fore the two Harrimans, or the Harriman interests, controlled 94,257 of the original shares, or 95 percent of the stock. Now, in addition to the 99,000 shares to be issued in exchange for old obligations, stock warrants were to be issued. For underwriting the issuance of 99,980 shares of stock in exchange of subscription warrants reserved for surrender, Harriman, Ripley & Co. was to receive $74,985 in cash and 50,000 option warrants for common stock. The option warrants entitled the holder thereof to purchase 50,000 shares of common stock of the Cramp Shipbuilding Co. at any time on or before December 31, 1945, at $14 a share. Then it provides for the exchange of new stock for the old bonds, and then from the prospectus of the company it appears that 99,345 subscription warrants were issued to bond and script holders in exchange. From the books of Brown Bros. & Harriman at Philadelphia, the registrar, it appears that 99,605 were issued, and there is an apparent discrepancy of 260. From the same page of the supplement to the prospectus it appears the subscription warrants for 6,368 shares were exercised by the holders thereof at $11 a share. The other 93,612 of the 99,980 shares underwritten by Harriman, Ripley & Co. were purchased by the underwriters at $11 a share, and from the same source it appears that the underwriter at the date of the supplement had sold 21,400 units to the Blue Ridge Corporation and 5,600 units to the Chicago Corporation, each unit consisting of one common share and one-half of an option warrant for $10.50. The total stock of the new company issued as of December 16, 1940, was 219,025 common shares, and they are held as follows: The Orama Securities Corporation, in exchange for the first mortgage bonds and cash advances, is the record holder of 59,057 shares of stock. To American Ship & Commerce Corporation, in exchange for the $2,200,000 of general mortgage bonds pledged with Merchant-Sterling, 35,200. To other mortgage bondholders of the old company, 4,698 shares. To general mortgage bondholders exercising subscription warrants, 6,566 shares. The Harriman, Ripley Co., underwriters, 93,612 shares. To the Orama Securities Corporation, at $11 a share, 10,000 shares. To the Blue Ridge Corporation, at $11 a share, 8,600 shares. To the Chicago Corporation, at a sale of $11 per share, 1,400 shares. That makes a total of 218,935 shares. Mr. MAAS. What did the underwriters pay for theirs? Mr. TOLAND. The underwriters? Mr. MAAS. Harriman, Ripley? Mr. TOLAND. They paid, I think it was, $10.50 a share, or $11. Which was it, Mr. Ripley? Mr. JOSEPH P. RIPLEY (Harriman, Ripley & Co.). We paid $11 a share and had an underwriting fee of 75 cents, so we paid $10.25 per share. Mr. TOLAND. Of the 219,029 shares, the Harriman interests controlled those of the Orama and Merchant-Sterling as pledges of the American Ship & Commerce, and it is believed had an interest in those of the Blue Ridge Corporation, the Harriman, Ripley Co., and the Chicago Corporation. The total control was 104,257 shares, or 47.5 percent they actually controlled, and the amount in which they had an interest was 103,612 shares, or 47.3 percent, or a total of 94.8 percent. From a list of the registered stockholders as of February 11, 1942, it appears that the Harriman interests as to that date controlled the following shares: Held by Merchant-Sterling Corporation, 35,200; Orama Securities Corporation, 69,177; Joseph P. Ripley, 100 shares. They had an interest in the following shares: Held by Brown Brothers, Harriman & Co., 800 shares; Chicago Corporation, 3,600 not registered in their name; Harriman, Ripley & Co., 68,612; Sigler & Co., for the benefit of Blue Ridge Corporation, 30,148, making a total of 140,530 shares. Thus the Harriman interests controlled 47 percent and had an interest in another 46 percent, or a total of 93 percent of the total stock issued. After the incorporation of the company, the Orama Securities Co. deposited $260,000 in escrow; the United States deposited an agreement releasing all claims upon settlement of the tax liens and other items. The sale of the old property of the company for taxes was held and, as per agreement with the city and school district, members of the five-party agreement and the Örama Securities Corporation bid in the property at the upset bid price of $100,000. Mr. MAAS. Can you tell us how much the notes of the Navy were that were settled? Mr. TOLAND. In excess of $1,000,000. The ACTING CHAIRMAN. I might say that the tax settlement with the city of Philadelphia was authorized by an act of the State legislature. Mr. TOLAND. For that reason I would like briefly to call Mr. Ripley right now, and just ask him a few questions. Mr. BATES. What was the tax due the city of Philadelphia? Mr. BATES. And they settled for what? Mr. TOLAND. $100,000. The ACTING CHAIRMAN. And the current taxes, which amounted to about $50,000. That was done by special act of the Pennsylvania legislature. Mr. BATES. Upon whose recommendation? The ACTING CHAIRMAN. Upon the desire of the legislature to get a shipyard started for employment purposes. Mr. BATES. Of course, this is a local tax and the legislature had no authority to settle a local tax. Who recommended the settlement of local taxes in the city of Philadelphia? The ACTING CHAIRMAN. The receiver of taxes and the mayor; the city council passed a resolution. Mr. BATES. And they petitioned the legislature to authorize the settlement of this tax? The ACTING CHAIRMAN. That is about the way it turned out to be. TESTIMONY OF JOSEPH PIERCE RIPLEY, CHAIRMAN, HARRIMAN, RIPLEY & CO., NEW YORK CITY The ACTING CHAIRMAN. Do you solemnly swear the evidence you are about to give the Naval Affairs Committee will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. RIPLEY. I do. Mr. TOLAND. Mr. Ripley, will you give the reporter your full name, please? Mr. RIPLEY. Joseph Pierce Ripley; address, Smithtown, Long Island, N. Y. Mr. TOLAND. Will you tell the reporter what your present business is? Mr. RIPLEY. Investment banking. I am chairman of Harriman, Riplev & Co. Mr. TOLAND. Now, for the record, in response to the query of a member of the committee, will you please state when the Merchant-Sterling Co. was organized or incorporated, whether or not it is still in existence, and what type of business it does? Mr. RIPLEY. I haven't the slightest idea when it was organized, but I wish to say-and I think I am at liberty to-that the statement that it is defunct is utterly absurd, if you don't mind. Merchant-Sterling Corporation is a corporation of very substantial net worth. Mr. TOLAND. I want to correct the record. Is it true of the other company? Is the other company-not the Merchant-Sterling, but the American Ship-still in existence and still operating? Mr. RIPLEY. So far as I know, it is still in existence, but American Ship & Commerce has not operated for some time. Mr. TOLAND. Does it have any assets to speak of? Mr. RIPLEY. American Ship & Commerce owned about 88 percent of the second-mortgage bonds of the old Cramp Co. Mr. TOLAND. Other than that asset, does it have any other assets? Mr. TOLAND. So that I was confused with regard to the two companies when I made that statement. Mr. RIPLEY. I certainly think so. Mr. TOLAND. I would like to correct the record on that. The ACTING CHAIRMAN. You say, in addition to the stock they owned 88 percent of the bonded indebtedness? Mr. RIPLEY. The American Ship & Commerce Corporation owned or had pledged to it 88 percent of the second-mortgage bonds of the old Cramp Co., constituting a second mortgage on the property. Mr. TOLAND. That was pledged by Merchant-Sterling with them? Mr. RIPLEY. That was pledged by American Ship & Commerce to Merchant-Sterling, Merchant-Sterling being the only creditor of American Ship & Commerce Corporation. Mr. HESS. They were worthless, those bonds, were they not? Mr. RIPLEY. No. Mr. HESS. If the property was sold for tax purposes, were the bonds paid off? Mr. RIPLEY. Mr. Congressman, when the tax sale took place the sale was for $100,000 cash for the equity in the property, subject to two mortgages, the total of which two mortgages was $5,400,000. There has been a great deal of misunderstanding about that transaction, so I must, if you don't mind, try to make it clear. Mr. TOLAND. Well, first, before we go into that, I am only calling you at this time to have the record clear; and I want to strike from the record, Mr. Reporter, my misstatement with regard to Merchant-Sterling. Mr. RIPLEY. Mr. Toland, I don't know the net worth of MerchantSterling, but I will estimate it without question at over $5,000,000 today, liquid net worth. Mr. TOLAND. What is the net worth of American Ship & Commerce, if you know? Mr. RIPLEY. I don't know. Mr. MAAS. What is the business of the Merchant-Sterling Corporation? Mr. RIPLEY. The Merchant-Sterling Corporation is a personal holding company of the two Harrimans. In that company they have various securities that they own. I personally don't know what all of those are, but it is a personal holding company of high credit owned entirely by the two Harrimans, and it is so stated in the prospectus which we have issued to the public, registered with the Securities and Exchange Commission, a matter of public knowledge. Mr. MAAS. Did the Harriman group, or the Harrimans, have any connection with the original Cramp Co.? Mr. RIPLEY. Mr. Maas, the Harrimans bought an interest around 1922 in the American Ship & Commerce Corporation, which was a corporation organized not by them and before their entry into this picture, to engage in various shipping enterprises. Now, the American Ship & Commerce Corporation owned about 60 percent of the stock of the old William Cramp & Sons' Ship & Engine Building Co. Around 1920 or 1922, I don't know the exact date-it is before my time-the Harrimans bought an interest in the American Ship & Commerce Corporation, and that marks their entry into this picture. Mr. TOLAND. Do you know how much that interest represented in dollars and cents? Mr. RIPLEY. I haven't any idea. Mr. MAAS. What percentage of the assets, or of the stock, of the American Co. did they buy? Mr. RIPLEY. Mr. Maas, I haven't any idea what they bought, but I can tell you this, that when I hit the problem in the summer of 1940 they owned, the Harrimans together, about 20 percent of the stock of American Ship & Commerce Corporation, but they were the only creditor of American Ship & Commerce in an amount totaling $5,000,000. Mr. MAAS. And they became creditors in what manner? Mr. RIPLEY. I am not entirely informed on that, because I didn't enter the picture soon enough, but my understanding is that it was this way: That when the old Cramp Co. got into financial difficulties in 1927 its parent, American Ship & Commerce, owning about 60 percent of the old Cramp Co., put money into the old Cramp Co., and American Ship & Commerce, as I understand it, borrowed money from Merchant-Sterling from time to time. Mr. MAAS. The Merchant-Sterling being Mr. RIPLEY (interposing). To the tune it ended up at $5,000,000, when I came into the party. Mr. MAAS. The Merchant-Sterling being a personal holding company of the two Harrimans? Mr. RIPLEY. Yes, sir. Mr. MAAS. Does it conduct a business other than to manage investments of the Harrimans? Mr. RIPLEY. None whatever. It is just a personal holding company holding securities that they own. Mr. TOLAND. That is the Merchant-Sterling? Mr. RIPLEY. Merchant-Sterling. Mr. TOLAND. The Merchant-Sterling engaged Commander Weyerbacher; is that true? Mr. RIPLEY. Not to my knowledge, Mr. Toland. The first I heard of what I gather you are talking about is about a month ago, when an officer of the Merchant-Sterling Co. came up to my office and said that one of the representatives of the House Naval Affairs Committee had been to see him and got certain papers. I said, "Well, what did he get?" He said: He got some papers pertaining to the fact that W. T. Smith, president of the old Cramp Co., had asked Merchant-Sterling to give him some money so that he could make a study, an engineering study, of the Cramp shipyard, in about 1938 or 1939, with the idea that it might be opened for building of merchant ships. Now, that is what I know about it, which I learned a month ago for the first time. Mr. TOLAND. But the fact of the matter is we have just put on, through this witness, and he has before him, a file with regard to that advance and the disbursements, found in the files of the MerchantSterling Co. Isn't that correct? Mr. RIPLEY. There is no question in my mind that Merchant-Sterling advanced some money to W. T. Smith, president of the old Cramp Co., so far as I know, to study the shipyards. Mr. TOLAND. Mr. Masterson, will you look at that file and see if there is any statement or document in there that indicates the money was advanced to Mr. Smith or was advanced to Commander Weyerbacher? Now, will you tell the committee, while he is looking at that, Mr. Ripley, what the Orama Securities Co. is? Mr. RIPLEY. Orama Securities Co. is likewise a personal holding company of the two Harrimans, owned 50-50 by both of them and of substantial net worth. I have seen its balance sheet. Mr. TOLAND. As to the Harriman, Ripley Co., itself, what interest do the Harriman brothers have in that company? Mr. RIPLEY. The Harrimans, as individuals, and through their holding companies and their family, own by far the greater part of the capital interest in Harriman, Ripley & Co., but they have nothing whatever to do with running it. Its stock is in a voting trust for a period of 10 years. Mr. TOLAND. But they do have, together with their family, the actual control of that company; do they not? Mr. RIPLEY. They have no control whatver, Mr. Toland. Mr. TOLAND. Not as to policies. Mr. RIPLEY. I must finish. The facts in regard to that are all on record before the Temporary National Economic Committee hearings |