The letter is as follows:) Registered, return receipt. Mr. E. A. WICK, NOVEMBER 27, 1959. Archer Daniels Midland Co., Post Office Box 532, Minneapolis, Minn. DEAR ELNAR: I today delivered to Great Western Malting Co. the 3,283 shares of California Malting Co. stock that was issued to Archer-Daniels-Midland Co., and attached hereto you will please find their check for $364,413. The excise tax, which amounts to 4 cents per $100 of value will be billed to Archer-Daniels-Midland Co. in due course, and I will pass it on to you for payment. I am sending you this check as per your request. Sincerely yours, H. W. COLLINS. Mr. SCHMIDT. Mr. Corey, you originally invested $3,030 in this California Malting Co., right? Mr. COREY. Right. Mr. SCHMIDT. Now, did Archer-Daniels-Midland hold a Uniform Grain Storage Agreement on the facilities of the California Malting Co. in Los Angeles? Mr. COREY. They probably did. I think you developed that information yesterday, and they probably did. Mr. SCHMIDT. Do you know whether or not your office handled this Uniform Grain Storage Agreement that was on these facilities? Mr. COREY. If it was in my territory, my office handled it. Mr. SCHMIDT. Do you know how much storage capacity in the Portland area the Archer-Daniels-Midland Co. has under uniform grain storage agreements? Mr. COREY. No, sir. Mr. SCHMIDT. The record of the U.S. Department of Agriculture concerning approved capacity of warehouses shows it to be 13 million bushels. Would that be approximately correct? Mr. COREY. If that is what the record shows, I have no reason to doubt it. Mr. SCHMIDT. Mr. Corey, did you participate on behalf of the Government in the 1956 negotiations for Uniform Grain Storage Agreements? Mr. COREY. I was present at some of the discussions. However, the negotiations with the industry were carried on by the Washington office and I had no participation or had nothing to do with that. I could have been present but I had nothing to do with the negotiations themselves. Senator SYMINGTON. You said you could have been present. Were you present? Mr. COREY. There have been many meetings regarding this Uniform Grain Storage Agreement. Some of them I was there and some of them I was not. Senator SYMINGTON. Negotiations between the Department of Agriculture and the trade? Mr. COREY. That is right. Senator SYMINGTON. Thank you. Mr. SCHMIDT. Mr. Corey, who arranged for the hiring of the superintendent of the Three State Warehouse Co.? Mr. COREY. Mr. Smith. Mr. SCHMIDT. Who is the superintendent? Mr. COREY. Con Jacobson. Mr. SCHMIDT. Do you know Mr. Jacobson? Mr. COREY. I have known Mr. Jacobson for a number of years. Mr. SCHMIDT. Did you make the initial contact with them for his employment by the Three State Warehouse Co. ? Mr. COREY. I told Mr. Smith about Mr. Jacobson. I don't recollect that my contact was other than that. Mr. SCHMIDT. But you did give his name to the partners as a possible superintendent, is that right? Mr. COREY. That is right. Senator SYMINGTON. May I ask, if that is true, how you can say that your interest was only that of an investor? Mr. COREY. Mr. Chairman, many times various warehousemen asked me, they have got to have a new superintendent, do I know one. This situation is not unique to the Three State Warehouse Co. It has happened in connection with many storage facilities. Mr. SCHMIDT. Do you remember getting a letter from Mr. Jacobson asking you whether there was a job available with the Government in your office? Mr. COREY. No, I don't recollect that. Mr. SCHMIDT. Or your replying to him that you knew of a position with Three State Warehouse Co.? Mr. COREY. I don't recollect the correspondence, Mr. Chairman. Mr. SCHMIDT. Now, did you ever disclose your interest in this Three State Warehouse Co. or California Malting Co. to your superiors in the Department of Agriculture? Mr. COREY. I was never asked. Mr. SCHMIDT. You were never asked. Did you ever have to disclose to them any of your outside holdings, or did you ever discuss with them or did they ever discuss with you your ownership in anything, any company that might be contracting with the Govern ment? Mr. COREY. They have never asked me in the years that I have worked in and out of Government, they have never asked me what I owned. That is while I was with the Government. Senator SYMINGTON. Am I to understand that you were never told by the Department of Agriculture at any time that you should not have an interest in a company where money was being paid and where decisions were being made out of your office? Mr. COREY. The first notice that I have any recollection of was the bulletin that came out in the latter part of May 1959, and which was produced in the Portland office under date of June 1, 1959, regarding this code of ethics as adopted by the 85th Congress. Senator SYMINGTON. And before that there were no regulations in the Department of Agriculture that you knew anything about or which had been submitted to you verbally or in writing statingMr. COREY. Not to my knowledge. Senator SYMINGTON. Stating it would be improper for you to have a cut on the side in a warehouse setup where you were making the decisions as to how much grain would be there and enforcing the regulations incident to the profits that came out of that transaction, is that correct? Mr. COREY. Mr. Chairman, if I could presume on your good nature, I don't like the word "cut" but on the other hand, to my knowledge there was never any regulation and certainly there was nothing ever presented to me to sign indicating my ownership in anything. Senator SYMINGTON. Well, Mr. Corey, if the word "cut" is the wrong word, I withdraw it. Would you mind substituting a word for it so we can change the record? Mr. COREY. Well, I am not much of a grammarian, so I would leave that to the chairman. Senator SYMINGTON. Would "participation" be all right? Mr. COREY. I think that would be more Senator SYMINGTON. Thank you. Mr. SCHMIDT. Mr. Corey, this committee has received an affidavit from George C. Jacobson, superintendent of the Three State Warehouse Co. in Portland, Oreg. I will ask that it be included in the record, but I will quote to you what it states: In about January 1956, at which time I was working and living in Ogden, Utah, I wrote a letter to Earl Corey who was the director of the Commodity Stabilization Service in Portland, Oreg., asking him about a job in any capacity. He answered my letter and advised me there was no job available for me in the Government in which I would be interested, but there was some possibility of a new job in a new company being formed in Portland, Oreg. Do you remember that? Mr. COREY. This letter escapes me, Mr. Chairman. Mr. SCHMIDT. He also states: Thereafter in April 1956, Larry Smith telephoned me in Utah, told me that although we did not know each other, we had a mutual friend in Earl Corey who had recommended me to him and who said I have the qualifications to assume the job of superintendent of the grain storage company. (The affidavit referred to will be found in the files of the subcommittee.) Mr. COREY. I knew Mr. Jacobson over in Utah in the 30's when I was with the Farmers National Grain Corp. Senator SYMINGTON. Senator Young, have you any questions at this time? Senator YOUNG. None. Senator SYMINGTON. Senator Proxmire? Senator PROXMIRE. Yes. I would like to ask Mr. Corey-Mr. Smith gave you a $30,000 loan which you used to make your investment in Three State Warehouse Co., is that correct? Mr. COREY. That is right. Senator PROXMIRE. This loan was secured by your general net worth. It was noninterest bearing. Is that correct? Mr. COREY. No. It was interest bearing. Senator PROXMIRE. You paid no interest on it. Mr. COREY. That is right. Senator PROXMIRE. What was the interest? Mr. COREY. As I recall it, 434 percent. Senator PROXMIRE. Why didn't you pay the interest? Mr. COREY. He didn't charge it to me. Senator PROXMIRE. At the time that you accepted the loan it was your understanding you would have to pay 434 percent. Mr. COREY. That is right. Senator PROXMIRE. So far as you are concerned, you still owe that 434 percent to him. Mr. COREY. If he makes a demand on me for it, I will pay it. Senator PROXMIRE. Well, now, doesn't it seem to you unusual business practice for a man to make a loan of $30,000 at 434 percent and never accept the interest on it? Mr. COREY. It might appear unusual to the committee, but it is not unusual. Senator PROXMIRE. Well, this 434 percent interest would seem to me would be just as much as a legal obligation as the principal of the loan itself, wouldn't it? Mr. COREY. Well, Senator, I can't speak for what was in the mind and the thinking of Mr. Smith. Senator PROXMIRE. Was there any written document providing that, there should be a 434 percent interest obligation in connection with this loan? Mr. COREY. Yes, sir. Senator PROXMIRE. There was. Mr. COREY. There was. Senator PROXMIRE. It was executed at the time you borrowed the $30,000. Mr. COREY. That is right. Senator PROXMIRE. Would it not seem logical to you—I don't want to presume anything-wouldn't it seem logical to you that in view of your position, in view of the authority and influence that you had as Director in the Commodity Credit Corporation in the Portland office, that it might be that Mr. Smith was loaning you money and not collecting interest on it because this might be useful to this company? Wouldn't this be a logical inference? Mr. COREY. Mr. Senator, I have a long time ago given up trying to figure out why people do what they do. Some people buy stocks and some of them sell them. So I have given up a long time ago trying to determine why people do the things they do. Senator PROXMIRE. Now, would you as a prudent man loan $30,000 to a person-I presume Mr. Smith wasn't a relative of yours-and loan it to him for a period of time, permit him to make an enormous profit, $83,000, and not expect you had coming to you interest unless there was some other consideration, some other quid pro quo as a very valuable service? Mr. COREY. Mr. Senator, I think I am going to have to stand by my first statement because Mr. Smith is a man whom I have known very well for a lot of years and it is not uncommon for friends to loan another one money and in many cases the interest thing is put in there answer. Senator PROXMIRE. You say put in there as a matter of legality. Mr. COREY. If it was necessary to bring suit or something of that nature. Senator PROXMIRE. Well, then, I take it you had some kind of discussion with Mr. Smith in which the understanding was that the 44 percent was put in there as a matter of legality, but would not be collected? Mr. COREY. There was no understanding, Mr. Senator, that there was any that there would ever be any forgiveness of the interest. Senator PROXMIRE. Well, now, as I understand it, then, you borrowed $30,000 from Mr. Smith. At the end of-when this was liquidated after you saw the code of ethics, you sold out your interest and you received the profits that had been accrued or enjoyed by the partnership up to that time, your pro rata profits, which altogether amounted to $83,000, is this correct? Mr. COREY. The profits as you say amounted to $83,000. However, the profits that I made in the venture were used to pay off the noteSenator PROXMIRE. I am sorry. Would you repeat that? Mr. COREY. Now, I don't know whether I can say it verbatim. So if what I say now is a little different than Senator PROXMIRE. Yes. Mr. COREY. The records show that I did receive $83,000 out of the venture. Out of that $83,000 was taken the $30,000 of the note, and that was held in the company, and which represents the $30,000 that I received on the 29th of June 1959. Senator PROXMIRE. All right, then. You received $53,000 without actually making an investment of your own money and without paying interest on any money which you borrowed from Mr. Smith. So you had $53,000 which you received after you had paid your $30,000, is that right? Mr. COREY. That is the way it looks, but when the taxman got it, I didn't ever get it. Senator PROXMIRE. Well now, this is very interesting and I am going to ask you whether or not this was taxed as capital gain which it would seem to me it would be taxed if the Internal Revenue Department interpreted this as an investment thing, or as ordinary income which Mr. COREY. The $83,000, Senator, was reported in my income tax as earnings and taxed accordingly. Senator PROXMIRE. As ordinary income? Mr. COREY. That is right. Senator PROXMIRE. Then it seems to me perfectly clear that the Internal Revenue construed this and you construed it yourself as being paid for a service that you performed for the Three State Warehouse Co. and not as an investment return. An investment return, the laws are quite clear, if you make an investment of $30,000, hold it for more than 6 months, which you obviously did in this case, enjoy a profit of $53,000, the maximum tax that you would pay is 25 percent of your profit, capital gain. Mr. COREY. Well, Senator, the $30,000 I sold out for was the initial $30,000 I put in it. Senator PROXMIRE. I understand. But I am saying that the $53,000 Mr. COREY. As far as the capital gains is concerned, I didn't have any. Senator PROXMIRE. Because apparently the Internal Revenue Department interpreted the $53,000 as some kind of a payment or a fee 58385-60-9 |