supplied to one Harlan Crouch, who on May 14, 1936, 100\nsaulted and killed an investigator of the Alcohol Tax Unit in the\nState of Indians. Re enys that the Solla worman was apprehended by\nthe Alcohol Tax Unit in the Chicago District almost a year before\nthis killing occurred, and he implies that despite pressure from his\noffice. the investigation of the Solla case has not yet been concluded\nby the Alcohol Tax Unit.\nCOMMITTEE\nwith respect to this complaint. the Department has unde an examina-\ntion of the cases reported to the United States Attorney at Chicago W\nthe Aloohol Tax Unit, and the record discloses the following: or a\ntotal of 402 unjacketed (substantive) cases submitted to the United\nStates Attorney in the 14-months period from January 1935 to February\n1937, inclusive, 365 were filed within 30 days from the discovery of\nthe violation, and of this number the great majority vere submitted\nRegraded Uclassified\n106\nF\nwithin a pariod of from two to ton Angress: 21 05305 TUTO eximited\nwithin as days from the date of the violation: B ward submitted\nwithin 20 tays from the discovery of the violations one in only\n22 mass are & period longer then 90 Ange after the viola-\ntion visa discovered before submission of the final dage report.\nIn the Momenths period from January 1, 1935, to December n,\n1036, the Alcohol 2nz Unit at Chicago reported 38 Instated (oan-\nextray) arees to the United States Attorney. It will be resembered\nthat this to the class of cases in which the Department by special\ninvestigative affort undertakes to involve the \"higher ups,\" or\nsyndicated operators. In violations of the revenue laws. As is well\nknown, conspiracy cares require a great donl of patience and time\nfor their miscossful completion. They necessitate the use of A vide\nvariety of Investigative methods, and time are frequently based upon\nthe supervision of telephones and the observation of suspects over\nextended periods. It in maifest that investigations of this char-\nactor can not be completed with anything 11:00 the same dispatch that\napplies to the substantive chass nbove reforred to. Mary such casse\nrequire months for their completion, and 11 not infrequently happens\nthat after prolonged investigation chass of this kint have to be\nabandoned without securing 10aml oridonce of the complety of the\nindividuals valor emploion. The following record should de 002-\nvidered in the of the foragoing comunts or the 38 consyimey\n00391 prosented to the United States Altorney in the M-months period\nhomtioned, 5 ware relatived within 30 lave from the date of the via-\nInston: 4 von submitted within 60 9 0029 submitted within 90\n6 ward admitted within in days: 1 was submitted within 100\n7 TOTO mismittind vithin 100 days; and 8 were submitted within\n210 tays. Neven much cases 621 207 under investigation In the\nChicago District.\nConsidering all the CASOS referred to the United States Attorney\nat Chicago by the Alcohol Tax Unit, 11 account that approximately 04\nhave boon completed not submitted with a view to prosecution within\n30 days of the violation, 6% within 60 days. and 35 within 90 days)\nand that in only 7 of the dises has the investigation boon prolonged\nboyond 20 days. This record afforts little Justification for Mr.\nInca's charge that investigations are 20mg delayed.\nThe facts in the dolla case, which to the only case offed by\nMr. Icoo to substantiate his complaint, are M follows: This wonan\nwas reported to the than District Attorney at Chicago in October, 1934,\nfor I substantive violation which was discovered July 17, 1934; she\nVIVE later reported to the District Attorney, now Mr. Iroo, for a out-\nstantive violation which occurred on June 19, 1935; and also WAS The\nported for a third substantive violation in May, 1935. The violation\nRegraded Uclassified\n167\n30\nin ench case visa the operation of an illicit distillery. The plant\ninvolved in the second case was vary large, having 5. expacity of\n500 gallons. not when the report of this violation was submitted,\nthe District Attorney was requested to dolay proceedings with\nrespect to this violation pending further investigation by the\nAlcohol That Unit, with A view to the implication of other defendants\nIf possible. This second case renained domant until Justs, 1936,\nat which time the attempt to emlos & conspiracy case involving other\ndefendants was abamioned, and the District Attorney was requested to\nproceed on the mibetantive charge against the Solla vone. An\nindictment This obtained in this case on December 18, 1936, and the\nwork was tried and convicted on April 16, 1937, receiving & Jall\nsentence of six nonths and a fine of $300. It does not appear,\ntherefore. that the dolay in this case occasioned w the unsurseasful\nafforts of the Alcohol True Unit to involve other defendents, had any\nadvorse affect upon its ultimate proscoution.\nBefore leaving this point. attention should be called to the\nfact that Mr. Ime's charge that the investigations undertakes by the\nAlochol Tax Unit are unduly protracted 1m utterly inconsistent with\nhis other darge, above reforred to, that the Unit does not suffi-\nsiently concentrate upon the problem of bringing important violators\nbefore him. It in of course obvious that If syndicated violators,\nmaterial mon, and those who have financial investments in illicit\noperations, are to be prosecuted for the important part which they\nplay in the illicit liquor traffic, this can be done only through\nthe expedient of involving then na principal defendants in conspiracy\nwhich In the very nature of things on missessfully be\nmade only w long and todious investigative offort on the part of the\nrevenue officers.\nAlloced illawal narchas and soinures.\nIn the text of his various letters, Mr. 1000 entres no direct\nreference to this subject, but in the letters referred so by him from\nthe forem of the February and March, 1937, Grand Juries, a statement\nis m/s to the effect that may aloohol-tax cases have to be no-billed\nby the Grand Jury for the renson that they are based upon the entry by\nAleckol Tax Unit agents into homes and premises of private individuals\nwithout the aid of proper search mercate.\nCOMMISSIONER\nAlthough Mr. Iges repented this charge verbally in his converse\ntion with Housrs. Cliphant and Holvering, he has at to time submitted\nany specific tratances in which onses presented to hin by the Alcohol\nthe Unit have falled of presecution w reason of illogal entry or\nillegal search. the Department has before it, however, the record of\nthe Grand Jury sitting at Chicago during the month of February, comment\nwith respect to which will. it in believed, suffice to show the mb-\nstantial facts recurding this particular complaint.\nRegraded Uclassified\n168\n- 20 -\nSeventeen alcohol-tax cases were taken by Assistant United States\nAttorney Classer before the February Grand Jury. or this misser, 10\nwore indicted and 7 were no-billed, and the ovidance is clear that 6\nof these latter 7 cames wore no-billed w the Grand Jury on repre-\nsentations for Mr. Classer the 1 they VOTO based upon illegal search\nor illegal entry by agents of the Alcohol Tax Unit and that proseou-\ntion could therefore not be sustained. The Department has made a\ncereful examination of there aix cases, and mish facts in each case\nno are believed partinent to the issue here under consideration will\nso briefly stated.\nCase No. IN-2019-on September 20. 1936, officers of the Chicago\nPolice Department neised a 350-gallon St. Louis-type still, together\nwith 7,000 gallons of mah and about 400 callons of alcohol. in a\none-story from residence on South Volumb Avenue. After this seirure,\nthe case was turnel over to the Alcohol Tax Unit for pressention under\nthe internal-revenue laws. The Government and not in any mg dooper-\nated In the seinire. It Is a well-established rule that the prohibitions\nof the Pourth Americant relating to search and solmure apply only to\nFederal officers, not that evidence obtained w State officers working\nintegeniently of Foderal officers own so admitted without question in\nFederal Court. There ware no grounds for no-billing this chao by\nrasson of a illagal march nal solmers.\nCase No. IN-1922-This case was made during the investigation of\nthe miniar of as investigator of the Alcohol the Unit in the State of\nIndiana in May. 1936, by one Harlan Grouch, which has been previously\nreferred to. The investigation in that GIVEN disclosed that shortly\nafter the mander, Grouch returned to Chiengo in company with one James\nJacobe and vas arrested by the Chicago police for the possession of\n45 callons of bootles alsohol. The investigation disclosed that the\nalcohol had been sold to Grouch and Jacobs w one Herman David. This\nlicensise will an adopted case. Regardless of the circumstances no\nrounding this seisure. 18 was ande by State and not Federal officers\nand the evidence would unquestionably have been admitted in Federal\nCourt had the case boan allowed to 8 to trial.\nCase No. December 1. 1936, investigators of the Alcohol\nTax Unit who had been informed that the defendant was munufacturing\nliquor, unde an investigation near his premises. Thile in the alley\nthey detacted an unmistakable oder of msh, which was traded to the\npronises where the selmure WAS mde. After detecting this odor, the\ninvestigators proceeded to the house and knocked on the door. The\ndefendant's wife answered the door, and, being informed by the officers\nof their identity and purpose. she was noncommistal, stating that her\nhusband was not at home, and inviting the investigniors inside the house\nRegraded Uclassified\n169\n- 30 -\nto avait his return. Then Inside the house, the investigators because\ncortain that n still WILL in operation in the assessent. Than the\nname's husband arrived, to wis placed under arrest and a soarch VMS\nmás of the breasent, where a 300-gallon still, together with a\nquantity of mah, was selved. It to believed that the search in\nthis sase was illegal and could not have been used as A basts for\nprosecution.\nCase No. IN-3039-0n November 18, 1936, investigators who had\nbeen informed that a still THE in operation in n. care on the north\naldo of Chicago, vent to the premises for the purpose of midne an\ninvestigation. Than appronching the care they detected an -\nmistalmble odor of alcohol. the investigators rapped on the carage\ndoor, stated that they TOTO Federal officers, and nalsed that the\ndoor be opened. The defendant in this case opened the door and was\ninvediately placed unter arrest. The curre was than overshed and B.\n300-gallon still, together with lb quantity of mah and alcohol, was\nseized. The facts In this case indicate a Instful search as M inst-\ndont so an arrest for a crins conditted in the arresting officer's\npresence. It 1s believed that Ath proper attention on the part of\nthe United States Attorney this case word have been mistained had\nit been permited to 6° to trial.\nOrgan yes IN-3000-on December 3, 1936, investigators rate NR in-\nvestigation of & reported violation on the defendant's premises. On\napproaching the promises from the alley. the investigators anticed a\nvery promounded otor of formanting mark, which appeared to comate from\na two-stall carace located on the roar of the 10t. After determining\ncertainly that the odor we in fact contry from the care they\nentered the NAME and found an unforground vat filled with mah, with\npipes leading to the hours. the of the officers went to the house and\nrapped on the door. The defendent opened the door and will nated by\nthe officers the 933 in control of the carage. The defendant stated\nthat he was. He TOD thon astred where the still was located, and he\nstated that It was in the Incoment. the defendent vas placed unter\narrost, and lad the officers to the otill, which WIVE found to be a\n200-gallon plant of the St. Louis type. No seimure me mis witil\nafter the arrost. It will be noted that in this case the officers\nare not enter the premises until after they had first adcertained that\n& felony visa being committed there. It is believed that the search\nin this case vos good, it having been nade as an incident to a lawful\narrest for A orine consitted in the arresting officer's presence.\nCase no. III-1042-On April 10, 1936, investigniors of the Alcohol\nTax Unit want to a garace known M the \"North There Garage.\" in\nChienge to investigate a complaint that untaxpaid liquor was being\nmanufactured there. they entered the and found a boy in\ncharge. After revealing thair identity. they asked the boy to show\nRegraded Uclassified\n170\n- 31 -\nthem around the carage. As they proceeded toward the rear, they\ndetected an unmistakable odor of formenting mish and heard the\nnoine of a stens boiler. They proceeded to the second floor, where\nthey found a BAR sitting alongaide n steam boiler, receiving tenk,\nand etill. The still, which vas a 300-gellen copper plant of the\nSt. Louis type, was seised, together with all the paraphernalia,\nmash, and alcohol. This is A close case. It appears that this\nsearch sight be called \"exploratory\" and perhaps could not have\nbeen sustained. On the other hand, it is to be noted that the\nnetrure occurred in a public garage and there were therefore grounds\nfor a contention by the Government that the search did not fall in\nthe category of \"exploratory\" searches and was good. Rowever this\nmay ba, it is falt that the question whether the search was legal or\nillegal in this particular case should unquestionably have been left\nto be raised by defense counsel and passed upon by the Court.\nThe Department's judgment therefore is that of the six cases no-\nbilled by the February Grand Jury on representations by Assistant\nUnited States Attorney Classer that they were based upon illegal\nsearch and seizure, there was only one in which the circumstances\nwarranted a decision by the Government not to undertake prosecution.\nIn at least four of the remaining five cases the available evidence\n10 considered to have been entirely legal and would have afforded un\nadequate basis for prosecution had the cases been properly presented\nby competent counsel. In this connection, it will be recognized by\nanyone having a familiarity with police work that is is inevitable\nthat entries, searches, soisures, and arrosts made in good faith by\nenforcement officers will in same instances be judicially determined\nAS illegal on questions ruised by defense counsel, and no protense\nis mde that there have not been instances of this kind in the Chicago\ndistrict as in all other districts. But the Department knows of no\nother Instance in which Government counsel have themselves deliberately\nundertaken to raise such questions before a Federal Grand Jury as an\nobstacle to indictment.\nThere to considerable svidence which points to the fact that\nMr. Glasser's conduct of the Alcohol-Tax CASSE taken before the\nFebruary and March Grand Juries was not in good faith. It 10 a\nmatter of common knowledge that grand juries must and de rely wes\nthe prosecuting officers for instructions regarding the law in any\ncase presented to them. Moreover. it is known that the action of\nthe February and March Grand Juries at Chicago is no-billing certain\nCASSE was taken upon the affirmative recomendation of Mr. Classer\nand upon his positive statements, usually contrary to fact, that these\ncases were based upon illegal search and seisure. It is known also that\nthe letter to Mr. Igoo signed by the foreman of the February Grand\nJury, condemning the Alcohel Tax Unit and extelling Mr. Classer, orig-\ninsted with Mr. Glasser himself, and there is no reason to suppose\nthat the letter signed by the foreman of the March Orand Jury had any\ndifferent origin. It will be pertinent to consider these circus-\nstances in the light of the following statutory provision:\nRegraded Uclassified\n171\n-\nTitle 20. use. 406, U.N.C.-I\\ shall be the daty of\nevery district attorney to whom any collector of customs,\nor of internal revenue.¹ shall report. according to law.\nany case in which any fine, penalty, or forfeiture has\nbeen insurred in the district of such attorney for the\nviolation of any law of the United States relating to the\nrevenue, to cause the proper proceedings to be commond\nand prosecuted without delay. for the fines, penalties.\nand forfeitures in such CLUB provided, unloss. wen 100\nmiler and ampiration. he shall decide that such process-\nInca cannot probably be matained. or that the unde of\npublic Justice do not require that mah proceedings should\nbe instituted; in which date he shall report the facts in\nmistors cases to the Secretary of the Transury, and in\ninternal revenue 03,200 to the Commissioner of Internal\nReveres for their direction. (R.S. 300, B38; Feb. 37, 1077,\nc. GO, 000, 1, 19 Stat. 241.)\nThe Ins defining the datins of district attorneys thus Imposes\nwas those officers the daty of proceeding In chees reforred to\nthen w the Buranu of Internal Revenue with & view to prosecution,\nonly in the event ther whall decide that Wra prograding an 270b-\nably be mistained on the extéange submitted to than, In view of\nDise provision of law, It would be fair to inquire dy 11 RUS that\nMr. Classer, If is value in good faith convinced that the six 00265\nabove refurred to were based upon illegal search 07 seisure, took\nthese CLOSS before the Drand Juny at all. He certainly was under\nno date to do this. Cm the contrary. compliance with the statute\nwould have required his to comminate his adagivings with regard\nto these cases, not to the Grant Jury, but to the Commissioner e\nInternal Revenue, or, M is the practice in such mitors, to the\nCommissioner's representative at Chicago, the District Supervisor\nof the Alcohol Tax Unit.\nIt must be presuned that Mr. Igoo and his assistant, Mr. Glasser,\nare familiar with the law which defines the duties of the offices\nwhich they hold. In the face of this 1nt and contrary to its obvious\nIntent if not its supress provisions, Mr. Olasser presented a musber\nof casss to the trand Jury in which, as he represented to the grand\npurers, the evidence will not sufficient to mistain prosecution.\nFollowing the no-billing of these cases, Mr. Classer propared &\nletter assailing the Alcohol The Unit for supposed delinquancies is\ntheir proparation and praising himself, and he induced the signature\nof this letter by the forumn of the Grand Jury. Mr. Igos promptly\ngare this letter to the newspapers, where it was published along with\nfantastic statements attributed to Mr. Glasser to the general effect\nNow district supervisor, Alcohol Tax Unit, of Internal\nRevenue in case of violations of liquor taxing laws. (sot of Hardh\n3, 1937. 44 Stat. 1382. and regulations Lasued thereunder.)\nUnderscoring supplied.\nRegraded Uclassified\n172\n- 33\nthat note bootleg liquor 10 being sold in Chiengo at the present time\nthan in the heyday of the Prohibition pariod. There AFC present here\nall the alements of is deliberate plot to discredit the endowere of\nthe Purom of Internal Novement at Chicago to enforce the reverns Inwo:\nthere 10 nothing of a bona fide character that is worthy of serious\nnotice by the administrative offloors of this Department.\nCollection of las from aliand illicit vantara.\nMr. Icee complains of the fact stat, as he enve, the Alcohol Tax\nUnit collects the retail liquor dealer's compational tax from\nensies and similar unlicansed planes which traffic in untarpaid spirite.\nIf constutes his critician with this statements \"This would soon to\nbe a violation in Itself by reason of the fast that it in effect 11-\ncanses the illicit operator.\"\nCONSUMER\nMr. Iges's criticism of the practice of the Eurom of Internal\nRevenue in collecting occupational taxes from parsons selling inter-\npaid distilled spirite without a license in not ensy to comprehand,\nsince it in no wise impinges upon or conflicts with his jurisdiction\nand duties M United States Attorney, but falls within the posuliar\nadministrative provines of the Consissioner of Internal Invenue. If\nhis comment is not to be regarded at being thelly gratuitions and\nintrasive, it is necessary to conclude that, no is perhaps suggested\nby the statement above quoted. Mr. Iges is of the opinion that this\npractice not only in unwarranted In law, but constitutes each A via-\nlation of law as to require his to give the matter his attention in\nhis official capatity as Government prosecutor.\nTo bagin with, it may be and that the practice to which Mr. Igoo\nrefore Is not peruliar to the Chicago district, Incl under long-stant-\n100 departmental regulations is the withorm procedure in all the is\ntermal-roveme districts into which the country is divided. It is\nobvious. therefore, that the Alcohol Tax Unit at Chicago mut be\nammented from any blans which my attach to the practice complained\nof. With reference to Mr. Igoo's opinion that the practice is ille-\nme. it my be said that the Federal statutes imposing agestal or\ncompational taxe upon sortain classes of persons have been in of-\nfeet for more than sixty years. Among other things they provide that\nall persons who sell distilled spirits or offer such spirite for sale,\nmibject to the occupational tax as retail or wholesale liquor\ndealars no the case my >0, and in this respect they min no distine-\n$1on between licensed and unlicensed persons, not between persons the\nRegraded Uclassified\n173\n- 34 -\nsell taxpaid spirite and thome who sell unterpaid spirite. The at-\nministrative construction base followed the law, M will be evident\nfrom the fact that the uniform practice of the Bureau of Internal\nRevenue has always been to undertake to collect the scoupational tax\nfrom all liquor dealers operating in \"dry\" States: from unlicensed M\nwell as licensed persons selling liquor in \"vol\" States: and from per-\nsons selling untaxpaid liquor as well AS those selling texpaid spirite\nonly. whether the State of sale is conta or \"dry\". In instances where\ncollection can not be nade otherwise, the rule has been to assert the\noccupational-tax liability of any person apprehended in the sale of\nspirite in violation of the Federal laws, by the assessment of the\ntax, with ad valores penalties, for the period covered by his known\nillegal operations, and this is regardless of whether the spirite\nsold have or have not been texpaid under the Federal laws.\nIt would appear that Mr. Igos has fallen into the arror common\namong uninformed people of characterising as a license the tax stamp\nwhich is furnished to any person paying the occupational tax in COD-\nnection with his current business. In this connection, the provisions\nof Section 3243, R.S., are quoted below:\n\"The payment of any tax imposed by the internal-\nrevenue laws for carrying on any trade or business\nshall not be hald to exempt any person from any penalty\nor punishment provided by the laws of any State for\ncarrying on the 8430 within such State, or in any nan-\nnot to authorise the commensement or continuance of\nsuch trade or business contrary to the laws of such\nState or in places prohibited by municipal law; nor\nshall the payment of any such tax be held to prohibit\nany State from placing a duty or tax on the 1400 trade\nor business, for State or other purposes.\"\nThe occupational-tax stamp Issued to dealers in liquor by the\nBureau of Internal Revenue carries the substance of these provisions\nprominently on its face and, in addition, the following words: Tale\n10.0 tax A license. It appears to be well settled that\nCongress may tax even that which It forbids. It is believed that a\nconsideration of the applicable statutes and decisions should dis-\nposs of Mr. Igoe's opinion that the issuance of occupational-iax\nstamps has the effect of licensing illicit operations.\nMr. Tgpe 10 substantially correct in his understanding \"that the\nreason for the Alcohol Tax Unit's insisting upon the purchase of &\ntax stamp from (by) individuals selling untaxpaid distilled spirite,\nto so that the investigatore one sake a search of the premises after\nRegraded Uclassified\n174\n8\nthe stamp has been termed in asseriance with loo.\" In Chiongo, as\nin other large office, there Are may houses of prostitution, spasite\nand/or, and dives where spirite are sold by the performed or disponsed\non the promises In violation of State and local 1/w. Not only do\nthem places every on the sale of spirits without State or municipal\nLicense, but, as experted w Mr. Isoo, their liquor stocks not -\ncommonly consist wholly or partly of unterpaid or booting spirits.\nThe difficulty of reaching violators of this class - the usual me\nforcement nethods in very creat. Y reason of No fast that their\nIlliois operations are unually carried on in spartment houses and\nother residential buildings not readily accessible to revenue offi-\n0673. It :- often possible, however, to induca the propristor of\na -Ince of this kind to pay the Pederal occupational tax, which 1150\nvalved, ADDITE other things. nationalisment of tax Hability on the\npropriator's parts and in any once dare this 18 done. the INFORMATION\nnonth obviously clairs the which for a mussequent periodical inspection\nof the promises by revenue officers under Section 3177 of the Mevised\nStatutes. This practice, misch AS 1tr. Inco supports to commonly fol-\nlowed in the Chicago district, has resulted in considerable progress\ntoward the alimination of the unlo of unterpada spirite at Chicago\nthrough discrderly houses art other statter places which are illegal\nunder State and local law - an objective which 1s obvieusly dectrable\nfrom the standpoint of protecting time Federal revenues. the mothod\nAssoribed in legal in story respect, nov? 10 the noot effective nothod\nwhich the Department can command to restrain the sale of bootleg spirite\nthrough illicit and clunientine retail outlets. Re valid ranson\napproved the It should be objected to by any United States Attorney.\nCriticism of Mr. Arthur P. Modden\nInecial Account in Chance, Intelligence Unit. Chicago.\nMr. Igoo males two specific complaints against Mr. Maddon, the\nfirst having to do with IS investigation which he requested Mr. Madden\nto min of the expressed improper withdrawnl of a large amount of liquor\nfrom a certain bonded warehouse in Chicago, and the second with an 1m\nvastiontion which be likerism requested Mr. Madden to make of the my\npound miscon/mot of two inspectors of the Alcohol 2nt Unit in endonver-\nLas to collect an amount of noney from 5 certain tax The two\ncases are well movn to the Department.\nHornand Brothers. General Bonded Maryhouse no. 3. Chinago,\nMr. Igon says that from the beginning of his term of office, &\nstory had Soon in circulation which reached him sometimes over the\ntelephone and constines through non, to the effect that a\n100% mount of liquer and been Exproparly vithtrum from N certain\nRegraded Uclassified\n175\n- 30 -\nbonded Be says that he requested Mr. Hadden to investigate\nthis mtter: that Ad a result of this request Mr. Mindden striced Ity.\nschere. the Department's \"publicity mn\" at Chicago, that he (Iers)\nsent Mr. rellowley under investigation; that hn (Igon) throught it\nstrange that Madden should in this my notify one of Tollowley's\nagents of the fact that Yollowley WILL being investigated; that Itr.\nMadden has failed to comply with his (Igne's) request for a report\nof life investigation; and that he (Xgon) lears that If = artin has\nSeen conditted in connection with the withdrawal of the liquor in\nquestion, presemition might be barred by the reving of the statute\nof limitations.\nCOMMIT\nThe bonded warehouse in question, although not named in Mr. Igen's\nletter, YOUR General Bonded Warehouse No. 3, the proprietor of which\nwas Worand Bros., Inc. On December 4. 1935, Assistant United States\nAttorney Classor brought to Mr. Maddon's attention certain claimed\nirrogularities in connection with this warehouse. Mr. Madden no-\nsigned Special Agent D. I. Clean to Investigate this natter and on\nDecember 7. Mr. Cluan called on Mr. Glasser, who advised him that he\n(Cleaser) had come into the perseasion of certain information to the\noffect that in the month of January, 1935, 5,000 cases and 150 barrols\nof whisloy had been removed from this to the merchouse of\nValores and McLaughlin. Mr. Classer stated that his information wis to\nthe effect that this had been stored in the Normal Pron.mere-\nhouse for a great many years, ml. that storage charges mounting to\n$10,500 had accrued on 1t, which ware DatA to Morand Pros. at the time\nof renoval. Mr. Glasser further stated that It was his impression that\nthe Government might have been defraulad of a large amount of money\nthrough the unanthorized removal of this Mo stated that Us\nsource of his information was one Don Vacarelli, than an employee of\nthe Standard 011 Company in New York City. and formarly a storekesper\nCRADE in the of Internal Nevanus. He stated further that\nVecarolli in turn had received his information from one Kooniz, At\nemployee of Morand Bron. Mr. Classer indicated that in his opinion\nA thereach Investigation should be miss by the Intelligence Unit to\ndetermine whether the Government had not been defrauded in conne-\ntion with this transaction.\nFollowing his interview with Mr. Olasser, Special Agent Olsen dis-\ncovered that the mtter referred to by Mr. Classer had already been\nmade the subject of an investigation w Mr. linidam's office. Vacarelli\nhad been interviswed at New York City by Special Agent c. L. Converse\nof the Intelligence Unit on October 33, 1936. In the course of this\nInterview, Vacarelli stated that he had boon employed as storekesper\nin the Incroam of Internal Revenue unter Mr. Yollowley until\nRegraded Uclassified\n176\n- 37 -\nsome time in 1934, and that in this capacity his last nasignment\nwas in the Morrant Bros. varatiouse; that William Reenic. whom he\ndescribed as owner of this a had told him that Mr.\nYellowley and informed his (Zoonic) by letter that his warehouse\nwould have to be closed and the whinkey stored therein disposed\nof: that Mr. Koonie had advised Mr. Yellowley that there wild\nstorage Gree on the whichey amounting to $10,000; that after hearing\nthis story from Mr. Loanis he (Vacarelli) looked W the regulations\nand found a section that provided that when whinkey had been in\nbonded storage for ten years. the Government could seise 14 and well\nit in order to collect its tax: that he (Vacurelli) had called this\nregulation to the attention of certain officeru in Mr. Telloolay's\noffice and had been told to mind his own business: that in conno-\ntion with the transfer of the whichey from the Morani Bros. VAN-\nhouse to the Walcom and HeLaughlin warehouse Mr. Koenis stated to\nhis (Vacurelli) that Walom and McLaughlin were getting a half a\nmillion dollars worth of whistory for $10,000, nad that in his\n(Koanig's) opinion the Government should have selood the liquor and\nsold It as it had all been In storage for more than ten years) Was\nin his (Vacarelli's) opinion someone not & lot of noney to allow\nthis transfer to be nate) that in his (Vacarolli's) opinion, Mr.\nKeenig should be interviewed in connection with this transaction;\nthat Assistant United States Attorney Warren Carridy had sont him\nA tologran during the provious real: asking his when he would be\navailable to appear before the Federal Grand Jury at Chicago: that\nreporters of the Chicago American had speken to his about this\nmiter the last time he was in Chicago: and that Alexander Jania\nand former United States Attorney George 1. & Johnson know about\nthe matter and were considering having it-presented to the Grand\nJury,\nSpecial Agent Converse stated in his report of this interview\nthat Vacarelli had proviously related this SVIII story to him in the\nearly part of 1935, and that he (Converse) had at that time inter-\nviewed Keenig as suggested by Vacarelli. In the course of his in\nterriew with Konnic. the latter stated that in his opinion every-\nthing was regular in every way regarding the transfer of the liquor\nfrom the Morand warehouse to the warehouse of Wakes and Walmighlin.\nIt is believed that the foregoing substantially comprises the\ninformation which had reached Mr. Iges regarding the supposed -\nauthorized removal of spirits from the Morand Bros. varahouse at\nthe time when Mr. Madden's office me requested to investigate this\nmitter. The natual facts regarding the transaction vill now be\nstated.\nRegraded Uclassified\n177.\n- 38 -\nThe Mornal Bros. warshouse, known as General Bonded Narchouse\nNo. 3, 10 located at 823-827 Norton Street, Chicago, Ill. This is\nin a district frequented by cangators and hoodlums, and reported\nattempts to rob the warshouse were made during the years when it\nvas used for the storage of spirits, one of which, sono time bo-\ntwoon Fobruary 25 and March 5. 1037, was monoreful. Al though only\nthis one robbery untually occurred, the Morand warshouse, w reason\nof its undestrable location, had to be closely guarded by revenue\nofficers at all times, and wish a constant 201200 of verry and annoy-\nnnes to the officers of the of Internal who were No\nsponsible for its reservision. On October 8, 1934, after informal\ndiscussion of the matter with Departmental and Durou officers at\nWashington, Mr. Yollowley, District Supervisor of the Alcohol Tax\nUnit at Chicago, mubmitted the following recommendation to the\nComissioner of Internal Revonues:\n\"I an writing you recerding General Bonded Warehouse\nNo. 3, operated by Morand Bros., 073-827 Norton Street,\nChicago, Illinois.\n\"I have been recomending for the past siz years\nthat the spirite In this warehouse be noved to a don-\ncentration warehouse. The Incrome on several occasions\nordered the spirite concentrated but each the the pro-\npristor of the warehouse land the reseval postigned 100\ndefinitely.\n\"Thero Are now only 33,345.3 tax gallons In this\nwarehouse. There is very little activity. Stornkeeper-\n(migers are needed very badly at plants where there is A\ngreat doal of activity. It is for this reason and the\nfast that this warchouse is located in M undestrable\npart of the city that I an again recommending that those\nspirite be removed to a communiration warehouse. The\nnamigned there could then be Given\nnore productive duties. I sincerely hope that you ONA\nanin issue the concentration order and tint this work\ncan be accomplished as an early date.\n\"I shall amit your realy with interest.\n\"Yery truly yours,\n(Stened) - c.\n\"Asting District Supervisor.\"\nRegraded Uclassified\n178\nRegraded Uclassified\n- 39 -\non October 31, 1934, an the result of Mr. Yollowley's recom-\nmendation, the Commissioner of Internal Revenue directed the removal\nof the spirits from the Morand marchouse. The following are peril-\nnont extracts from the Commissioner's order:\nmy virtue of the authority vested by Law in the\nSecretary of the Treasury and by his conferred and 100\nposed upon the Commissioner of Internal Reverns. you\nare instructed to direct the Morand Brose, Incorporated,\nto effect 22. removal of all distilled spirite stored in\nIts General Bonded Unrehouse No. 3, 023-837 Norton Street,\nChicago, Illinois, to nome concentration warshouse or wire-\nhouses, designated as mah, pursuant to the Act of Pobra-\nATT 17. 1923, as reanacted in the Treasury Appropriation\nAct for each fisanl year up to the present\ntime. Preferably such warahouse or merchouses should\nbe located in Chicago no as to effect the most reasonable\ntransportation costs. Purther instruct the proprietor of\nGeneral Bonded Warehouse No. 3 that this removal must be\naccomplished within thirty Engre from the date of this\norder unless an extension of time is granted X the Depart-\nment.\n........\n\"Upen removal of the spirite purmant to this order.\npayment of accrunt charges against such spirite and trans-\nportation costs to the concentration wurshouse my be\nrade (1) by the owner of the spirite (2) w the proprietor\nof the warehouse from which the spirite are resoved or (3)\nY the proprietor of the murchouse to which the spirits\nare reserved. In the avent the said charges and transporto-\ntion costs are not remund by the propristors of ofther of\nthe warchouses, the Department will look to the owner of\nthe spirite for mottlement of much conto.\n\"In the event of failure or refusal of Morand Bros.,\nIncorporated, to renove the spirite within the time -\nscribed in this order, or within my extension of time\nwhich my be granted, you AFG directed to report mall\nfailure or refusal to the Department with much rocom-\nmendation as you my doom approprinte.\"\n179\n- 00 -\nThe statutory authority for the transfer of spirite in this\nis found in Section 3272. h. 3., mailing At follows:\n\"Misser in the opinion of the Commissioner of\nInternal Revenue any distillery or other warehouse 10\nunsafe 02 will for use, or the narchandise therein\n19 for my reason liable to loss or great waster. he\nmy discontimes main medical and require the mr\nchandies therein to be transferred to mah other -\nhouse M be my destgnate and within euch time na he\nmay prescribe. such transfer shall be nute under\nthe exporvision of $200 collector, or of such other\nofficer M my be designated by the Consissioner,\nnovil the acquence thereof shall be paid by the cumar\nof the morthantise. Whenever the owner of mail nor-\nchandise fails to much transfer within the time\nprescribed. or to M the gust and proper asspense of\nmuch transfer, as amoortained and determined by the\nCommissioner, stich marchandise by be seized and sold\nby the collector in the num numar as goods 1279 nold\nwon distruint for tipos, and the proceeds of such mis\nshall be andior to the payment of the taxe the thereon\nand the cost and expenses of much male and removal. and\nthe balance paid over to the owner of mach nerchantise.\"\nHorand Bros., Ino., cortain difficultion In complying\nwith the order of the Commissioner for the renoval of the spirite, and\non December 30, 1934, Mr. Tollowing wired the Commissioner as follows:\n\"Morand Bros. failed tales stops renoval spirits\nto another warehmise accordance your order October\nthirty-first. Suggest you dasignate Waloun MoLanghlin\nor Lawrance warshouse, or both, ISS receiving concer-\ntration worehouse for these spirite. Shall than\nmagotiate with proprietor designated receiving mre-\nhouse with view having him assume storage charges\nand cost renoval and file necessary papers for yes\nnoval.\"\nAnd he wired the Commissioner again on January 2,1935, A8 follows:\n\"Please designate by wire warshouse to remove\nspirite Morand warehouse. 300 my telegram December twenty-ninth.\"\nRegraded Uclassified\n180\n- 41 -\nOn January 3, 1935, the Commissioner nent the following tolagram\nso Mr. Yellowley:\n\"Rotols December twenty-nine and January two inno\norder October shirty-one for removal spirts from Morand\nBrothers warehouse to another mirshouse, Durom 1a\nacreadble to designation of either and Halmyhlin\nor Lawrance warehouse, or both, as reseiving concentro-\ntion varahouse and you are authorised to nogotiate with\npropristor of mar warehouses with view to having them\nADDITION storage charges and cost of removal. If such\narmagements made specific order for concentration will\nso issued.\"\nActing under the authority to be found In the correspondence\nhere referred to, Mr. Yellowley canned the transfer of the spirite\nin question from the Morand warehouse to General Bonded Warehouse\nNo. 3, operated by Walam nn/ Malaughlin, at 200 East Illinois Street,\nChicago, the transfer being completed February 4. 1935. The transfer\nwas under the direct supervision of inspectors R. ?. HeGrath, 0. L.\nStudenberg, and n. J. Rusine.\nAft will appear from the foregoing. the supposed unauthorized\ntransfer of spirite in this instance will in fact a transfer which\nhad been expressly authorized and directed by the Commissioner of\nInternal Revenue. It was in accordance with the law and the rega-\nIntions of the Department, resulted In no loss to the Government\nbut on the contrary diminished the risk of such loss, was supervised\nby officers of Internal Revenue, and was regular in every respect.\nIn view of the insimuations by It. Igos's informant, perhaps it\nshould be apecially added that in connection with the transfer of\ntamble norehnalism from one bonded warshouse to another, the Gov-\narmont preserves all its security and 11ons for the ultimate -\nnent of taxes.\nIn view of these facts it is consent difficult to uniorstand\nthe basis of Mr. Iges's criticism, bet his complaint apparently\nCross out of the fast that in the course of his investigmtion, Mr.\nMadden, or agents working under his supervision, male certain con-\ntasts with Mr. rellowley's office, the intended inference svidently\nboing that these contacts word designed so defent the objects of the\ninvestigation. The record clearly shows that the investigation me\nin fact conducted in a manner wall calculated to bring to light all\nthe facts with referrace to the miter under trquiry.\nRegraded Uclassified\n181\n- 42 -\nAllowed attented artertion by Algohol 25 Unit arents.\nltr. Iges writes that on one cooasion two Agents of the Alochol\nTax Unit attompted to collect notary from 8 defendant In & case which\nhas been referred to his office for prosecution. No questioned the\nsubject of the attempted collection and accordingly brought the este\nfor to Mr. Madden's attention with a view to having AR appropriate\nInvestigation nate. No any's further that, much to his assoniahment,\nhe later loarned that Mr. Madden had talom the mitor 8 with the\nlocal office of the Alcohol Tax: Unit, which last advised him (Maddon)\nthat the action of the two agents was regular. No concludes w\nmaying that Wis the \"a rather strange must in which to contract An\ninvestigation.\"\nCOMPUTER\nThe defendent whom lbs. Igon has in wind, although he doos not\nMonthly him in his letter, to 0730 Thoodors Men. the with one\nMargaret Born TR&E the proprietor of & Atsorderly house at see\nMorth Lolant Avame, Chiango, when theme premises ware visited by\nrevenue officers last September. Ries novt linran ware ventors of\nunterpall alcohol at various locations in Chicago, Including 282\nNorth Loland Avenue, 4451 Bazel Avenue, and 855 Insurance Avenue.\nA criminal case was name ant against these persons growing out of\nsales of unterpad pirits at the Leland Avenue address In September,\n1936, and out of similar sales mêe at the Lewrence Avenue address\nin Devember, 1936. and this was referred to Mr. Igno's office for\ndisposition. On March 5, 1930, Mr. Igee addressed the following\nletter to Mr. Madden #\n\"In ros Theodore Rios and Margaret Horan\n\"I have boon informed by the above named people.\nthat when they voro arrested on November 340 1936,\ncertain suggestions were made so then w nen of the\nAlcohol Tax Unit, annely Paul Tamillo and 0. Davis,\nwith reference to & mettlement which they sight notes\nin lieu of tasse.\n\"They further informed 255 that they received tale-\nphone calle from one of the men of the Alcohol Tax Unit\nevery day for three consecutive days. requesting than to\nbrine $200 down to his, and that If they 414 not he would\ncomo w and got them.\n\"It Is w suggestion, in viaw of the above, that on\ninvestigation be mão to determine the foots in this case.\n\"Respectfully,\n(signed) M. 1. IGOH\nV. 3. Attorney.\"\nRegraded Uclassified\n182\n- 43 -\nOn March 9, at Mr. Maddon's direction, Special Acont Somera,\nof Mr. Mndden's staff, called on Assistant United States Attorney\nGlasser with reference to this matter and WM furnished by Mr.\nClasser with a copy of the following affidaviti\n07 RISS\n\"I reside at 937 LaPayette St. I an the anno\nTheodore Miss who was arrested on Hovember M. 1936,\nwith Margaret Horan for A violation at 985 Lawrence\nAvenue, where the agents seised one gallon of alcohol.\nThen we arrived at the New Post Office Duilding as\nthe office of the Alcohol Tax Unit, Presl Famillo not\n0. Davis wire sitting alons with us, and Tamillo told\nus that our taxes would be in the neighborhood of 2000.\nand that (9) would be acquested to pay that. When I told\nhim I had no much amount of money, he naimal m how moth\nI had. Than I informed his that I had $000 worth of\nbornis bonds left, he registed that I anah the Somus\nbonds M soon M possible, and doliver the $200 to Mr.\nNo also told no that if I burried and cant in the bonds\nintediately I should receive the money within 5 four\ndays. Mter this conversation 18 was talen orsr to\nthe United States Court Nome and arraigned bafore Don-\nniscioner Walker. Our dhao was continued before Comie-\nsioner Walloar and hearing WELL not for December 0. 1036.\nOn the Monday, Tuesday, and telnesday following our\nappoarance before Commissioner Valler on November 34th,\nMr. Tamillo called at Y home every day for three days.\nand told me that If I d14 not bring the $200.00 down to\nhim be would como w and cot m. After Mr. Twilllo's\ncall of the Vednesday following our before\nJudge Valker, IF) 414 not 000 him again until he testi-\nflod in the Commissioner's Court room on December 8,\n1938.\n(signed) \"Theodore Rice\n\"I, Margaret Horan, having read the above statement,\nconsur in 11 and my that it is the truth.\n(31 ma4) Margaret Horea\n\"Subscribed and evorn to before - this 12th drg of\nJanuary. 1937.\n(Signed) Deniel D. Glasser\n\"Hotary Public.\"\nRegraded Uclassified\n183\n- 44\nIt - apparantly the beltef of Mr. 1,000 and his novistant,\nNr. Olasser, that the demands nate of the defendante Riom and\nNorma for Alcohol Tax Agents Tamille and Davis. AS described in\nthe above affidavit, were actortiomic and froutulent in dharao-\ntor. Under these circumstances, Special Agent Sommers in And\n001279 visited the offices of the Alcohol Tax Unit for the pur\n2038 of inspecting the files relating to the case, Invusation\nof the files disclosed that the Investi entions nañe by the Al-\ncohol the Unit had brought to 11ght the fact that these defendants\nhad insurred a liability for compational and ad valoren\npenaltive amounting to $442.92, as the result of their liquor sales\nat the addresses above Given during the period from December 1,\n1933, to June 30, 1937: that the propor forms had been filled up\nby these persons in November, 1936, notmowledging their tax 11s-\nbility In this ment that the defendant Rios advised Agents Tamillo\nand Davis at the time, however, that he ase not have this amount\nof money, but thought he could realise at lenet $200 by cashing\nhis borns policy, and would pay as lasst that amount: that Agente\nTanille and Davis thereafter sought on c. minder of occasions to\nsequre the tender of this maller mant and that the file of the\ncontains an official report of Agents Fundlle and Davis\nwhich includes the following statements\n\"Inspector Twilllo phoned Mr. Rios, the wholessler,\non November n, and he promised to be in December 1, to\npay $200 on his liability of $447.93 AS wholesaler.\n\"On December 1. Inspectors Taxillo and Davis waited,\nbut Xins did not show w.'\nSpecial Agent Somere interviewed Us. I. J. Baker, Senior\nInspector, Alcohol 2nx Unit. and the superior officer of agents Tamillo\nand Davis, the advised that he (Baker) had born in close touch with the\nhandling of the Mes-Horan case and was familiar with the afforts rade\nw the agents to collect the the Since It me this developed that the\ndonands name upon Ries NS described In the above affiderit dated\nJanuary 12, 1937. had been vale R. matter of official record in the files\nof the case and ware known to and approved by the expervisory officials\nof the Alcohol The Unit at the time when the transaction occurred in\nNovember, 1936, third ware clearly no prom/s for the muposition that\nthey were axtortionate and fraudulent in character, and Mr. Madden's\ninvestigation was closed when there facts were brought to light.\nRegraded Uclassified\n184\n- 40\nThile it this - that there is not the allghtest ground for\nthe Icee's criticism of the methods purmied by Mr. Madden in haviling\nthis investigation, there is one further neport of the nutter which\narmed be commented mon. Mr. Igoo says In reference to the Rice-\nHoma Incidents \"It is V understanding that once a chae 1s referred\nto the Department of Justice. the disposition of that case romins\nsectusively with this department.\" No mans to any that\n1000 the Rice-Horan matter had been referred to his office for\nprosecution, his office, as a antter of law, than because exalusively\nresponsible for It, and any attampt mês thereafter by revome offi-\ncore to collect money from the defendants vas AR improper Intrusion\n2\nwon his jurisliction. The Department disagrees with M-, Ispa's\nunderstanding of the law on this point. The reference to a United\nStates Attorney, with % view to criminal prosecution, of n. willing\nand frandulent violation of the internal-reveme Lum relating to\ndiatilled mirits, has not harotofore been construed as relieving\nthe Commissioner of Internal Revenue of his rusponsibility for the\ncollection of the intornal-revemue taxes found to be tue from the\n>oraon or persons involved in the violation, oven though the liability\nfor much taxes arises out of the identical circumstances which cive\nrigo to the original liability: and it has long been the sulform\npractice in all districts for the Comissioner, by his officer^ and\nagents, to ADDRESS the occupational taxes and ad valoren penalties\nprescribed w Inc. together with comodity taxes than applicable,\nall persons found engured in the illegal unmissiture or sale\nof distilled apirite, and to purmises the renedies prescribed in the\nstatutes for the recevery of much taxes, independantly of my orininal\nrecording which my be Instituted w the United States attorney.\nThe Department is not but that Mr. Igoo's\nof the 1.00 La at the bottom of his complaint in this onso, since, if\nthe law 100ml been M he supposed, he nicht have had crounds for the\nbollef that the notion of revenue officers Tandllo not Davis anounted\nto not unmarranted interforence with his functions. Under the natual\ncircumstances of the case, however, it is clear, first, that the\nAloohol The Unit at Chicago who regularly performing n routine duty\nin its afforts to effect the collection of tame due from Rice and\nMoran; and, record, that the nots of agents Tanillo and David were\ntheir proper official note in their capacity M inspectors and\ndeputy collectors of Internal reverne.\nRegraded Uclassified\n185\n8\nOriticious of Mr. A. Mar Gymball\nOffice of the General Counsel\nIn a separate letter, dated March 20, 1937. Mr. Igoo miss date\nplaints against Mr. H. Riley Compbell, M attorney of the General\nCounsel's office, Duram of Internal Revenue, the vas formarly Mr\nsigned to Nr. Igosts office ne Special Assistant United States AB-\ntorney. for the of masteting in front cases. Mr.\nIgno says that Campbell \"1s instating that be must supervies and con-\ntrol all civil matters which ATO new pending In this (Iges's) office.\nand which are now handled in conjumetion with this office by Carl The\nPeridas of the office of the Revorue Counsel.\" Mo says further that\nfor nore than a year past he (Igco) has been forced to spend more\nthan half his time in an effort to protect hinself from unharrasing\nsituations which he to satiafied WIN brought Into extetance through\nthe joint activities of Yellowley, Maddon, and Compbell. No mys\nfurther that because of Campbell's willful and permistent refusal to\ncooperate with him, he advised Garybell (this was some months no,\nprobably December, 1936, M the result of the events in the so-colled\nMalone case) that he (Igee) could no Longer work with him.\nIt is someshat difficult to comment upon sweeping observations\nof this character. At Mr. Igoo's instance. the Conoral Counsel of\nthe Duran of Internal Bevenue relieved Campbell from duty in Itr.\nIgoo's effice in January, 1937. and so far as can be assertained\nCampbell has since had no contact with that office. The alloged\njoint activities of Tollowly, Madden, and Gamphell are considered\nto be entirely Imaginary. Campbell has had as occasion to controt\nTellowlay officially. and be anys that even now he has only the\nalightest acquaintance with him. Since he vas toin out of Iges's\noffice in January, Campbell has been writing with the revenue and\nspecial agents on certain important income-bax froud onses which ATO\nnow in the investigative stage. It is believed that Mr. Icco's state-\nnent that Compbell willfully and persiatently refused to cooporate\nwith him during the time Oneybell VM mealgned to his office, ann be\ndiamissed with the connont that It MM not until after certain user\nculties arona between Mr. Igne and Carpbell in December, 1936, in\nconnection with the Valone choo, that If Igea raleed any question\nrequeding the character of Gampbell's services.\nRegraded Uclassified\n186\n- 47 -\nAction of Nr. 5, C. Yellowley in Connection With\nService Laboratories. st AL.\nBy letter dated April 3, 1037, Mr. Igon formarded to the Terma\nA. dog of of comminication dated January 9. 1930, directed w Alexander\nJunio, them Special Agant in Charge in the Buronu of Prohibition, to\nGoorge 1. & Johnson, then United States Attorney In Chicago, relative\nto an investigation in 1929 and 1930 of the activities of certain\navailably donstured alcohol permittees and cover-house in Chinago and\nother netropolitan cities buring the period from 1922 to 1030. Mr.\nIrom migrate that this retter should now be inquired Into by the\nTruesury Department. The informace apparantly intended to that Mr.\nfollowley, ad Pruhibition Mainistentor in the 05 Prohibition,\nand later na District Supervisor in the Incrones of In/tistrial Alcohol.\nwas cullty of - milfessance or nonfessance in connection with the\nImmence of parmite and the supervision of comittees.\nCOMPUT\nAccording to the Dopartment's records, the enso referred to 190\nvulted in the indictment of 5029 than one hundred corporations and 130\ndividuals, mostly permittees novil cover-houses in Chicago, Nov York,\nClovoland, Detroit, and Baltinors, on & charge of conspiracy to violate\nthe National Prohibition Act. Done idea of the thoroughness and the\nextent of the investigation m/le at the time will be gained from the\nfeet that the case report now in the Department's files consists of\nmore than 2,000 typewritten payment, exclusive of exhibits.\nIt is believed that no purpose would be served X reopening this\ncase. The matter our be disposed of by stating that at the time the\ncase was investigated in 1939 and 1930, the facts in connection there-\nwith were fully known to the Director of Prohibition and later to the\nCommissioner of Industrial Alcohol: and that these officials found\nnothing in connection with the investigation that night be regarded\nas reflecting in the alightent degree on the cluinistration of his\noffice by Mr. Yollowley. In fast, the record shows that may of the\npenditions who ware finally indicted had previously had their permite\nrevolced as the result of investigations made by inspectors writing\nwier Mr. Tellowier's direction.\nRegraded Uclassified\n187\n- 46 -\nGenelusion\nIt is our conclusion that the charges and complaints mão\nby District Attorney Igee reflecting upon certain Treasury offi-\ncials headquartered at Chicago, as contained in his letters of\nMarch 25, March 29, and April 8, 1935, addressed to Honorable\nJoseph 3. Keenan, Assistant to the Attorney General, are without\nany foundation, and require no administrative action by this\nDepartment.\n(Signed)\nGUY T. HELVERING\nCommissioner of Internal Revenue.\n(Signed)\nWM. H. McREYNOLDS\nAdministrative Assistant\nHNG-\n(mff\nto the Secretary.\n(fh\nRegraded Uclassified\n108\nApril 27, 1937.\nMEMORANDUM FOR THE SECRETARY:\nIn re: Collector of Internal Revenue C. E. Moore,\nAssistant Collector of Customs C. W. Pollock,\nSecret Service Operative in Charge 1, G. Harper.\nAn investigation of the alleged participation of Treasury officials\nat Cleveland, Ohio, in a liquor sales agency, developed that the above\nnamed persons became associated in the Ohio Sales Syndicate during April\n1934, each acquiring & twenty percent interest in the profits without\nany investment therefor. This syndicate was created as the result of\nnegotiations commenced by Secret Service Operative in Charge Bert C.\nBrown, Detroit, Michigan, since removed from the service, who was in-\nstrumental in organizing Famous Brands Ohio, Inc., of Detroit, Michigan,\nduring August 1933, the sales agency for the American Distilling Company\nin Michigan. The Ohio Sales Syndicate was created to act as a sales\nagency for this company in Ohio. From April to December, 1934, inclu-\nsive, Mesors. Moore, Pollock and Harper each received an income of\n$8,293.14, Collector Moore being paid $1,503.98 in addition for sales\npromotion services.\nOn January 1, 1935, the syndicate was incorporated as the Famous\nBrands Ohio, Inc., and stock issued according to the interest of each\nsyndicate member. Mesers. Pollock and Harver received 18 shares each,\n13 shares were issued to Collector Moore's wife and a nominal price of\n$5.00 per share was paid. After the agency was incorporated additional\ndividends totaling $1,620.00 were paid to each up to the time the investiga-\ntion was commenced, July 2, 1935.\nA hearing was held at the office of the Secretary of the Treasury,\nJuly 24, 1935, to afford Messrs. Moore, Pollock and Harper an oppor-\ntunity to explain their connection with this agency. As a result the\nSecretary directed that Messrs. Moore, Pollock and Harger should either\ndiapose of their interests in the agency and forfeit to the United States\nTreasury all profits realized by them from that business, or sever their\nconnection with the Treasury Department.\nCollector Moore was noncommittal in his replies but finally, Decem-\nber 16, 1935, he wrote to the Secretary stating that he proposed \"to\nreturn to the company such profits as I realized from this transaction\nwhen and as I am able to do so\". Prior to the date of Collector Moore's\nRegraded Uclassified\n189\n- 2 -\nletter, Senator Bulkley had, on December 6, 1935, written to Secretary\n\"orgentheu indicating that the return of such profits would be made to\nthe Famous Brands Ohio, Inc., and that the company would then pay them\nover to public charity. Mr. Pollock wrote a letter to the Commissioner of\nCustoms, December 26, 1935, stating \"I agree to contribute to charity, as\nI am able, the profits I have received, under the same arrangement made by\nCollector Moore\". Mr. Harper wrote 8. letter to the Chief, Secret Service,\nunder date of January 2, 1936, stating: \"I will undertake to return the\nprofits I have made ⑉\",\nThere were no further developments until September 24, 1936 when a\nletter was written to the Famous Brands Chio, Inc., to obtain information\nas to whether profits had been relinquished by Messrs. Moore, Pollock and\nHarper but no reply was received. It subsequently developed that this\ncompany liquidated shortly thereafter, certificate of dissolution having\nbeen filed December 21, 1936.\nA further investigation was then made during January 1937 to deter-\nmine whether Messre. Moore, Pollock and Harper had complied with the\nSecretary's instructions. This inquiry developed that subsequent to the\nhearing on charges at the Secretary's office, July 24, 1935, Messrs.\nPollock and Harper, and Collector Moore's wife, each received $3,060\nadditional in dividends on the Famous Brands Ohio, Inc., stock.\nThe stock of Collector Moore's wife was held by her until January\n10, 1936 when her father, who resides with Collector and Mrs. Moore,\nacquired the stock and thereafter endorsed over to her checks for divi-\ndends issued to him in the total amount of 2,070 which were deposited\nin her bank account.\nMr. Pollock's stock was transferred to his wife December 20, 1935,\nand on April 21, 1936 this stock was acquired by a next door neighbor,\nMr. Charles Michel, Jr., who states he paid Mrs. Pollock $720 for it.\nA dividend check in the amount of 1720 was issued to Mr. Michel but his\ncheck for $720 to Mrs. Pollock, purporting to be the cost of the stock,\nWSE not charged to his bank account until the dividend check was\nreceived and deposited, thus in effect resulting in no cost to Mr.\nVichel.\nMr. Harper's stock was acquired by his wife January 10, 1936 and\non April 17, 1936 it was transferred to Mare J. Wolpaw, B former\nAsistent United States Attorney, Cleveland, Ohio. Mr. Harper states\nhe sold his stock for 15.00 per share, or $90.\nIt will be observed that not only did Messrs. Moore, Pollock and\nHarper fail to relinquish to Famous Brands Ohio, Inc., profits realized\nby them from this venture, but on the contrary received substantial eddi-\ntional income from the liquor agency after official notice that their\nassociation was considered reprehensible and instructions given to them\nthat they should forfeit the profits already received.\nRegraded Uclassified\n190\n- 3 -\nMr. Gardner Abbott, President of Famous Brands Ohio, Inc., now in\nliquidation, stated on January 29, 1937, that no repayments of profits\nwere made by Messrs. Moore, Pollock and Harper. On the same date\nMessrs. Pollock and Harper admitted that they had not returned any\nprofits to the liquor agency to date and both indicated that they did\nnot contemplate making any immediate payments. It was also indicated\nthat Messrs. Pollock and Harper have been guided by Collector Moore's\naction in this matter. Collector Moore was not interviewed as he was ill\nat the time of the recent investigation.\nWhen the evidence of the association of Messrs. Moore, Pollock and\nHarper was first brought to the Secretary's attention, it was and still\nis considered to be a grievous offense and removal from the service was\ndeemed to be the proper disposition. It was only after a further con-\nsideration of the case that it was decided to be lenient and permit them\nto remain in the service by relinquishing all interest in the liquor\nbusiness and divesting themselves of all profits received. This they\nagreed to do, but the evidence established as a result of the recent\ninvestigation definitely shows that neither of them made any honest\neffort to comply with the Secretary's instructions, but on the other\nhand continued to flaunt the Secretary.\nmcPepulds\nRegraded Uclassified"
}