ing for information, and I ask you if you received the original of that letter [exhibiting copy to the witness]. Answer. I did. Question. Did you make search to see if you could find information asked for? Answer. Not since I received that letter. I received the letter on the day I left Chicago. Question. Had you previously made any search together with or at the instance of Mr. Miller while he was at work there? Answer. When Mr. Miller was in Chicago, at our office, I was assigned to assist Mr. Miller in any way that I could in connection with his examinations, and at that time, I believe, he asked for whatever information there was about these various items, and during the course of his examinations I undertook to assist him in connection with them. Question. Let us get the net result of your assistance in Mr. Miller's work. Would you say, then, that what Mr. Miller has stated here on the stand and what is contained in the report that he has submitted is all the information you can give us on this matter? Answer. Yes, sir. Question. I am talking now, of course, about records, correspondence or anything else of that character. Answer. Yes, sir. Question. Personally, were you there during this period? Answer. I was employed first by the North American Light & Power Co. on March 1, 1928. Most of these items [indicating] date prior to that. Question. Yes; they do. I notice that. However, during the year 1928 that was the year of the Frank L. Smith senatorial campaign; wasn't it? Answer. I do not know. Question. Well, it was. I will state that, to refresh your recollection. Do you know who Mr. Allen F. Moore, of Monticello, was, as connected with the Frank L. Smith senatorial campaign? Answer. Only by hearsay. I understood that he managed the campaign. Question. I think that is correct. I now read from page 1764 of the United States Senate hearings before a special committee investigating campaign expenditures, this being the Committee on Privileges and Elections, acting under Senate Resolution No. 195 of the Sixty-ninth Congress, first session, when Mr. Allen F. Moore was testifying. He said, referring to Mr. Frank L. Smith's candidacy for the United States Senate: Mr. Clement Studebaker met me in the Congress Hotel on the occasion of the Indiana dinner last winter. He came to my table and stated that he was interested in my friend, Frank L. Smith, and his friend, Frank L. Smith, and that he would be glad to help in the campaign, and asked me to call at his office, which I did. He suggested that he would be glad to contribute $10,000 to our campaign fund, and I told him that it would be very acceptable. At a later date, a few days later, I called again at the office and received the money. Subsequent to that time, at a date which I do not remember, he asked me how the campaign was progressing, and I told him that the finances were low; that we were muddling through. He said, "I will give you an additional ten ". which he did. For your information, I will state that the Indiana dinner was held on December 5, 1928. Have you any personal information, outside of the records, that will tell you whether any of these sums which passed through Mr. Studebaker's hands went to Mr. Moore or to the Frank L. Smith campaign? Answer. No, sir. Question. Have you any judgment on that point? Answer. No, except that I understood that these were personal contributions; but that is purely hearsay. Question. To be perfectly fair, I will state for the record that I have examined the items drawn by Mr. Studebaker, or the unexplained items, and I find no $10,000 item at a point near the date of the Indiana dinner, December 5, 1928; but I still wanted to ask the question in order to make that part as clear as I could. Now, without reservation, Mr. Gale, have you any other information on any of these items that you can give us, outside of the records and from your personal information? Answer. No, sir. Question. Your answer is, then, that we have all that you know? Answer. That is right. Mr. CHANTLAND. That is all, then, Mr. Gale. (The witness was excused.) Mr. CHANTLAND. I want to offer that letter in evidence, so as to show that we made that effort. Examiner ADDISON. The letter will be received; that is, the letter from the chief counsel to the witness, under date of January 13, 1934, will be received in evidence and marked as "Commission's Exhibit No. 5601." (The letter referred to was received in evidence and was marked "Commissioner's Exhibit No. 5601, Witness Gale.") Mr. CHANTLAND. I have asked the representatives of the North American Light & Power Co. and its companies if they have any questions at this time, and they say that they have none. We now desire to adjourn until tomorrow morning at 10 o'clock, when the chief counsel will go on with an examiner of the Commission in the Electric Bond & Share matter. Examiner ADDISON. The hearing, in accordance with the motion by the Commission's counsel, is hereby adjourned to meet in this room at 10 o'clock tomorrow morning. (Whereupon, at 12:15 p.m., the hearing in the above-entitled matter was adjourned to tomorrow, Jan. 18, 1934, at 10 a.m., at the same place.) HEARING ROOM. FEDERAL TRADE COMMISSION, Met, pursuant to adjournment, at 10 a.m. Before John W. Addison, examiner. Appearances: Hon. Robert E. Healy, counsel; Dr. Francis Walker. chief economist; Col. William T. Chantland, associate counsel; Col. William H. England, assistant chief economist; J. Butler Walsh, associate counsel; and C. F. Rhodes, associate counsel, on behalf of the Commission. Bernard F. Weadock, New York City, William J. Hagenah, Chicago, Ill., and Martin V. Callagy, New York City. John F. MacLane (Simpson, Thacher & Bartlett), 120 Broadway, New York, N.Y., and S. W. Murphy, on behalf of Electric Bond & Share Co. Examiner ADDISON. The hearing will come to order, to take further testimony under Senate Resolution No. 83, agreed to on February 13, 1928. Mr. HEALY. Pursuing our duties under Senate Resolution 83, we will present a supplementary report this morning on the Electric Bond & Share Co. This report will relate to the operating expenses and cost of service of that company for the years 1927 and 1931. In 1929 an examination of the books and records of the Electric Bond & Share Co. was being made under Senate Resolution No. 83. A request was made of the company's officials to produce for examination the records for the year 1927 relating to the operating expenses. Our view was that this was an essential part of the inquiry in order to get the expenses incurred in rendering certain services to associated and affiliated companies from which service fees were collected under service contracts. The company refused to allow such examination, and the Commission issued subpenas to certain officers and employees of the company to come before the Commission and testify with respect to the expenses in question, and certain of the subpenas called upon them to produce documentary evidence. The company officials refused to comply, and the Commission made application to the United States District Court for the Southern District of New York, pursuant to the Federal Trade Commission statute. There were 2 hearings and 2 opinions, which are reported in the Federal Reporter. Finally, the court held that the Commission was entitled to ascertain the cost of rendering services to the subsidiary companies under service contracts. This is a rather inadequate description of the court's holding, but those interested are referred to the opinions. An order was not entered by the court, because Judge MacLane and I had a talk, and it was agreed that the Commission would be given access to all documents and records relating to the costs of rendering any services to associated or allied companies on which fees were collected. In addition to covering the year 1927, as originally planned, it was thought best to get the same information for the year 1931, to bring the study closer to date. Pursuant to the arrangement made between Judge MacLane and me, Mr. Walter Meleen, an examiner and accountant of the Federal Trade Commission, attached to the Economic Division, went to New York and made a study and prepared a report, which is in some detail, and which will be offered for the record in just a moment. I will call Mr. Meleen as our witness. He has already been sworn, and his qualifications have already been told in earlier hearings. WALTER MELEEN recalled as a witness for the Commission, being previously duly sworn, testified as follows: Direct examination by Mr. HEALY: Question. Did you make an examination of the books and records of the Electric Bond & Share Co. at the New York office of that company, Mr. Meleen? Answer. Yes, sir. Question. And for what purpose? Answer. For the purpose of ascertaining the cost of rendering services under contract to subsidiary and affiliated companies. Question. To what years did your examination relate? Answer. 1927 and 1931. Question. Were you given access to all of the accounts and records that you desired to see in connection with making your study? Answer. Yes, sir. Question. Have you prepared a report based on that study? Answer. Yes, sir. Question. Is it here? Answer. Yes, sir. Question. Does it accurately reflect and reproduce the facts as you found them? Answer. To the best of my knowledge and belief; yes. Question. Has a copy of this report been submitted to the company in advance of this hearing, so that they might find out any errors or omissions? Answer. It has. Question. Will you produce the report? Answer. Yes, sir [producing report]. Mr. HEALY. I offer it as an exhibit. Examiner ADDISON. This report will be received in evidence and marked as " Commission's Exhibit No. 5602." (The document referred to was received in evidence and was marked "Commission's Exhibit 5602, Witness Meleen.") By Mr. HEALY: Question. A few words descriptive of the plan of the report. First, is there a narrative or textual report? Answer. Yes, sir. Question. In how many chapters? Answer. Two. Question. What is the title of the first chapter? Answer. "Supervision and Service Fees Received and Expense of Rendering Such Services." Question. And the title of the second chapter? Answer. "Departmental Reorganization of Electric Bond & Share Co." Question. Scattered throughout the narrative or textual report, are there various so-called "text tables"? Answer. Yes, sir. Question. How many of them are there? Question. Is the narrative report preceded by a summary which is designed to point out the principal points developed in the report? Answer. Yes, sir. Question. Is the textual portion of the report followed by a number of exhibits which are not designed as text tables? Answer. Yes, sir. Question. How many exhibits of this last type are there? Answer. Twenty-five. Question. Inasmuch as the principal purpose of this examination and the principal purpose of this report is to get the expense of rendering these management services, we will go at once to that point. In 1927, what was the total income of Electric Bond & Share Co. from all sources? Answer. $18,513,299.85. Question. Was all this derived from contract services, such as management fees and construction fees? Answer. No, sir. Question. From what other sources was this total income derived? Answer. From investments. Question. Then, if I understand it correctly, this income was derived from two sources; first, income from investments, and so forth, and, second, income resulting from contract services under which heading we have management and construction fees and fees of that character. Is that right? Answer. Yes, sir. Question. In 1927, how much of the total income of more than $18,500,000 was derived from the fees collected under contracts? Answer. $9,373,172.07. Question. Is it accurate to say, therefore, that in 1927 more than half of the income of Electric Bond & Share Co. was derived from these fees? Answer. Yes, sir. Question. In 1931, what was the total income of the company? Answer. In 1931 the total income of the company was $23,962,762.86. Question. In 1931 how much of this was derived from fees under contracts? Answer. $11.248.273.17. Question. Or about one-half of the total income of the company in 1931? Answer. Yes, sir. Question. Now we turn to expenses for the same 2 years, and we find that in 1927 the total expense of the company, including Federal income taxes, was how much? Answer. $6,613,973.47. Question. And in 1931? Answer. $7,510,398.86. Question. In 1927 the total expenses, excluding Federal income taxes, amounted to how much? Answer. $5,375,757.95. Question. And in 1931? Answer. $6,870,877.69. Question. Was it possible to determine from the books of the company how much of the total expenses of the company were incurred. in connection with the company's investment and how much in connection with rendering services for which fees were collected? Answer. Yes, sir. However, a few estimates were used. Question. Were there any separate accounts kept, whereby you could find the facts easily as to these matters, or was it necessary to go through the books and make some allocation of the expenses as between investment and management services? Answer. The expenses were not kept separately. 102777-34-PT 62-3 |