Activities of the Securities and Exchange Commission and the Post Office Department in Florida

Company, Oklahoma City, Oklahoma. It complains of the "misleading" nature of a Crummer circular and points out that the writer had returned his bonds to the Crummer Company but had been unable to secure reimbursement for interest covering the period during which the bonds were in his possession. The letter did not urge investigation or prosecution, but merely referred the facts to us for whatever action we deemed appropriate. It will be noted that this letter was received after our formal investigation had commenced. A copy of our reply to this letter will also be found in the file referred to above. No further communications were received from Mr. Johnston in this regard. Insofar as investors and other persons interviewed by representatives of the Commission may be considered to be "complainants," all communications from them and memoranda relating to them are to be found in the various files heretofore sent to you.

4. Copies of memoranda or reports of all conferences or conversations of SEC representatives with any of the following; and copies of all communications received from and sent to any of them:

Walter P. Fuller, Edward Ball, Clyde Pierce, Giles Patterson, Thomas B. Adams, E. J. Mansfield, or any other private individuals residing in the State of Florida; J. Edwin Larson, J. Tom Watson, or any other officials of the State of Florida.

Copies of any such documents will be found in the files already furnished you. Your specific attention is invited to the following files in this connection:

A. Report of investigation. Sent to you on June 21, 1946.

B. R. E. Crummer and Company and Brown-Crummer Investment Company, investigation file No. C-1112-A, sent to you on June 24, 1946.

C. R. E. Crummer and Company, correspondence file No. C-1112, Chicago regional office, volumes I, II, III, sent to you on June 24, 1946.

D. Miscellaneous data obtained from the Post Office Department (Chicago regional office) sent to you on June 26, 1946.

E. Miscellaneous memoranda of interviews (Chicago regional office) sent to you on July 1, 1946.

F. File No. C-1112, R. E. Crummer and Company (Chicago regional office) containing memoranda of interviews. Sent to you on July 2, 1946.

G. Letter to you, dated July 30, 1946, with which were enclosed the following: 1. Memorandum of interview with Senator-elect Spessard L. Holland, former Governor of the State of Florida, dated April 19, 1944.

2. Memorandum of interview with Edward Ball, dated April 14, 1944.

3. Memorandum of interview with Giles Patterson, dated April 21, 1944.

H. The following material sent to you under date of September 9, 1946:

1. Copies of records obtained from the clerk of Panama City.

2. Copies of records obtained from the State board of administration, Talahassee, Florida, re: R. E. Crummer and Company.

3. General file re: Okeechobee County, Lee County, city of Wauchula, Citrus County, Panama City.

4. Additional miscellaneous data obtained from the post office inspector.

5. File containing information regarding the employees of R. E. Crummer and Company.

6. Memoranda of interviews with officials of Panama City and Citrus County. 7. Memoranda of interviews and records relating to J. W. Shands.

I am advised that Walter P. Fuller, J. Edwin Larson, and J. Tom Watson were at no time interviewed by representatives of this Commission in connection with the case. E. J. Mansfield is, of course, the postal inspector who conducted the investigation of the Crummer Company for the Post Office Department. You will note that there are certain specific files referred to above which relate to that Department.

5. Copies of reported testimony or statements given to the SEC by any of the persons listed in item 4 above.

In this connection, see the answer to item 4 above and the various files there referred to. A copy of the transcript of testimony taken in the case was furnished to you on June 26, 1946. (See file No. C-1112-C.)

6. Copies of all lists of informants submitted to representatives of the SEC. There were no informants in this case; nor were any lists of such informants ever furnished to the Commission. If however, by "informants" this question refers to any persons furnishing any information to the Commission in connection with the investigation, every person interviewed, including employees of the Crummer organization, would fall within that category. In that regard, I direct your attention to the report of investigation together with the various files here

tofore sent to you which contain the names of all persons interviewed during the course of the investigation. Those files also will reflect any exchange of correspondence between this Commission and the Post Office Department regarding possible witnesses to be interviewed in the case.

7. Copies of all internal memoranda of the SEC concerning authority to use subpoenas, including—

(a). All memoranda from the regional staffs requesting such authority. (b). All memoranda of the Philadelphia staff with respect to such authority. (c). All orders of the Commission authorizing use of subpenas. Pursuant to the authority conferred by section 19 (b) of the Securities Act of 1933 and section 21 (b) of the Securities Exchange Act of 1934, the Commission's formal order of investigation, dated December 4, 1942, authorized certain designated staff members to issue subpoenas, administer oaths, and take evidence in the course of the investigation. By supplemental order, dated April 7, 1943, an additional officer of the Commission was designated with like powers. Copies of these orders already have been sent to you. Since the subpoena powers contained in these orders covered all phases of the investigation, there was no necessity for any further orders in that regard nor for any further "requests" for subpoena authority.

As previously stated, the broker-dealer inspection reports of our Atlanta and Chicago regional offices were submitted to the Commission in connection with the staff request for the issuance of the order authorizing formal investigation. Any correspondence or memoranda relating to the presentation of these reports to the Commission and to any request by the regional staffs or the Philadelphia staff of the Commission for the issuance of the formal order of investigation and the order supplemental thereto will be found either in file No. 8-2 which was sent to you on June 26, 1946, file designated R. E. Crummer and Company, correspondence file No. C-1112, Chicago regional office, volume I, which was sent to you on June 24, 1946, or file designated G-1112-A sent to you on the same date. Copies of all Commission minutes in the case were sent to you on July 30, 1946.

8. Copies of any proposed criminal indictments prepared by private individuals.

None.

INFORMATION

How did the investigation commence?

(a). Who made the original complaint to the SEC?

As stated above, the Commission's investigation was not predicated upon any complaint made by or on behalf of a private individual. The investigation had its genesis in the broker-dealer inspection reports of the Atlanta and Chicago regional offices of the Commission which reflected the results of a routine inspection of the books and records of R. E. Crummer & Company which was registered with the Commission as a broker-dealer under section 15 of the Securities Exchange Act of 1934. Previous to that time the Post Office Department had notified us that they were conducting an investigaion of the Crummer Company. (b) What was the nature of the charges made in the complaint?

The broker-dealer inspection reports prepared by the Commission's staff contained information which, if true, tended to show that Brown-Crummer Investment Company and R. E. Crummer & Company had violated section 15 (c) (1) of the Securities Exchange Act of 1934 and section 17 (a) of the Securities Act of 1933, both of which provisions prohibit fraud in securities transactions. For more detailed information as to the contents of the broker-dealer inspection reports upon which the Commission's action was based, I refer you to those reports and to the summary of the contents thereof contained in the Commission's formal order of investigation dated December 4, 1942.

(c) Was it made by oral interview or was it submitted in writing or both? The broker-dealer inspection reports of the staff were submitted in writing and were discussed orally before the Commission.

(d) Was any written communication or any supporting document supplied? The broker-dealer inspection reports contained detailed schedules and analyses of the books and records of R. E. Crummer & Company.

(e) How many other complaints were made to the SEC? Describe each additional complaint in the same detail as called for with respect to the original complaint.

See answer to item 3 above.

(f) Names of all complainants and informants who personally conferred with any member of the SEC or the Chicago or Atlanta regional directors.

There was no "complainants" or "informants," as we understand those terms. Insofar as investors and all other persons interviewed by representatives of the Commission are considered to be complainants or informants, I refer you to the report of investigation which lists the majority of such persons and the various other files sent to you which contain the names of the other persons interviewed in connection with the case. Such report and files also will indicate the names of the Commission representatives with whom any such conferences or interviews were held. So far as we know or are presently able to determine none of such persons ever conferred personally with any member of the Commission or with the Chicago or Atlanta regional administrator regarding the case.

10. On what basis was the SEC investigation started?

(a) How many complaints were received before investigation was commenced? See answers to items 3 and 9 above.

(b) What was the nature of such complaints?

See answers to items 3 and 9 above.

See answers to items 3 and 9 above. We cannot speak with any certainty as to specific complaints which may have been made to the Post Office Department. (d) Was inquiry commenced informally before subpoena authority was requested from the Commission?

In accordance with the customary procedure followed by this Commission, inquiry was commenced informally before subpoena authority was requested from the Commission and before the Commission authorized formal investigation. This procedure is followed in order that the Commission, before it engages in a formal investigation which includes the issuance of subpoenas and the taking of sworn testimony, can have before it enough information to desmonstrate whether there is sufficient evidence of statutory violations to warrant the time and expense involved in such a formal investigation.

(e) On the basis of what information did the SEC staff request authority from the Commission to use subpoenas?

Request for formal order of investigation was based upon the information contained in the broker-dealer inspection reports of the Atlanta and Chicago regional offices of the Commission.

11. Did any of the original or early complainants continue to urge action by the SEC? If so, give the details of all conversations of these complainants with SEC representatives.

There were no complainants who urged action in this case. See item 3 above.

12. Relate and describe all conversations of SEC agents with any of the following:

Insofar as any conversations were had with such persons by agents of the Commission, reports of such conversations will be found in the files listed in our answer to item 4 above.

13. Name the persons listed in item 12 above who were introduced to the SEC, its representatives or agents by E. J. Mansfield.

It is impossible to state with any degree of certainty whether any of the persons listed in item 12 above were introduced to representatives or agents of this Commission by E. J. Mansfield. Since much of the investigation was conducted jointly with the Post Office Department, there were numerous occasions on which representatives of this Commission interviewed witnesses in the company of Mr. Mansfield.

14. Name the private individuals of Florida who, at any time, traveled with or accompanied agents of the SEC while they were conducting the investigation. None, so far as we know or are presently able to determine.

15. Name the private individuals of Florida from whom the agents of the SEC received suggestions, guidance, material, names of informants, etc.

None, except that various witnesses were interviewed and, of course, provided us with certain information and documents. The names of such persons and the information received from them is reflected in the report and other files heretofore sent to you.

16. Did a lawyer of the SEC draft the criminal indictments returned by a Federal grand jury of Kansas? Is so, name him.

As stated above in the résumé of the Commission's investigation herein, the United States Attorney at Topeka, Kans., requested the Department of Justice to authorize the appointment of members of the Commission's staff as special assistants to the United States attorney to assist in the presentation and trial of the case. Mr. Alexander J. Brown, Jr., an attorney of our Chicago regional office, was so appointed and in that capacity assisted the representatives of the United States attorney's office in the preparation of the case, including the drafting of the indictments. In addition, Mr. Thomas B. Hart, regional administrator of the Commission's Chicago regional office, and Mr. Robert T. Wright, assistant, regional administrator of that office, also assisted the United States attorney in that regard.

17. If proposed criminal indictments were prepared and furnished to the SEC by a private individual, name the author thereof and name the individual who delivered them.

No proposed indictments were prepared or furnished to the SEC by any private individual.

18. Name all private individuals of Florida who conferred with the SEC lawyer drafting the criminal indictments.

None.

19. Name the members of the Commission who authorized the issuance or orders for use of subpoenas.

Members of the Commission who authorized the issuance of the formal order of investigation, dated December 4, 1942, which included power on the part of designated staff members to issue subpoenas, were Ganson Purcell, chairman, Robert E. Healy, Edmund Burke, Jr., Sumner T. Pike, and Robert H. O'Brien, Commissioners. Members of the Commission who authorized the issuance of the supplemental order of April 7, 1943 were Ganson Purcell, Chairman, Robert E. Healy and Robert H. O'Brien, Commissioners.

20. How many representatives, agents, and employees of the SEC were used in the investigation.

(a) Give the names of each such representative, agent, and employee, his annual salary rate during the period of the investigation, and an estimate of the amount of time each such representative, agent, and employee spent on the particular case, including time before courts and grand juries.

SALARY COSTS

It is estimated that at various times the services of 16 employees of the SEC were used in direct investigation or in the preparation and review of briefs, reports, etc., as follows:

*These figures include overtime pay for the 44- or 48-hour workweek in effect at the time the salary costs were incurred.

5, 180 4,600

199.,23

(b) What was the total amount of expenses, other than salary, incurred in the investigation? Also give break-down into travel expenses, per diem, reporting services, etc.

During the period that hearings were held in connection with this investigation we were furnished stenographic-reporting services without cost under a contract then in effect for such services. Therefore, no amounts are chargeable to this purpose.

Printing of briefs $95.74

The estimated total cost of the case to this Commission is set forth below. We cannot ascertain the expenditures incurred by other governmental agencies or departments in this connection, and, hence, cannot state the "total cost of the case to the Government."

21. Did the Commission or any representative thereof inform R. E. Crummer and Company, the Crummer Company, or any of the others being investigated concerning the alleged irregularities, mistakes, errors, or omissions discovered by the Commission's agents? If not, why?

As pointed out in the enclosure to Chairman Purcell's letter to you, dated April 9, 1945, the transcript of testimony taken from members of the Commission's staff by Mr. George P. Moore, chief investigator of your committee, on March 22 and 23, 1945, makes it clear that representatives of the Commission discussed the nature of the investigation and the subject matter of the charges on a number of occasions with the subjects under investigation and with their attorney, and that they notified the company's officers of the issuance of the Commission's order for investigation and the nature of the charges (see Tr. 4-6, 69, 71). I also wish to refer you to the letter of Mr. Robert B. Caldwell, of Kansas City, Missouri, attorney for the Crummers, dated June 9, 1943, addressed to Mr. Thomas B. Hart, regional administrator of the Chicago regional, office of the Commission. That letter, which will be found in file No. C-1112 (Chicago regional office), volume I, plainly demonstrates that Mr. Caldwell, the attorney for the Crummers, and Mr. Crummer were fully aware of the nature of our investigation.

22. Did R. E. Crummer and Company request a hearing before the Commission or a member thereof? If so, was the request granted? If not, why?

So far as we can determine, R. E. Crummer & Company has at no time requested a hearing before the Commission or any member thereof with regard to the subject matter of our investigation. It is clear that officers of that company were advised by Mr. Hart, of our Chicago regional office, that they would be heard at any time they wished (see Tr., p. 6).

In the interest of completeness, however, I would like to point out that on August 3, 1942, Mr. Crummer transmitted a telegram to the Commission in which he requested an hour's conference with then Chairman Purcell. The telegram was received after the close of business on a Saturday and requested a conference with the chairman on the following Monday morning. Because of the

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