APPENDIX C

Statement of R. E. Crummer, with attached exhibits.

R. E. CRUMMER,

South Virginia Road, Reno, Nevada, January 4, 1947.

MR. CHAIRMAN AND MEMBERS OF THE U. S. SENATE SUBCOMMITTEE ON THE JUDICIARY. GENTLEMEN: This statement relating to the activities of the representatives of the Securities and Exchange Commission and Post Office Department during their purported investigation of public financing and refinancing by Florida taxing units, is submitted in compliance with your written request therefor.

The so-called investigation, as I look in retrospect, turned out to be a singletrack affair; the writer, his associates, companies bearing his name and their respective employees and investor-customers being the sole attraction.

The methods employed by the agents of the SEC and Post Office Department to gain information would, by comparison, make Sherlock Holmes and the FBI lock like pikers. Their Nation-wide hunt grew in intensity from month to month, reaching its peak in July and August 1944, when they (the agents) gathered at Topeka, Kansas, to make the kill. To some extent they were successful, for I, and several of my associates and employees who had been marked as the coyotes for slaughter, were, on August 4, 1944, indicted by a Federal grand jury of Kansas. Publicity, from coast to coast, followed; and, although the Department of Justice (nearly two years later) ordered a dismissal of the indictments, irreparable damage had been sustained by all those named as defendants. The agents of the SEC and Post Office Department had accomplished their objective, in part at least, but, they left in their wake the taxing units of a sovereign State the victims of a municipal credit monopoly, the like of which never before existed in the field of public finance. Its weight is felt and its influence reflected in each and every new or refunding undertaking in Florida. The credit of the taxing units of Florida has suffered to such proportions, as a result of the activities of these Federal agencies, that a conservative estimate of the dollar damage already sustained would be at least $15,000,000.

The extent of my Florida activities covering a period of twenty-five years consists of the purchase, by competitive bid, of approximately $50,000,000 par value of taxing units' bonds in the '20's and the distribution of same to approximately 5000 investors; assisting in formulating legislation (State and Federal) to aid in the solution of the problems presented by the defaults, beginning in the late '20's, including the Gas Tax Acts, State Board of Administration Act, and, the Federal Municipal Bankruptcy Act, as amended; financing necessary economic and financial surveys; financing constructive litigation; defending obstructive litigation; designing a general refunding plan which was, in principle, adopted and has been used by more than 200 taxing units in refinancig approximately $170,000,000 par value of bonded indebtedness held by approximately 15,000 investors.

The companies with which I was identified in these undertakings were the Brown-Crummer Investment Company (1920-1938) and the R. E. Crummer & Company (1934-1942). These two companies were separate legal entities. They are frequently confused; referred to as interchangeable or one the successor to the other-this was not the case. The third and only other company to do business in Florida in which my name appears is the Crummer Company. I have never owned stock in this company and have never served as a director or officer of it. This latter company is likewise confused with the other two, despite the fact that it bears no relation to either of them.

My participation in the public financing and later refinancing of the aggregate debt of about $500,000,000 (of which approximately 80% was in default at the peak of distress), brought me in contact with practically all of the prominent personages interested in Florida, such as political figures, businessmen, bankers, utility executives, newspapermen, lawyers, farmers, capitalists, labor leaders, etc. 1000

They were cognizant of the difficulties occasioned by the catastrophic defaults. They were eager to be identified with a plan which would restore the credit of the taxing units and retain the confidence of the creditors, with one outstanding exception; viz, Mr. Edward Ball, the active head of the Alfred I. du Pont interests. Mr. Ball was the number one dissenter from the beginning of the financial troubles in Florida. He opposed the enactment of the gas-tax law (in 1920 and 1931), the State Board of Administration Act, the Federal Municipal Bankruptcy Act, as amended, while the various measures were up for consideration by the respective legislative bodies and later carried his fight to the courts. He opposed the Crummer refunding plan before the governing authorities, and failing there, carried his fight to the courts. He would occasionally, and usually unsuccessfully, bid on bonds. He extended financial aid to competitors of R. E. Crummer & Company and the Crummer Company; but, through the years he was a consistent loser, until a friendly administration moved into the State House in 1941. Then, and not until then, did the complexion change. It marked the beginning of the municipal credit monopoly.

In 1943 and again in 1944, the Florida Securities Commissior without legal justification and without a hearing, denied the Crummer Company a license to do business. Mr. Ball, as president of the St. Joe Paper Company, had written to Ed Larson, State treasurer and a member of the commission, opposing the application for a license. A copy of the purported letter dated January 14, 1943, is hereto attached. The matter was presented to the Supreme Court of Florida by the Crummer Company. The court, by peremptory writ, ordered the Florida Securities Commission to issue the license. The extent of the activity of the agents of the SEC and Post Office Department in opposing the issuance of a license to the Crummer Company is not known to me. However, I do know that these agents were frequently in contact with the three members of the Florida Securities Commission and Mr. Ball.

It has been said that "hatred begets hatred," and while I can honestly say I never permitted my feelings to become that severe, I certainly had no reason to be kindly disposed toward those who were determined to destroy me financially and otherwise. Legitimate competition assures honest dealing in the field of municipal finance. Without it, taxing units become the prey and victim of selfish interests. For over twenty years, my companies had provided this essential competition through the thousands of investor-customers who were willing to and actually did provide the taxing units of Florida with the most economical credit available to them. It was necessary for the du Pont interests to eliminate this source of credit in order to gain the dominant position in Florida public finance. To accomplish the objective, the Crummer organizations must be discredited, and, if possible, completely annihilated—this Mr. Ball wanted. The fact is, I would frequently hear of his threats to run me out of the State, and of his invitation to other bond dealers to join him in such an effort. Despite his financial resourcefulness, however, his efforts were nugatory until the Federal agents moved in. The Florida Securities Commission, the SEC, the Post Office Department, the criminal indictments, and Mr. Ball and his satellites were too much for me. I was forced to withdraw, and as a result, a major portion of the most economical source of credit withdrew its credit to and interest in Florida's taxing units.

Have the activities of the agents of the SEC and Post Office Department "crippled, hampered, or rendered ineffective the Municipal Bankruptcy Act, as amended"? And, have their activities unfairly resulted in undermining the credit of the taxing units of Florida? I answer both questions in the affirmativedefinitely yes, because:

. (1) As a direct result of the activities of the agents of the SEC and Post Office Department, my associates and I have been, for all practical purposes, excluded from the field of public finance in Florida.

(2) Our exclusion has impaired the flow of the most economical source of credit to the taxing units of Florida.

(3) This credit (2 above) was supplied by thousands of investor-customers, and you cannot eliminate such a widespread source without impairing the borrowers' opportunity to obtain funds at the lowest possible rate.

(4) Our exclusion has enabled the du Pont interests in Florida to occupy the dominant position as the source of financial credit to the taxing units of Florida. (5) The terms of credit from the du Pont interests are largely determined by their over-all policy at the time. A recent example: They, through Mr. Ball, agreed within the last forty-five days to extend credit to a proposed public improvement in the Miami area at a 44-percent rate. Even though the payment

of principal and interest is restricted to income from the public improvement, the 44-percent rate is excessive and unprecedented by comparison.

(6) Since our exclusion, the du Pont interests and their satellites have acquired approximately 75 percent of the public bond offerings for which they submitted bids-before, they secured less than 25 percent.

(7) The du Pont interests are not in sympathy with the Federal Municipal Bankruptcy Act, as amended, as demonstrated by their opposition to its enactment and their attack upon the act, as amended, in the Supreme Court of the United States. Hence, so long as they remain the dominant factor in public financing in Florida, the act, as amended, will be impotent.

(8) Letters from a Post Office inspector and oral statements by him and SEC agents to holders of Florida taxing units' bonds caused many investors to decide against involving their holdings in proceedings under the Federal Municipal Bankruptcy Act, as amended.

(9) The examination and criticism of refunding programs by SEC and Post Office Department agents, which program had been previously passed upon and approved by the Federal courts under authority of the Federal Municipal Bankruptcy Act, as amended, have created doubt in the minds of many bondholders regarding the finality of the Federal court decisions.

(10) As a result of the SEC and Post Office Department's investigation of the Crummer companies, many of their large accounts (in volume) of Florida taxing units' securities have disposed of their entire holdings; other large accounts (in volume) have declined to involve their holdings in proposed refunding programs; and nearly all of them have refrained from purchasing new offerings. (The Central Life Assurance Society (Mutual) of Des Moines, Iowa, and the Guarantee Mutual Life Company of Omaha, Nebraska, being among the most influential and prominent investors through the years, come within one or more of the categories mentioned above.)

(11) The methods employed by the agents of the SEC during their investigation preventing the Crummer Company from functioning in a normal manner, thereby depriving Florida taxing units and the investing public of the services of the largest investment dealer of Florida taxing units' securities.

(12) The publicity alone which the SEC gave to the finding of the criminal indictments cast serious clouds of suspicion upon the value and safety of securities of Florida taxing units, resulting in a complete withdrawal of substantial lines of credit.

(13) Numerous investors in securities issued by taxing units of Florida have informed me that they will not invest new funds in Florida so long as agents of the SEC and Post Office Department are permitted to run at large under the guise of routine investigation.

(14) I have checked the terms, interest rates, etc., on the refinancing of thirty Florida cities accomplished since 1941. The principal amount involved was approximately $76,925,000. I have taken into account the more attractive interest rates, from 1941 and following due largely to generally improved conditions and the amendment to Florida's Constitution earmarking a portion of the gas tax for the support of certain securities of Florida's taxing units. It is my opinion that R. E. Crummer & Company or the Crummer Company could have arranged credit accommodations for this volume at an average interest charge of one percent per annum less than that actually charged. However, the activities of the SEC and Post Office Department agents in consort with State officials and competitors foreclosed the creditor accommodations formerly developed by R. E. Crummer & Company prior to 1941, which creditor accommodations would have been willing, under normal conditions, to extend their credit through the Crummer Company doing business at the time. I unhesitatingly express the opinion that the increased interest charge thus forced upon the taxing units of Florida on the aggregate volume of indebtedness refunded since 1941, over and above the charges which the taxing units would have been obligated to pay if the Crummer Company had been permitted to function normally, is in excess of fifteen million dollars. A few specific illustrations are herein identified: (15) An emergency refunding under the Crummer plan of the Ft. Pierce, Florida, debt of approximately $3,500,000 was authorized in 1937. The program was completed under the Federal Municipal Bankruptcy Act. The price of the securities increased from about 50 cents on the dollar in 1937 to 95 cents on the dollar in 1944. The average interest charge, per annum, from 1937 to July 1945, was less than 22 percent, but would increase unless the city undertook and accomplished a permanent refunding. A permanent refund

ing was being considered when the agents of the SEC became active in the Ft. Pierce refunding program. The SEC activities precluded the Crummer organization from taking part in the proposed permanent refunding. The permanent program was awarded to a Crummer competitor and at a noncallable rate which will eventually cost the taxpayers of Ft. Pierce about $700,000 more than they would have been called upon to pay had the investors in Ft. Pierce's original debt been able to negotiate through the Crummer organization. Moreover, the Crummer customers have disposed of their Ft. Pierce holdings and have refrained from purchasing the permanent bonds of 1945 even though they are offered at an interest yield which exceeds the yield provided in the emergency refunding from 1937 to July 1, 1945.

(16) In June 1942 the city of Wauchula, Florida, attempted to settle its ten-year default by entering into a contract with R. E. Crummer & Company. In due time the contract was fulfilled, and the plan of composition approved by the Federal Municipal Bankruptcy Act, notwithstanding the fact that the pernicious interference by the SEC agents and a Post Office inspector in league with State agents made it vastly more difficult to complete the undertaking. The suspicions aroused and doubt cast upon the operation by these agents were undoubtedly a contributing factor to the unsatisfactory performance by the city under the contract. On November 20, 1946, the city of Wauchula authorized the refunding of all the indebtedness now outstanding under the June 1942 contract. Holders of a substantial amount of the original bonds (approximately $500,000 par value) who voluntarily participated in the 1942 refunding operation at the solicitation of R. E. Crummer & Company, are cognizant of the fact that Federal and State agents had actually or threatened to interfere with the 1942 refunding operations to such an extent that they are not now interested in any new or different credit accommodations which the city of Wauchula may be seeking through any source. They have concluded that if ever the governmental agencies which interfered with and cast reflections upon their attempt to help Wauchula in 1942, decide to substitute and follow a policy of constructive cooperation for the existing policy of destruction and unwarranted interference, they may be willing to consider new credit arrangements, but not until then. As a consequence of this decision on the part of holders of approximately $500,000 par value of the outstanding indebtedness, the city of Wauchula will be precluded from obtaining the benefits contemplated by the November 20, 1946, contract, which may mean the imposition of approximately one million dollars additional debt service tax liability against the taxpayers, which threat of this potential increased liability is wholly chargeable to the activities of and interference with the refunding transactions in which the city of Wauchula has engaged in the past by SEC and Post Office Department agents.

(17) Another instance similar to the Wauchula dilemma involves the city of Avon Park, Florida, and its creditors. In October of 1946 Avon Park entered into a contract to refund all of its outstanding bonded indebtedness. However, as is true with Wauchula, holders of a substantial amount of the bonds to be refunded have indicated that they will not run any chances by committing their holdings to the proposed refunding. They base their decision upon past events which can be briefly stated as follows: In 1930 their original bonds defaulted. In 1937 the city authorized R. E. Crummer & Company to refund about $1,235,000 par value of the original debt. The Federal Municipal Bankruptcy Act was invoked. Mr. Edward Balls' personal attorney, acting for an insurance company which opposed the proposed terms of settlement, contested the plan. The contest ran the gamut of the courts, finally reaching the Supreme Court of the United States. The highest court reversed all the inferior courts. The plan failed. Litigation followed by several bondholders to enforce their claims. By 1942, an increased tax burden of more than $250,000 had accrued. Again the city appealed to R. E. Crummer & Company for help, as shown by the city's resolution of April 22, 1942. R. E. Crummer & Company accepted the undertaking by, in effect, reinstating the 1937 contract, but was compelled to add the more than $250,000 accrued liability, which amount would have been saved had the 1937 contract prevailed. The 1942 contract succeeded mainly because the litigant of the 1937 undertaking, an Indiana insurance company, joined in the 1942 undertaking. Despite the equitable success of the 1942 program, all the agents (State and Federal) jumped with all fours on the Avon Park refunding. The decision of the Supreme Court which caused the failure of the 1937 plan then became a "household word" with the SEC agents and the Post Office inspector, notwithstanding the generally recognized success of the

subsequent refunding plan of 1942. The activities, charges, criticism, etc., of these agents relating to the refunding operations in which the city of Avon Park and its creditors have heretofore engaged, have caused a substantial amount (in volume) of Avon Park creditors to conclude that they will not participate in the extension of any new or different credit accommodations to this city, even though it may be that the improved financial status of Avon Park and present money market would ordinarily afford Avon Park more favorable terms, except for the fact that its credit opportunities have been impaired by governmental interference, and the city will inevitably be denied the benefits contemplated by the October 1946 contract.

Personally, I favor impartial and competent regulation of dealers in municipal securities and I have so stated, publicly, many times. Proper and effective regulation would have been of immeasurable value and assistance to the investors and taxing units of Florida. To illustrate:

(a) R. E. Crummer & Company, while undertaking a refunding of a certain taxing unit, would in aid thereof issue definite and accurate statistical data to the investing public which was primarily interested in that particular problem. Simultaneously a du Pont satellite would issue and distribute a "bid and asked" quotation sheet covering a long list of securities (including the taxing unit then involved in an R. E. Crummer & Company refunding operation) which was given such wide and frequent circulation that the investing public generally accepted the quotations as being sufficiently reliable that practically all sales during this period were influenced thereby, and many misinformed and discouraged investors were thus induced to liquidate their holdings at from 25% to 50% of the par value thereof, while all those participating in the refunding programs sponsored by R. E. Crummer & Company ultimately realized 100% of principal, plus a reasonable rate of interest. If honest, impartial, and competent regulation had been present during the long period when these "bid and asked" quotation sheets were being released, it is most unlikely that investors holding less than 10% of the outstanding bonds of Sumter County, Florida, would have been influenced to sell such bonds to interests associated with the du Pont interests at about thirty cents on the dollar in preference to accepting the refunding program sponsored by R. E. Crummer & Company which ultimately returned all other holders one hundred cents on the dollar. The tremendous losses thus inflicted upon the bondholders who liquidated at such heavy discounts, and the taxpayers of Sumter County who were denied the benefits of the refunding program for neary five years, and the great risk to which the holders of approximately 90% of the debt were subjected during this long period of enforced delay and uncertainty would have been avoided.

(b) During the very time the "witch hunting" of the SEC and Post Office Department agents against the Crummer companies was at its height, various Florida officials were sponsoring a refunding involving bonds of the Everglades drainage district in Florida. Upon completion of same, the holders of the original securities realized about 33% of their rightful claims, and the dealers and attorneys participating in the transaction realized more than one-half million dollars as so-called expenses and profits. If impartial and competent regulation had been present, the holders of the original securities would have been advised that (on the basis of the terms which had applied to every refunding program completed by R. E. Crummer & Company over the preceding ten years and involving more than $170,000,000 par value of securities, they were entitled to approximately ten million dollars in excess of the sums realized, and at not exceeding a cost of more than one-third of the amount paid as expenses and profits.

(c) Also, while these same Federal agents were spreading acrimonious propaganda about Crummer's refundings, methods of doing business. etc., among the investing public, and were being scornfully insolent to those investors and governing authorities who dared to even suggest that their dealings with the Crummer organization had been entirely satisfactory, a real scandal in municipal financing was in the making. The participants include State officials and one of the attorneys for the du Pont interests. The victims are Orange County, Florida, taxpayers. The plan, as finally consummated, involved prematurely the refunding of a portion of the Orange County debt, and resulted in unconscionable profits for probably the most unwarranted refunding transaction in which any county in Florida ever engaged.

Impartial regulation, supported by alert and effective enforcement, would have prevented this nefarious scheme.

(d) In 1939 and 1940 the du Pont satellites obtained contracts from the governing authorities of Pinellas County and the city of Winter Haven. These