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G. L. OHRSTROM & Co.,

New York, January 14, 1930. Mr. F. S. SPRING,

Tri-Utilities Corporation, Jersey City, N.J. Dear FRANK: In accordance with our conversation while I was in New York, I have discussed with Mr. Fedderson of the Chicago Stock Exchange the complaints which he made to you concerning the market on Tri-Utilities common.

Attached you will find a copy of a memorandum written to Mr. Simond concerning my visit with Mr. Fedderson.

While we are apparently to be given further leeway in the matter, I feel that in order to avoid trouble with the exchange we are soon going to be forced to put some sort of a bid on the Chicago Exchange. Yours very truly,

R. R. MASSEY.

JANUARY 13, 1931. Mr. R. R. MASSEY, c/o G. L. Ohstrom & Co., Inc.,

Chicago, Ill. Dear Mr. MassEY: You will recall our conversation with you on the subject of maintaining a market in Tri-Utilities Corporation common on the Chicago Stock Exchange.

I am wondering if you have discussed this matter any further with anyone connected with the Chicago Stock Exchange.

You will recall that we suggested that the letter from Mr. Fedderson might be answered by saying that you or Mr. Pitner would call on him and discuss this general subject, and explain the present situation with respect to the market. Yours very truly,

H. D. McHENRY.

G. L. OHRSTROM & Co.,

New York, January 16, 1931. Mr. H. D. McHENRY, Tri-Utilities Corporation,

Jersey City, N.J. Dear Mr. McHENRY: I have your letter of January 13 with reference to our conversation on the subject of maintaining a market in Tri-Utilities Corporation common stock on the Chicago Stock Exchange.

I discussed this matter with Mr. Fedderson of the stock exchange upon my return to Chicago the first of the year. I wrote Mr. Simond of our New York office a memorandum concerning this and forwarded a copy of this memorandum to Mr. Frank Spring, which you can undoubtedly obtain in your office.

Through the cooperation of our New York office a bid has now been entered and we feel that matters can be satisfactorily adjusted with the exchange. Yours very truly,

R. R. MASSEY.

Mr. HEALY. Now, returning to this particular section, what I want to do is to state to this committee my idea as to why it is necessary not only that reports should be filed with the Commission but that the Commission should have the right to get information and have something to say about the forms in which it is presented.

Now, my contention is that it is entirely idle to call upon a man to furnish a balance-sheet statement, or income statement, if you do not at the same time undertake to make him tell how those items are arrived at. And, by the way, this section is an exact duplicate of section 19 (a) of the Securities Act, almost that same section, which has already been enacted into law. But as trying to show you why a balance sheet cannot be accepted at its face value, I want to talk about the matter of write-ups.

We have found in our utilities investigation what a write-up is. In its simplest and purest form it is this: The management of the corporation having an investment account on its books, or having a fixed capital account on its books comes along some day and just marks out the cost of the investment, or fixed capital, from their books and substitutes for it somebody's idea of what it is worth. Sometimes it was written up to the market value, the market value having been made by stock-market manipulations. We have one instance in this record of ours where a man rode for 2 days on horseback over a property, looked it over and made some figures on the back of an envelop, and then using those figures wrote up the capital account $63,000,000; but, that is not the only instance. The record is full of it.

I have little compilation here covering the state of our record up to some time last summer, where the total write-up and investment, and fixed capital accounts show at $1,159,000,000, which does not include $4,902,291.62 by Utilities Power & Light Corporation of Chicago.

Now, when these write-ups occur and fixed capital or investment accounts are written up in this fashion (and this happens more often in holding companies than in operating companies, because where there are good State commissions, they do not stand for it, where they are alert) those write-ups are reflected on the liability side of the balance sheet. That is, against some of those write-ups, stock will be issued or additional values assigned on the books to stock that has already been issued. In the balance sheet, that will go to the public, a retirement reserve will be created on the liability side out of a write-up, or a depreciation reserve, which actually does not provide any reserve for depreciation at all. It is just a bookkeeping figure that will not enable the corporation to replace its property when it is worn out. But, more than that, and more often, we find these write-ups are placed in the surplus accounts. They are used to create a surplus account that is shown to the public in the balance sheet.

Now, are we to accept, or is the Commission to accept, those balance sheets and those income statements at their face value with no right to go behind them or no right to tell us how much of this is cost, how much is write-up, how much is inflation, how much is capitalized discount, which they ought to be amortizing out of their earnings; or whether they are paying dividends out of capital, or paying them out of surplus?

If you give me the right to value as I please, one important asset of a corporation, I can distribute all of the rest of the capital of the corporation in the form of dividends, and still show a balance in the surplus account.

I would be glad to leave this with the committee. It shows the total of these write-ups.

The CHAIRMAN. Very well.

(The paper above referred to is as follows:) Appreciation (write-ups) developed by Federal Trade Commission in its inquiry

under Senate Resolution 83, 70th Congress, 1st session
American Gas & Electric Co. (S.Doc. 92,
vol. 22, p. 1199):

Appalachian Electric Power Co.----- $66, 418, 192. 80
The Ohio Power Co..

2, 775, 371. 77
Indiana & Michigan Electric Co. 5, 958, 475. 29
The Scranton Electric Co.

4, 426, 327. 58
Kentucky-West Virginia Power Co.
(Inc.).

3, 300, 000. 00
Atlantic City Electric Co.

2, 212, 774. 86 Wheeling Electric Co.--

901, 518. 00

$85, 992, 660. 30 Electric Bond & Share Co. group:

Electric Bond & Share Co. (S.Doc. 92, vol. 23–24, p. 49). 1 399, 201, 827. 39
American Power & Light Co. (S.Doc.
92, vol. 23–24, p. 1096):

Kansas Gas & Electric Co.--- $2, 547, 542. 24
Texas Power & Light Co.--

8, 160, 000.00
Nebraska Power Co..

5, 866, 452. 58
Minnesota Power & Light Co.
(November 1920).

20, 251, 682. 47
Minnesota Power & Light Co.
(May 1924).

1, 383, 246. 62
Florida Power & Light Co--- 30, 232, 007. 85

68, 440, 931. 76 National Power & Light Co. (S.Doc. 92, vol. 25, p. 630): Approximate write-up.

35, 000, 000.00 Electric Power & Light Corporation (S.Doc. 92, vol. 23– 24, p. 1183): Write-up at ization..

42, 341, 947. 02 Middle West Utilities Co. (pt. 38).

30, 816, 770. 00 Standard Gas & Electric Co. (pt. 36)

6, 974, 253. 00 New England Power Association (S.Doc. 92, vol. 31-32, )-

41, 575, 771. 00 The North American Co. (S.Doc. 92, vol. 33–34, p. 759).

5, 040, 105. 00 North American Light & Power Co. (pt. 39)

23, 180, 934. 36 New England Power Co. (S.Doc. 92, vol. 31-32, p. 511).

2, 000, 000. 00 W. B. Foshay Co., and subsidiarys (S.Doc. 92, vol. 25, pp. 299 and 300).

4, 018, 953. 93 Southeastern Power & Light Co. (S. Doc. 92, pt. 27):

Alabama Power Co. (pt. 30, p. 258) $6, 392, 241. 73
Georgia Power Co. (pt. 28, p. 140) 33, 453, 500. nn
Appalachian Development Co., (pt. 28,
p. 140)

4, 389, 679. 75
Mississippi Power Co. (pt. 27, p. 215). 12, 724, 558. 75
Southern Power Securities Corporation
(pt. 27, p. 215) ---

26, 898, 275. 47
Southern Fuel Co. (pt. 27, p. 215) 1, 799, 000. 00
Dixie Construction Co. (pt. 27, p. 215). 1, 000, 000. 00
Southeastern Realty Co. (pt. 27, p. 215). 175, 394. 99

86, 832, 650. 67 Louisville Gas & Electric Co. (Byllesby group) (pt. 37)

2,013, 500.00 Mississippi Valley Gas & Electric Co. (Byllesby group).

373, 500. 00 Electric Power & Light Co. subsidiaries

(pt. 23–24, p. 1228) (Electric Bond &
Share group):
Arkansas Power & Light Co.-

$6, 970, 601. 61 Louisiana Power & Light Co.

10, 076, 594. 16 Mississippi Power & Light Co.

10, 714, 544. 37

27, 761, 740. 14 Washington Water Power Co. (pt. 29, pp. 92 and 97).

2, 591, 185. 30 National Power & Light Co. (pt. 25, p. 629) (old company). 3, 723, 957. 53

1 Assets "written down" $441,387,724.00 on Dec. 25, 1931.

pp. 635

has already been enacted into law. But as trying to show you why a balance sheet cannot be accepted at its face value, I want to talk about the matter of write-ups.

We have found in our utilities investigation what a write-up is. In its simplest and purest form it is this: The management of the corporation having an investment account on its books, or having 8 fixed capital account on its books comes along some day and just marks out the cost of the investment, or fixed capital, from their books and substitutes for it somebody's idea of what it is worth. Sometimes it was written up to the market value, the market value having been made by stock-market manipulations. We have one instance in this record of ours where a man rode for 2 days on horseback over a property, looked it over and made some figures on the back of an envelop, and then using those figures wrote up the capital account $63,000,000; but, that is not the only instance. The record is full of it.

I have little compilation here covering the state of our record up to some time last summer, where the total write-up and investment, and fixed capital accounts show at $1,159,000,000, which does not include $4,902,291.62 by Utilities Power & Light Corporation of Chicago.

Now, when these write-ups occur and fixed capital or investment accounts are written up in this fashion (and this happens more often in holding companies than in operating companies, because where there are good State commissions, they do not stand for it, where they are alert) those write-ups are reflected on the liability side of the balance sheet. That is, against some of those write-ups, stock will be issued or additional values assigned on the books to stock that has already been issued. In the balance sheet, that will go to the public, a retirement reserve will be created on the liability side out of a write-up, or a depreciation reserve, which actually does not provide any reserve for depreciation at all. It is just a bookkeeping figure that will not enable the corporation to replace its property when it is worn out. But, more than that, and more often, we find these write-ups are placed in the surplus accounts. They are used to create a surplus account that is shown to the public in the balance sheet.

Now, are we to accept, or is the Commission to accept, those balance sheets and those income statements at their face value with no right to go behind them or no right to tell us how much of this is cost, how much is write-up, how much is inflation, how much is capitalized discount, which they ought to be amortizing out of their earnings; or whether they are paying dividends out of capital, or paying them out of surplus?

If you give me the right to value as I please, one important asset of a corporation, I can distribute all of the rest of the capital of the corporation in the form of dividends, and still show a balance in the surplus account.

I would be glad to leave this with the committee. It shows the total of these write-ups.

The CHAIRMAN. Very well.

(The paper above referred to is as follows:) Appreciation (write-ups) developed by Federal Trade Commission in its inquiry

under Senate Resolution 83, 70th Congress, 1st session
American Gas & Electric Co. (S.Doc. 92,
vol. 22, p. 1199):

Appalachian Electric Power Co.-- $66, 418, 192. 80
The Ohio Power Co..

2, 775, 371. 77
Indiana & Michigan Electric Co.. 5, 958, 475. 29
The Scranton Electric Co.

4, 426, 327. 58
Kentucky-West Virginia Power Co.
(Inc.)

3, 300, 000. 00
Atlantic City Electric Co.--

2, 212, 774. 86 Wheeling Electric Co.--

901, 518. 00

$85, 992, 660. 30 Electric Bond & Share Co. group:

Electric Bond & Share Co. (S.Doc. 92, vol. 23–24, p. 49). 1 399, 201, 827. 39
American Power & Light Co. (S.Doc.
92, vol. 23–24, p. 1096):

Kansas Gas & Electric Co.--- $2, 547, 542. 24
Texas Power & Light Co..

8, 160, 000.00
Nebraska Power Co.

5, 866, 452. 58
Minnesota Power & Light Co.
(November 1920) -

20, 251, 682. 47
Minnesota Power & Light Co.
(May 1924).

1, 383, 246. 62
Florida Power & Light Co... 30, 232, 007. 85

68, 440, 931. 76 National Power & Light Co. (S.Doc. 92, vol. 25, p. 630): Approximate write-up

35, 000, 000.00 Electric Power & Light Corporation (S.Doc. 92, vol. 23– 24, p. 1183): Write-up at organization

42, 341, 947. 02 Middle West Utilities Co. (pt. 38)

30, 816, 770. 00 Standard Gas & Electric Co. (pt. 36)

6, 974, 253. 00 New England Power Association (S.Doc. 92, vol. 31-32, )--

41, 575, 771. 00 The North American Co. (S.Doc. 92, vol. 33–34, p. 759)

5, 040, 105. 00 North American Light & Power Co. (pt. 39)

23, 180, 934. 36 New England Power Co. (S.Doc. 92, vol. 31-32, p. 511).

2, 000, 000.00 W. B. Foshay Co., and subsidiarys (S.Doc. 92, vol. 25, pp. 299 and 300).

4, 018, 953. 93 Southeastern Power & Light Co. (S. Doc. 92, pt. 27):

Alabama Power Co. (pt. 30, p. 258) $6, 392, 241. 73
Georgia Power Co. (pt. 28, p. 140) 33, 453, 500. no
Appalachian Development Co., (pt. 28,
p. 140)

4, 389, 679. 75
Mississippi Power Co. (pt. 27, p. 215). 12, 724, 555. 75
Southern Power Securities Corporation
(pt. 27, p. 215) --

26, 898, 275. 47
Southern Fuel Co. (pt. 27, p. 215) 1, 799, 000.00
Dixie Construction Co. (pt. 27, p. 215). 1, 000, 000. 00
Southeastern Realty Co. (pt. 27, p. 215)- 175, 394. 99

86, 832, 650. 67 Louisville Gas & Electric Co. (Byllesby group) (pt. 37)

2, 013, 500.00 Mississippi Valley Gas & Electric Co. (Byllesby group).

373, 500.00 Electric Power & Light Co. subsidiaries

(pt. 23–24, p. 1228) (Electric Bond &
Share group):
Arkansas Power & Light Co.-

$6, 970, 601. 61
Louisiana Power & Light Co.

10, 076, 594. 16 Mississippi Power & Light Co.---- 10, 714, 544. 37

27, 761, 740. 14 Washington Water Power Co. (pt. 29, pp. 92 and 97).

2, 591, 185. 30 National Power & Light Co. (pt. 25, p. 629) (old company)

3, 723, 957. 53 1 Assets "written down" $441,387,724.00 on Dec. 25, 1931.

pp. 635

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