Mr. CLELAND. Mr. Buenting out there made some investigation of some of those securities, but the investments had already been made. Mr. GREENWOOD. Did he make a report on that to the Veterans' Administration? Mr. CLELAND. I cannot say as to that. I know that he did not get the present value of the properties. Mr. Cox. Do you think that the investigation you have made gives a full enough picture of the conditions to establish a basis for any legislation that Congress might see fit to enact bearing upon the case? Mr. CLELAND. It would seem that it would; yes, sir. Mr. Cox. Could anything of value, or that might be termed as necessary for proper congressional treatment, be obtained as a result of setting up a special committee to make an investigation in this matter? Mr. CLELAND. I suppose it could, because my investigation, was of necessity, rather hurried. Mr. Cox. Did I understand you to say in response to my first question that the investigation you have made would be sufficient to give Congress information on which it could intelligently act? Mr. CLELAND. It could act insofar as the character of stuff covered by my report is concerned, but I would not want to say that that report is broad enough to enable Congress to legislate on a subject generally in such way as to correct all the ills that may have arisen in the handling of these estates. Mr. Cox. In connection with this investigation, did you find anything in the conduct of the Veterans' Administration that would be fairly subject to harsh criticism, other than the continuation of payments to guardians who are not under bond? Mr. CLELAND. Well, the Veterans' Administration at Indianapolis knew perfectly well that they were only paying 3 percent on the daily balances of deposits, from the reports that have been filed since. 1926, when the banks were otherwise paying 4 percent on such balances. Mr. Cox. Did the Veterans' Administration have jurisdiction of that, or was not that a matter entirely in the hands of the guardians acting under State law? Mr. CLELAND. It was a matter that the court, of course, would have had to correct. The only thing that the Veterans' Administration could have done in the way of taking action would have been to call it to the attention of the court and request that it be corrected. Mr. Cox. You do not advocate taking away from the courts of the State the right to administer these veteran estates, do you? Mr. CLELAND. I seriously doubt whether it could be done. Mr. Cox. You would not favor the Veterans' Administration bringing pressure to bear on the courts by refusing to make payments? Mr. CLELAND. No, sir; what I had in mind there was this, that in Indiana, under the uniform guardianship act, all guardians appointed since that act are required to give bond. Those appointed before the passage of the act were not required to give bond. If those guardians refuse to furnish bonds, and the court will not cooperate in that respect, then, that would be the only remedy that the Veterans' Administration could pursue. Mr. Cox. Has not the court the power, since the enactment of the 1931 law, to call upon those guardians and exact bonds of those guardians who had been previously appointed? Mr. CLELAND. That is doubtful, I think. The courts in some instances have held that they have that power, and in others they have held that they have not. It is a peculiarly worded statute. Mr. O'CONNOR. You say that those banks were paying 4 percent on deposits of other than guardianships funds. Mr. CLELAND. Yes, sir. Mr. O'CONNOR. While the guardianship estates were receiving only 3 percent on deposits. Mr. CLELAND. Yes, sir. Mr. O'CONNOR. If the Veterans' Administration had been on the job, they would have gone into court and called that to the attention of the court, and would have forced those banks to pay the guardianship estates 4 percent. Is that not true? Mr. CLELAND. I think it should have been done. I think it can be recovered yet. Mr. Cox. Åre not the things you have developed, and which are embodied in your report, sufficient to acquaint the administration with the conditions existing, so that they could give intelligent treatment to the problem without a further investigation? Mr. CLELAND. I might say that, insofar as the situation in Marion is concerned, it probably would be sufficient; yes, sir; but there is a lot of information that will never be obtained about the handling of these things unless somebody is put under oath by some machinery or other, because they will not voluntarily give the information. You must dig it out of them. Mr. GREENWOOD. Is it your opinion that a special committee set up with power to put men under oath, would discover further facts that would enable Congress to legislate in a way that would cure this evil? Mr. CLELAND. Undoubtedly; yes, sir. Such a committee would probably be able to secure a lot of facts that I was not able to get. Mr. GREENWOOD. If the Veterans' Administration knew that bonds that were quoted at, say, 55, were passed on to these guardianship estates at par, would they have authority to call the attention of the court to that fact? Mr. CLELAND. They would have authority to bring it to their attention, but they could not bind the courts. Mr. GREENWOOD. Could they not call the court's attention to the fact that those shifts of investments were being made without the attorneys of record being present? Would not the attorneys of record have the right to call attention to the facts that they were not notified when the shifts of investments were made? Mr. CLELAND. I do not know about that. They were made in 5 minutes. Mr. GREENWOOD. Is that the orderly way of making shifts in securities by the court, without the attorneys of record being notified? Mr. CLELAND. Ordinarily that is not done by the courts. Mr. Cox. Is not the guardian responsible for losses on any investments that are made without the approval of the court? Is he not responsible in case of loss. Mr. CLELAND. Yes, sir. Mr. Cox. What do you find to be the financial responsibility of those guardians who were qualified prior to this law of 1931? Mr. CLELAND. In this case, the Marion Title & Loan Co. is in the hands of a receiver, and the First National Bank is in the hands of a receiver. How much assets they have, we cannot well determine because of the way the stuff liquidates out. In my judgment, in equity, these are preferred claims. Mr. GREENWOOD. Have you been working at Fort Wayne? Mr. GREENWOOD. Have you discovered evidence there showing that a similar condition exists at Fort Wayne? Mr. CLELAND. I have not gotten into it far enough to know. I have been getting facts which show that mortgage bonds bearing 5 percent have been issued on an underlying mortgage bearing 7 percent, the 7 percent interest running to the bank. Mr. O'CONNOR. Does that mean that the guardian has been stealing that difference of 2 percent? Mr. CLELAND. Putting it bluntly, that is what it amounts to. Mr. CLELAND. Out in Indiana, we have the practice of simply writing the name of the attorney for the guardian on the docket sheet. Mr. DRIVER. What are the duties of the attorney who is designated as the attorney of record? Mr. CLELAND. His duties are to provide legal advice to the guardian in the management and handling of the guardianship estate. Mr. DRIVER. Does this attorney of record prepare reports for the guardian, or does he take any substantial action with respect to the guardianship matters? Mr. CLELAND. Ordinarily the attorneys who prepare the reports are trust officers of the banks. They practice their own law. Mr. DRIVER. I should really think that the attorney of record would be kept informed as to matters pertaining to the guardianship business. Mr. CLELAND. Not unless the guardian goes to them and asks for advice. Mr. DRIVER. How is he compensated? Mr. CLELAND. He is paid out of the guardianship estate. Mr. DRIVER. And allowances are made regularly by the courts for that purpose? Mr. CLELAND. Yes, sir. Mr. DRIVER. In what amount. Mr. CLELAND. That is dependent upon the size of the estate. Usually in veterans' estates, the attorneys' fees are very modest. Mr. DRIVER. You have no complaint to offer in respect of the amount of compensation that the courts allow those attorneys of record? Mr. CLELAND. No, sir; I have not; because it probably would not amount, even though the estate amounted to $15,000 or $20,000, to more than $15 or $20 a year. Even in a large estate, it would probably not amount to more than $15 or $20 a year. Mr. DRIVER. What notice is given to the Veterans' Administration of the filing of guardianship reports, or of proceedings incident to them in the courts? Mr. CLELAND. Under the uniform guardianship act, the clerk of the court simply mails to the Veterans' Administration et Indianapolis a postal card notifying them that the guardian has filed a petition. Mr. DRIVER. And that practice has only obtained since the passage of the 1931 uniform guardianship act? Mr. CLELAND. Yes, sir. Mr. DRIVER. What did you find from your investigation as to the policy of the Administration with respect to the examination of those reports, and taking proper proceedings in the court looking to the fairness of the transactions with respect to these guardianship estates? Mr. CLELAND. Accountings were filed by the guardians after the 1926 act. Now, under the uniform guardianship act, when these matters come up, I think it is the practice of the Indianapolis office to write the guardian to have a duplicate petition filed in the Indianapolis office. I think the guardians send in a duplicate to the Indianapolis office. Mr. DRIVER. Did your investigation disclose any activity on the part of the representatives of the Veterans' Administration in those cases? Mr. CLELAND. I do not quite understand what you mean by "activity". Mr. DRIVER. Do they make any investigation on the ground, or do they make an investigation of the guardians' reports, especially with the reference to the character of securities and with reference to the fairness of the transactions between the guardian and the ward? Mr. CLELAND. I think there was not any of that done until this difficulty arose down there, although I cannot definitely state as to that. Mr. DRIVER. How, far in your opinion, could this difficulty be obviated by a more active interest, possibly, on the part of the representatives of the Veternas' Administration? Mr. CLELAND. Of course, many of those loans could have been prevented if the character and type of the security had been called to the attention of the court at the time the petitions were filed. Probably reports could have been set aside, or the orders could have been set aside, and orders for the reinvestment of the funds might have been given. Mr. DRIVER. Under the practice in your State, would these representatives of the Veterans' Administration be permitted to file an objection to a report? Mr. CLELAND. Yes, sir. Mr. DRIVER. And those exceptions would have been heard. Mr. CLELAND. Yes sir. Mr. DRIVER. And an investigation would have been made. Mr. CLELAND. Yes, sir. Mr. DRIVER. And action taken for the protection of the ward. Mr. CLELAND. Yes, sir. Mr. DRIVER. To that extent, then, the Veterans' Administration can play a useful part in these matters. Mr. CLELAND. Yes, sir. Mr. DRIVER. Could not most of the difficulties that are complained of now along this line be avoided by a display of active interest on the part of the Veterans' Administration? Mr. CLELAND. Yes, sir. I think the Indianapolis office is watching the estates more carefully, and they frequently are filing objections to the reports. Mr. DRIVER. You did not prosecute your investigation sufficiently to determine whether or not under your practice and under your laws all of the difficulties complained of could be avoided or removed? Mr. CLELAND. Well, I cannot answer that intelligently because there are a great many other factors that enter into the problem. I would say that these activities in the future will probably not reach what they have been in the past. The primary problem now is to try to find out where the losses are and to find out what the guardians are responsible for. Steps should be taken to retrieve the losses of the estates wherever possible. Mr. DRIVER. Well, you have already gained sufficient information to enable you to determine just who to institute proceedings against, how they should be prosecuted, and also, perhaps, how to avoid any future transactions of that character and afford protection to those estates. Mr. SMITH. I think Judge Driver has covered pretty well the points I had in mind but I would like to ask one or two questions: Is there any system or set-up in the Veterans' Administration now by which they appraise or evaluate the securities held in these guardianship estates? Mr. CLELAND. I cannot answer that. I do not know. I suspect there is not. Mr. SMITH. Would it not be perfectly feasible for them from time to time to appraise those securities in the guardianship estates, thereby enabling them to intelligently advise the court as to whether such transactions are taking place? Mr. CLELAND. Ordinarily, it would not be so difficult to do that. I did not find any great difficulty in ascertaining the value of these securities. Mr. SMITH. My experience with them while on the bench was that they exercised a rather careful scrutiny of the expenditures from time to time. That had reference to the expenditures of the estates, but I do not recall any instance where they have displayed any interest in the matter of the evaluation of securities. However, I am not saying that in a critical way. Mr. CLELAND. With reference to expenditures, I might make this statement, that, perhaps, at times some expenditures made by the veterans may appear to be a little extravagant, as, for instance, the purchase of a $10 shirt. However, my view of that is different from that of the average man, because I have been a patient in a hospital. I spent 14 months in one, and I know that a $10 shirt might do more for a man in that condition than anything else he could obtain in a hospital. Mr. GREENWOOD. Is it your opinion that a greater service could be rendered the ward by a stricter supervision of these securities than through a supervision of the expenditures? Mr. CLELAND. Yes, sir. Mr. SABATH. Who appoints the guardians? Are they recommended by the Veterans' Bureau? 68557-34- -2 |