Question. Was this after counting a loss of $1,096.25 on sales made as a syndicate participant? Answer. Yes, sir. Question. But as a syndicate participant, did the Securities Co. receive $114,580 as its distributive share of the commissions paid to the distributing syndicate? Answer. So I am informed by the company's representatives. Question. If effect be given to these figures the result is, is it not, that instead of suffering a loss on the sales as syndicate participant, the Securities Co. made more than $113,000? Answer. Yes, sir; that is correct. Question. If we accept the figure of $114,580 as the distributive share of commissions which this Securities Co. received and add that to the gross profit on all sales, we get a total profit of about $256,000, do we not? Answer. Yes, sir; something over $256,700. Question. Made up of the distributive share of the commissions of more than $114,000, decreased by the thousand dollar loss that we have referred to and increased by the gross profit on all sales of $143,000, plus? Answer. Yes, sir. Question. On what type of sales was practically all of this gross profit of more than $143,000 made? Answer. Practically all made on intraorganization sales. Answer. To the sinking fund, to the Cities Service Oil Co. of Ohio and to Cities Service Co. Question. You have already pointed out that the debentures sold to the sinking fund, to the Cities Service Co. of Ohio and to Henry L. Doherty & Co. account employees' subscription were obtained from the Cities Service Co. almost simultaneously with the sales for those purposes? Answer. Yes, sir. Question. On July 1, 1929, the Securities Co.'s record recorded receipts from Cities Service Co. of what face amount of these debentures? Answer. $693,000 face amount at a cost of $606,677.15. There were sold on the same day identically the same amount to the sinking fund for $623,700 or a profit of $17,022.85. Examiner BENNETT. We will take a recess of 10 minutes. (At this point a recess was taken, after which proceedings were resumed as follows:) By Mr. HEALY: Question. I want to be sure I understand this transaction to which you have just referred. You say that on July 1, 1929, Securities Co. received from the Cities Service Co. $693,000 face amount of these debenture 5's of 1958 at a cost of $606,677.15. Do you say that? Answer. Yes, sir. Question. You say on the same day the Securities Co. sold these bonds to the trustee of the sinking fund established under the indenture pursuant to which the Cities Service Co. issued these bonds at $623,700? Answer. Yes, sir. 102777-34-pt. 53 Question. This amount represented a profit to the Securities Co. of what amount? Answer. $17,022.85. Question. On October 1, 1929, did the Securities Co. receive $1,620,000 face amount of these debentures from the Cities Service. Co.? Answer. Yes, sir; at a cost of $1,418,206.32. Question. What did it do with $1,616,000 face amount of these debentures? Answer. On approximately the same date that amount was delivered to Henry L. Doherty & Co. account Employees' Subscription 1929 Plan for $1,414,000 proceeds, or at a profit of $7,756.80. Question. On November 6, 1929, did the Securities Co. receive more of these debentures from the Cities Service Co.? Answer. Yes, sir. It received $297,500 face amount of them at a cost of $260,442.21. Question. What did it do with them? Answer. It sold them on the same and following day to Cities Service Oil Co. of Ohio for $263,287.50 or at a profit of $2,845.29. Question. On October 6, 1930, what of these debentures did the Securities Co. receive from Cities Service Co.? Answer. It received $1,816,000 face amount of them at a cost of $1,332,375. Question. Two days later what did it do with them? Answer. Sold them back to Cities Service Co. or sold back to Cities Service Co. $1,816,000 face amount of these debentures for $1,498,200. Question. On the turnover of $1,615,000 of these debentures, did the Securities Co. make either a gain or a loss? Answer. No, sir. Question. On the remaining $201,000 face amount included in this turnover, how was it? Answer. The Securities Co. counted a profit of $16,235.04. Question. Now, we turn to the subject of the Securities Co.'s participation in marketing the debenture 5's of 1963. These are 5 percent debentures of Cities Service Co., due in 1963. On November 1, 1928, did the Cities Service Co. sell certain of this new issue to Harris Forbes and Halsey Stuart & Co.? Answer. Yes, sir; it sold $30,000,000 face amount of them to those two companies. Question. Those debentures were dated when? Answer. They were dated November 1, 1928. Question. They were to mature when? Answer. On November 1, 1963. Question. At what price were they sold to Harris Forbes & Co. and Halsey Stuart & Co.? Answer. The price to those firms was 92%. The price to the investing public by those firms was 97%1⁄2 and interest. Question. Did Halsey Stuart & Co. and Harris Forbes & Co. constitute a purchasing syndicate? Answer. Yes, sir. Question. Did they also get together a distributing-group syndicate out of their respective clienteles of investment retailers? Answer. So I conclude. Question. On what do you base that conclusion? Answer. Upon the fact that the Securities Co. was a participant in the distribution. Question. Was there a syndicate agreement made between the Cities Service Co. on the one hand, and Harris Forbes and Halsey Stuart Co's., on the other? Answer. Yes, sir. There was such a syndicate agreement dated October 16, 1928. Question. Did it provide for the services of Cities Service Securities Co. or Henry L. Doherty & Co. in supervising and marketing or facilitating the marketing of the debentures? Answer. No, sir. Question. Did the Securities Co. undertake responsibility for marketing a certain amount of the debentures? Answer. Yes, sir; it did. Question. Did these debenture 5's of 1963 carry what is called in your report a nondetachable option warrant? Answer. Yes, sir. Question. What rights did these confer upon the holders of the debentures? Answer. An option warrant conferred upon the holder of each $1,000 debenture certain privileges of subscribing for Cities Service Co. common stock at certain prices specified in the warrant. The number of shares of stock that the debenture holder might subscribe for was 15. The price during the first 6 months was $72 per share. Question. Up until such time as the holder of a debenture exercised his option, what did the market price of his debenture reflect? Answer. It reflected not only the value of the debenture as an investment, but also the value of the option warrant feature. Question. What effect upon the value of the debenture would the exercise of the option privilege carried by a debenture have? Answer. The exercise of the option privilege would naturally have the effect of decreasing the market value of the debenture by taking out of it the value of that option privilege. Question. As a result of this, did there come about a difference between the prices of these debentures with warrants attached and the prices of the debentures without warrants or ex-warrants? Answer. Yes, sir. Question. Did the Securities Co. deal in debentures with warrants attached and debentures ex-warrants? Answer. Yes, sir; even purchased debentures with warrants attached and exercised the warrant privileges, thus converting them into the debentures ex-warrants. Question. However, these facts made it necessary in your presentation to summarize separately the Securities Co. transaction in debentures with warrants attached and its transactions in debentures without warrants? Answer. Yes, sir; it was necessary to make those separate classifications in the text table that summarizes the data. Question. In your presentation of the facts relating to the Securities Co.'s participation in the marketing these debenture 5's of 1963, did you classify the purchases with reference to the source thereof or the purposes thereof? Answer. Yes, sir; I did. Question. What do the so-called "market purchases" represent? Answer. They represent purchases made over the counter and on the organized exchange; mostly on the organized exchange. Question. What is meant by purchases said to be made from syndicate managers? Answer. Those are the purchases made by Securities Co. to represent its participation as a member of the distributing group and they were purchased from the managers of the syndicate who took the $30,000,000 block of debentures at 92%. Question. Does it appear that $1,600,000 face amount of these debentures were purchased by the Securities Co. from a member of the syndicate and that they were also purchased to represent the Securities Co.'s participation as a member of the distributing group in the marketing of the debentures? Answer. That is correct. Question. In your presentation, how are the sales classified? Answer. The sales are classified with reference either to the purpose of the sale or the channel or channels through which the sales were effected. Question. What do the so-called "syndicate sales" represent? Answer. These represent in the case the sales made by the Securities Co. as a participant in the syndicate distributing group. Question. Do you know through what channels the Securities Co. effected these sales? Answer. I understand that they were effected through those channels that are classified as regular; that is to say, they were effected through the securities salesmen of Henry L. Doherty & Co. and by other people connected with the group of companies who were authorized to make such sales for commissions; also, they were sales over the counter. Question. Were any sales of these debenture 5's of 1963 recorded under the classification regular and trading until after the syndicate sales had been completed? Answer. No, sir. Question. You have told us that the Cities Service Co. sold the entire block of these debentures to the syndicate at 92%1⁄2 and that the syndicate offered them to the investing public at 97%1⁄2. You have told us that the Securities Co. purchased $1,600,000 face amount of these debentures from a member of the syndicate. What did the Securities Co. pay for this $1,600,000 face amount? Answer. $1,560,000 or an average of 97%. That is, the Securities Co. obtained these debentures from the syndicate managers at the public-offering price, which was 5 points above the price to the syndicate managers themselves. Question. Did the Securities Co. receive any part of the commissions payable to the syndicate distributive group? Answer. The company's representatives stated that the Securities Co. received $32,000 as its distributive share of the commissions payable to the syndicate distributor's group; also that Henry L. Doherty & Co. participated for account of the Securities Co. in the banking and purchasing group and paid its share of the profits, $40,000, to the Securities Co. The latter's syndicate earnings and expenses account records the $32,000 and records $16,000 and $24,000; it also shows a balance after deducting expenses of $64,378.84, which was credited to profit and loss. Question. I take it, then, that the records of the Securities Corporation bear out the statements made by the representatives that you have just quoted? Answer. Yes, sir. Question. Indicating the receipt of the $32,000 out of the commissions payable to the syndicate and $40,000 from Henry L. Doherty & Co., representing that amount turned over by Doherty & Co. to the Securities Co. and being a share of the profits made by Henry L. Doherty & Co. through participation in the distribution? Answer. That is correct. Question. Did the Securities Co. sell any of these debentures before the public offering day? Answer. Yes, sir. They sold $1,695,200 face amount of them during October 1928, for $1,652,820 proceeds. Question. Was this sale at 971⁄2 percent of the principal amount? Answer. Yes, sir. Question. Was this sale made by the Securities Co. prior to the public offering day? Answer. Yes, sir. Question. Did the Securities Co. prior to the public offering date sell an amount of these debentures that was in excess of the amount that it took from the syndicate managers as a participant in the distributing group? Answer. Yes, sir. It sold $95,200 face amount of them in excess prior to the public offering date. Question. That excess was what excess? What did it represent? Answer. Well, it was the excess of the quantity of the debentures sold by the Securities Co. over the quantity that it took from the syndicate managers to represent its participation in the distributing group. Question. When was the syndicate terminated? Answer. It was terminated as of the close of business on December 3, 1928. Question. Up to that time, what face amount of these debentures had Securities Co. sold? Answer. $1,763,000 face amount for $1,719,245 proceeds or an average of a little over 971⁄2 percent of face. Question. Was $1,600,000 face of this amount the debentures that it had obtained from the syndicate managers? Answer. Yes, sir. Question. Was the Securities Co. able to get either profit or loss on the resale of the $1,600,000 face amount of debentures? Answer. Not on the face of its books. Question. On the remaining $163,000 of its sale it counted a loss of how much? Answer. $3,932.49. Question. When did the Securities Co. begin to make sales for the syndicate account of these debentures? Answer. It commenced on October 19, 1928, on which date the Securities Co. sold $1,119,000 face amount of those debentures. Question. In October 1928 did the Securities Co. begin the purchase of these debentures on the organized exchange? |