Mr. CLELAND. I think there is no doubt about that. If those men down there were placed under oath, they could be made to give the rest of the story. The trust officer of this bank who had an active part in it, and who was involved in the transactions, stands high in the community. The general feeling down there seems to be that what he did was done as a hired man for the rest of the officers and directors of the bank. I have discovered that some other banks purchased a series of mortgage bonds that are paying 5 percent interest. That would be the rate they would pay as guardians, while the mortgage on which the bonds were issued would pay 7 percent. have been advised that the banks retain that difference of 2 percent of interest as a general banking practice. That is to say, there is issued a 7-percent mortgage, and then they issue bonds paying 5 percent interest on that mortgage. The banks, of course, make that profit of 2 percent, although they make a charge for handling these guardianships along with it.

I

Mr. DRIVER. Did you find any instances where bonds dealt in by the guardians were carried on their books at less than par?

Mr. CLELAND. I could not get a record of those bonds through the Marion Title & Loan Co.

Mr. DRIVER. There is nothing in the report made by the guardians that would indicate any difference between the par value and the actual investment charged?

Mr. CLELAND. No, sir; I do not think there is anything in the report that would indicate that difference. Up until 1926 they made no reports. In 1926, they began making reports and that has been continued until the present time. The reports that came to the Indianapolis office in 1930 showed the investments in these various securities as having been made sometime during the year 1929. As a matter of fact, these investments, or some of them have been made for years, but have not been approved by the courts; so they filed a petition in court asking authority to make the investments.

Mr. SABATH. Were not some of these bonds held by the banks unloaded on these veterans' estates?

Mr. CLELAND. There was a general unloading of bonds and securities on the estates. In some instances, these bonds probably came through customers, who, when the bank got in a tight place, put up bonds as collateral.

Mr. GREENWOOD. Were some real-estate companies organized after the banks went into the hands of receivers up there, for the purpose of unloading their securities?

Mr. CLELAND. The companies were not organized then, because they had been in default 2 or 3 years, practically so far as the Chicago properties were concerned, at the time they bought the bonds and turned them over to the guardianship estates.

Mr. O'CONNOR. Was there any interlocking of directorates so far as those Chicago companies were concerned?

Mr. CLELAND. None that I know of.

Mr. O'CONNOR. Do you think that some bank customers, or some contractors, had held those bonds for some time before they were unloaded?

Mr. CLELAND. I think that some customers of the bank put some of them up as collateral. The Marion Title & Loan Co. must have been picking them up somewhere.

Mr. SABATH. When were the bonds acquired by the estates? Mr. CLELAND. The records show in 1929 and 1930. The order of court was granted September 30, 1930, but the purchases had been made before that time.

Mr. GREENWOOD. Is it your opinion that a conspiracy existed among a group of people there for the purpose of unloading these securities upon these estates?

Mr. CLELAND. I do not know that I would put it in that way; but certainly there was a concerted effort to get these securities into the hands of the veterans' estates. No other conclusion can be drawn except the conclusion that they were trying, through the Marion Title & Loan Co., to get this stuff into the estates because they had the cash that was needed in their operations.

Mr. GREENWOOD. And did they know that the amount of the security was not worth the amount at which they were transferred to the estates?

Mr. CLELAND. They positively knew that the securities of the Marion companies were not worth the price at which they were turned over. They should have known that the securities in the Chicago concerns were not worth the amount at which they were transferred, but whether they did, or not, I do not know. If they had used ordinary care and diligence in the matter, they should have known it.

The CHAIRMAN. As I understand it, you made no investigation except as to the situation in Marion, Ind.

Mr. CLELAND. I did not have time to, Mr. Chairman.

The CHAIRMAN. You did not make any other investigation, did you?

Mr. CLELAND. I started for Fort Wayne, and I was working at that on yesterday.

The CHAIRMAN. What did you say was the aggregate amount of veterans' funds involved in this investigation you have made?

Mr. CLELAND. There was $363,000 as of September 30, 1930. The CHAIRMAN. Did you attempt to audit or to arrive at what you considered the fair market value of those securities?

Mr. CLELAND. Yes, sir. For the 14 outstanding bad securities, including the Chicago buildings and that sort of thing, the cost sheet showed $125,096.50, and the present value was shown to be $50,284.45.

The CHAIRMAN. I want the aggregate, and not the details.

Mr. CLELAND. The loss on those 14 outstanding bad securities was $74,812.05. Taking the aggregate, on September 30, 1930, there was $363,736, and the securities, as we have figured out the present values, amount to $55,212.31, the loss being $108,175.26.

The CHAIRMAN. Do you indicate that as the final estimated loss to the guardianship estates?

Mr. CLELAND. In regard to the losses, that is a conservative estimate. In my opinion, the losses will be more than that when they are finally liquidated.

The CHAIRMAN. What remedy do the guardianship awards have? Mr. CLELAND. They have a civil action against the Grant Trust & Savings Co., and, in my judgment, a right of action against the directors and officers of those banks. They also have a right of action

against the stockholders of the banks on their double liability assessment, under the Indiana banking laws.

The CHAIRMAN. Do you think there is a probability of recovery under those circumstances.?

Mr. CLELAND. I think that a large part of it can be recovered.

The CHAIRMAN. Did you find any evidence of malfeasance, collusion, or neglect of duty on the part of the courts in the administration of the guardians who were appointed, or did you investigate that phase of it?

Mr. CLELAND. I investigated it, but the only thing that can be said on that score is that the court was careless in granting the petition without requiring a statement of the securities beyond the petition that was filed. The court granted the petition as a matter of

course.

The CHAIRMAN. Would you say that the maximum indictment that could be alleged against the court was that it was careless?

Mr. CLELAND. Yes, sir; I think there was carelessness. I do not think that any charge of dishonesty could be brought against the judge.

Mr. SABATH. You say there were attorneys of record, but they were not notified?

Mr. CLELAND. Yes, sir.

Mr. SABATH. That is unusual; is it not?

Mr. CLELAND. Yes, sir.

Mr. Cox. Did you make an investigation as to the market value of the securities when they were acquired?

Mr. CLELAND. As to some of them I did, but some of them did not have any market value. Some of them, and, in fact, most of them, were below par in value when they were turned over to the estates

at par.

The CHAIRMAN. In your engagement by General Hines, were you directed simply to make an investigation, or did you consider that you were empowered to make recommendations?

Mr. CLELAND. I do not know exactly what authority I had, but I did submit my conclusions in connection with the report.

The CHAIRMAN. What is the substance of your recommendations? Mr. CLELAND. One of my recommendations or findings was that divided responsibility between the Veterans' Administration and the courts has led to a considerable amount of confusion and is contributing to some laxity in the supervision of investments and the expenditure of funds. Both of them being human, there is some inclination on the part of each to rely on the other.

The CHAIRMAN. How can there be a division of authority there, if the courts have exclusive jurisdiction in the handling of guardianship matters? That is the court's responsibility, is it not? How can there be a division there?

Mr. CLELAND. There cannot be as long as the State laws are in the status that they are now in. The Veterans' Administration has undertaken to supervise the agents of the courts, and the courts have been somewhat resentful of that in many instances, because solicitors of the Veterans' Administration interfere with the method of handling the business.

The CHAIRMAN. What evidence do you have of any indifference or negligence on the part of the Veterans' Administration in handling the estates of these wards?

Mr. CLELAND. I would not say that I have any. It is probable that at this period the solicitor at the Indianapolis office, being inexperienced with the rough and ready practice that some of us are accustomed to, might have allowed some things to slide by that a more experienced solicitor might have caught and checked.

The CHAIRMAN. How long have you been practicing law in Indiana? Mr. CLELAND. For 14 years.

The CHAIRMAN. If it was turned over to you, and it was your responsibility to devise plans for taking care of the interests of these unfortunate wards, what would you say would be the proper way of handling this situation for the protection of the interests of these wards, both their personal and property interest? In your opinion, what is the policy that should be pursued in reference to that matter? Mr. CLELAND. Of course, I have not had a broad enough picture of it to make an intelligent recommendation. However, I suggested to the Veterans' Administration in my report that the courts generally having the probate jurisdiction ought to be advised by the Veterans' Administration as to the need for the cooperation of the courts with the solicitors of the Veterans' Administration in the handling of the estates of the wards, pointing out that the policy is not one of interference with legal responsibility, but that of a desire to protect not only the wards' estates, but the courts as well.

The CHAIRMAN. Do you not think there should be some remedial legislation in Indiana with a view to requiring a more definite description of the securities and obligations in which these funds may be invested?

Mr. CLELAND. We have a uniform guardianship act which was passed in 1931, but which was not in force at the time covered by this report. That act was peculiarly worded, and those guardians who have been appointed since that time have been required to give bond. Some guardians who were appointed before that time have not given bond. I think that those guardians who have not given bond should be required to resign or give a bond, or the Administration should refuse any compensation until they do give bond.

The CHAIRMAN. Is it up to the court to make them do that, or is it up to the Veterans' Administration?

Mr. CLELAND. It is up to the court and the Veterans' Administration. The Veterans' Administration could stop the payment of compensation until a bond was provided.

Mr. O'CONNOR. During this time, what were the requirements in Indiana with reference to the investment of trust funds? Did they have to invest in first-mortgage bonds or other classes of securities. Mr. CLELAND. No, sir; there was no legislative definition or requirements as to the securities that they could invest in at all.

Mr. O'CONNOR. In connection with the interlocking of these bank directors with the directorates of the companies whose securities they bought, and in connection with the evidence that these securities went into the guardianship estates at par when they were probably, or undoubtedly, bought at less than par, did you come to the conclusion that there might be some criminal action brought against those banks?

Mr. CLELAND. Possibly, if you could get all the facts. It might be possible to have a criminal action brought. It is possible that a criminal action might be instituted. However, under the Indiana statutes, about the only action that could be brought criminally would be one for embezzlement, which would involve a lot of techni calities. I personally feel that there should be some congressional legislation, penal in character, so that if a situation of this kind should arise you could avoid the technicality of the proof that would be required in an embezzlement case, and you would also remove it from local influences, or local politics, by giving the Federal court jurisdiction.

Mr. O'CONNOR. Did you say that this $363,000 was the total amount for this particular hospital at Marion, Ind.?

Mr. CLELAND. Yes, sir.

Mr. O'CONNOR. How many other hospitals are there in Indiana? Mr. CLELAND. There are no other hospitals with guardianships cases of this character.

Mr. O'CONNOR. Do you have any idea how much is involved at other hospitals?

Mr. CLELAND. I do not know how much is involved. I believe the solicitor at the Indianapolis office told me there was something like 3,000 guardians in the State. This $383,000 represents the total money involved in about 70 guardianships. Some estates exceed $20,000.

Mr. O'CONNOR. Do you think that $3,000 would be about the average sum?

Mr. CLELAND. Probably they would average somewhat less than that. In these mental cases, there is total permanent disability pay. Mr. O'CONNOR. There must be about a million dollars involved in guardianship out there.

Mr. CLELAND. Yes, sir; there must be a million dollars involved in those guardianships.

Mr. O'CONNOR. Would you say that the loss entailed on these estates, because of poor securities, would run as high as 50 percent?

Mr. CLELAND. I think that the securities held there in Marion would run a loss of probably 50 percent. It runs to 60 percent in the case of 14 of the securities, involving an investment of $125,000.

Mr. GREENWOOD. Does the Veterans' Bureau have authority to check up on those securities, and make a recommendation as to their acceptability to the guardians?

Mr. CLELAND. I suppose it would have authority to make a recommendation, but the court would not be obligated to follow it. Mr. GREENWOOD. The court appoints the guardians?

Mr. CLELAND. Yes, sir; the court appoints the guardians.

Mr. GREENWOOD. Was there any evidence, in connection with the Marion investments, of any suggestions to the court through the solicitor, concering any of the securities purchased?

Mr. CLELAND. No, sir; I think not. The securities, I think, were purchased without the solicitor's department knowing anything about them, because the first time they could have known it was when the reports were filed in June 1930.

Mr. GREENWOOD. Did those in charge of the Iandianapolis Veterans' Bureau make any statement to the effect that they had checked up on the validity of any of those securities, or on the value of them?