Q. And that was in Chicago or Orlando?-A. As I recall it, it was on two occasions I remember one occasion distinctly in Chicago.

Q. All right.

Now, believe you mentioned that you went to Orlando subsequent to December 4, 1942-that is, November. When was it?-A. November

to December, Mr. Moore.

Q. Of 1942?—A. 1942. That is correct.

Q. I wasn't too clear as to whether you went before or after the Commission's order was handed down.-A. It was after.

Q. It was after.-A. That is right.

Q. At that time did you advise Mr. Crummer what the nature of your investigation now was?-A. I did not, Mr. Moore. But I am almost certain that Mr. Brown did.

Q. In other words, you didn't talk to Mr. Crummer while you were there?— A. Yes. I talked to Mr. Crummer, but it is the policy and practice of our Commission to have all legal phases covered and referred to our attorneys in charge of the case and, therefore, I permitted him to take all such steps.

Q. In the course of your investigation, did you feel that it was necessary to receive any statements from Mr. Crummer or Mr. Lassiter regarding the matters which you were investigating?-A. We did on various occasions have verbal discussions about the investigations, but I don't recall that we ever took a signed statement from them or asked them for a signed statement, but it was discussed thoroughly, on various occasions.

Q. You believe your investigation was fair, Mr. Reutell? A. Yes. I do. Q. Do you believe that you got all of the facts and went to the best source of all of the evidence? A. Yes; in connection with the programs we investigated.

Q. In other words, you don't believe it was a one-sided investigation?-A. Absolutely not.

Q. Do you think the investigation at all reflected upon the refunding contracts which are in existence today between various taxing units of Florida and all types of bonding companies?—A. No.

Q. Let me ask you a hypothetical question. Assuming the facts of the Citrus County case existed between three other people and instead of the value of the new bonds going up it went down, would that, in your opinion, have changed the type of investigation or the findings of the investigators—would that make any difference-that is, in the findings of the investigators in this case?

Mr. RUBIN. I would like to say, Mr. Moore, that so far as the question calls for legal knowledge, I presume that the examiner appreciates the fact that the witness is not a lawyer.

Mr. MOORE. Well, I am asking him something within the scope of his knowledge; that is, would it affect his investigation if he were investigating the case. Mr. RUBIN. That is right.

The WITNESS. I might answer it this way, Mr. Moore

By Mr. MOORE:

Q. In other words, would that be a pertinent fact?-A. I might answer it this way. I investigated the Citrus program and I believe I understand the operations of the first refunding program as well as the second. And in the first refunding program, which was effected in 1933, 1934, they had somewhat similar arrangements, similar contract, and the bonds were selling under par and the bonds were. exchanged and then sold; and under the second program, I think you will find that the arrangements, as well as the contract, provide that they could always exchange the bonds.

Q. Which contract are you referring to now, the contract between the county and the bondholder, or the contract between the fiscal agent and the county?— A. Between the fiscal agent and the county.

Q. How about the contract between the bondholder and the county, is that important?-A. I don't recall of any contract between the bondholder and the fiscal agent.

Q. I said the bondholder and the county.-A. And the county? Pardon me, sir. Q. Is that important?-A. Well, that would all depend whether it is a callable bond or not.

Q. It was a callable bond.-A. To my judgment, the position-I presume you are talking about R. E. Crummer and Company, Mr. Moore?

Q. You mentioned Citrus County and I am just following along with you now.-A. All right. Crummer, under this arrangement, was in a position where he could not lose. He was getting a fee as compensation for his services and could always exchange these bonds regardless of the price.

Mr. RUBIN. May I suggest, Mr. Reutell, that you are probably getting quite away off from Mr. Moore's original question and we

Mr. MOORE. No. This line of answers is fine. I like it. That is fine with me, unless you have some objections in letting him continue.

Mr. RUBIN. I am not objecting to the answers. I am trying to point out that your question had to do with a hypothetical situation and we are drifting here into a discussion into some of the facts in the Crummer case which no doubt will come up in the criminal trials, and for that reason may not be appropriate to be answered here.

By Mr. MOORE:

Q. Well, the hypothetical case that I asked you was whether the value of the bonds would make any difference in your investigation, that is, the value of the new bonds. In other words, instead of selling at 106, if they sold at 95, in a hypothetical case, assuming the same conditions or same circumstances.-A. You mean, that if Crummer had taken a loss?

Q. That is right.-A. Rather than a profit, without disclosing it? I imagine that is true.

Q. It is material?—A. That is right. I might add-well, I had better not. It pertains to our matter that is pending before the courts and I prefer not to answer it.

Q. I regret exceedingly, Mr. Reutell, that we can't discuss the merits of the case, because I think they go to the heart of this resolution very definitely, in as much as other refunding contracts are in existence today and other municipalities are thinking about entering similar contracts.-A. I appreciate that.

Mr. RUBIN. I think I perhaps ought to state for the record that our interest in this investigation is not so much what was contained in the contracts as what was told to the investors and whether or not there was any deception or fraud on the investors, and I think that the interrogation heretofore had indicates quite clearly that the whole thrust of our investigation was with respect to the fraud on the bondholders, and the witnesses, I believe, have answered that they did not go into comparisons of the contracts involved in the Crummer case with other contracts of other companies, other issues, and because of the nature of our investigation and the fact that they are involved in the criminal case, I would think you, Mr. Moore, clearly understood, as we have been going along, and appreciated why we preferred at this time not to disclose evidence which might hurt the Government's case.

Mr. MOORE. Thank you very much, Mr. Reutell.

That is all.

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 look 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 affirmative— definitely 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 2 percent, but would increase unless the city undertook and accomplished a permanent refunding. A permanent refund