5. On May 18 and 25, I received notice of two hearings, scheduled for May 20 and 26, respectively, on Mr. Colgan's motions. Both motions were ruled against Mr. Colgan, for his failure to give five days' notice, as required by Rule 102 of the Supreme Court. And for other reasons to be shown at the hearing hereof. P. O. Box 1003, Baltimore 3, Md. STATE OF MARYLAND, City of Baltimore, to wit: CHARLES SHAN KROFF. BE IT REMEMBERED, That on this 20th day of June 1955, personally appeared before me the Subscriber, a Notary Public in and for the said City and State CHARLES SHAN KROFF and acknowledged the foregoing instrument of writing to be his act. ANNE WARFIELD MARTIN, Notary Public. Senator O'MAHONEY. Now, in the statement of May 15, Mr. Shankroff challenged the testimony of Mr. Sobeloff and of Mr. Hospelhorn. I have here a letter from Mr. Hospelhorn, John D. Hospelhorn, deputy bank commissioner, State banking department, Baltimore. Senator WATKINS. He was the man in charge of the liquidation of that bank? Senator O'MAHONEY. He was the receiver. Senator WATKINS. The receiver, rather. Senator O'MAHONEY. It is dated May 20, 1956 and it was also addressed to the chairman of this subcommittee: The writer has had brought to his attention a letter dated May 15, 1956, forwarded to you by one Charles Shankroff, and after carefully perusing the material contained therein, I trust that you will pardon we in writing you with the request that you accept the attached affidavit of the undersigned as a true and correct statement pertaining to several of the matters mentioned in Mr. Shankroff's letter, in which he uses the truth rather loosely, and some of his observations would appear to be the result of 20-20 hindsight. I sincerely hope that you will make the affidavit which is attached, a supplement to the receiver's personal testimony which was made before your subcommittee on Saturday, May 5, 1956. Thanking you, I am Sincerely yours, JOHN D. HOSPELHORN, Deputy Bank Commissioner and Receiver of the Baltimore Trust Co. The affidavit is a two-page document, single spaced, and it is sworn to before notary public, Catherine M. Noll, on the 20th day of May 1956. Suffice it to say, since the document will speak for itself, that in this affidavit Mr. Hospelhorn repudiates all of the statements of fact alleged in the Shankroff letter with respect to Mr. Hospelhorn's testimony and his activities. I will file for the record a copy of the letter and a copy of the affidavit. The originals will be kept in the files of the committee. I will hand a copy to you, Senator Watkins, and I have others for the members of the committee. (The documents referred to are as follows:) Hon. JOSEPH C. O'MAHONEY, Member of the Committee on the Judiciary, BALTIMORE, MD., May 20, 1956. Senate Office Building, Washington, D. C. DEAR SENATOR O'MAHONEY: The writer has had brought to his attention a letter dated May 15, 1956, forwarded to you by one Charles Shankroff, and after carefully perusing the material contained therein, I trust that you will pardon me in writing you with the request that you accept the attached affidavit of the undersigned as a true and correct statement pertaining to several of the matters mentioned in Mr. Shankroff's letter, in which he uses the truth rather loosely, and some of his observations would appear to be the result of 20–20 hindsight. I sincerely hope that you will make the affidavit which is attached, a supplement to the receiver's personal testimony which was made before your subcommittee on Saturday, May 5, 1956. Thanking you, I am Sincerely yours, JOHN D. HOSPELHORN, Deputy Bank Commissioner and Receiver of the Baltimore Trust Co. AFFIDAVIT OF JOHN D. HOSPELHORN, DEPUTY BANK COMMISSIONER-RECEIVER OF THE BALTIMORE TRUST Co. I was appointed receiver of the Baltimore Trust Co. in the case of State of Maryland v. The Baltimore Trust Company on January 5, 1935. At the time the Baltimore Trust Co. was placed under the bank commissioner under the terms of the Emergency Banking Act of Maryland, which was passed at a special session of the Legislature of Maryland in March 1933, the trust company had common capital of $6,250,000, surplus $3 million, guaranty fund $7,700, and deposits of approximately $37 million. The trust company remained under the custody of the bank commissioner and the Maryland Emergency Banking Act until January 5, 1935, and at that time the deposit line had been reduced through payments, etc., to approximately $24 million, represented by certificates of indebtedness issued under a plan of reorganization which was drawn up and approved by the old depositors of the trust company in August 1933. On February 5, 1935, upon a petition of the receiver, Hon. Eugene O'Dunne, the judge of the supreme bench sitting in circuit court No. 2 of Baltimore City, found an assessment of $10 per share due and owing by the some 3,900 stockholders in the defunct trust company, and his order was subsequently approved and confirmed by the Court of Appeals of Maryland on June 18, 1935. On September 11, 1935, by order of the said O'Dunne, Simon E. Sobeloff was appointed as a special counsel to look into the affairs of the trust company for the purpose of ascertaining whether or not there was any civil or criminal liability attributable to the acts of the officers and directors of the trust company prior to receivership. On August 6, 1936 suits were filed by Attorneys Alexander Armstrong, J. Purdon Wright, and Simon E. Sobeloff against various and sundry directors of the trust company, based on the Sobeloff report, alleging in the suits that there were miscellaneous losses in the estate of approximately $20 million. On June 18, 1937, all of these suits were settled against the various directors for a total sum of $225,000 and in accepting this settlement I quote what the Honorable Judge O'Dunne said from the bench at that time: "It is only fair to the present counsel to the receivership to say that the settlement is not made on their advice, or even with their approval, and I think that some of them are rather displeased with the court's action in compromising the litigation at so low a figure, when they entertained high hopes of a much larger recovery in the trial of the cases set for next fall." The affairs of the receivership have been entirely liquidated and wound up, the final dividend having been paid to the depositors (represented by certificate of indebtedness holders) on November 12, 1942. It is true that the records, however, show the receivership still to be open, but the receiver only continues as such as custodian for a few items which have no asset value whatsoever to creditors. The $5 settlement permitted by Judge O'Dunne to various stockholders who availed themselves of such settlement privilege, was made by the court without the approval of counsel and/or the receiver, so that an immediate fund might be collected and become available to be distributed to the creditors. There was a deadline set by the court for this $5 settlement, and after the expiration of said date, all other stockholders who did not avail themselves of said settlement opportunity were pursued by the receiver for the full amount of the stockholder's liability, or $10 per share. At the time this settlement was offered by the court to the stockholders, Simon E. Sobeloff was busily engaged in making his investigation of the affairs of the trust company, in accordance with the court's order of September 11, 1935, and he had nothing whatsoever to do with this unusual settlement made with many of the stockholders of the trust company. For the record the receiver again states that the total amount paid to the creditors of the trust company from the liquidation of the assets was 70.34218 percent. The only connection Sobeloff had with the building during ownership by the receiver was in connection with his investigation, and in his report he made references to the total amount of the investment which the trust company had in the building structure and land. At the time of the receivership this building was heavily mortgaged by some $3,500,000 and there was also accrued and unpaid a substantial amount of taxes, as well as interest to the mortgagee. The sale which the receiver made of the shares of Baltimore Realty Trust, which owned the building by corporate title, was a valid sale having been duly approved by the court as a result of the recommendation of the receiver, and the said Sobeloff had no connection whatsoever with this sale. Rigger subsequently sold the building to Edward C. Hoog and his interests at Hagerstown, and subsequently Hook sold the building to Raymond J. Funkhouser, and it was not until that time that Sobeloff came into the picture representing Funkhouser. Directors Donald Symington and Phillips Lee Goldsborough were not required to make any contribution to the multiple settlement of the directors' suits due to the fact that it was well known to the receiver and the court that both of these directors were already financially obligated to the receivership estate in such amounts as were far in excess of their financial resources at the time. JOHN D. HOSPELHORN, STATE OF MARYLAND, City of Baltimore, to wit: I hereby certify that on this 20th day of May 1956, before me the subscriber, a notary public of the State of Maryland, in and for Baltimore City, personally appeared John D. Hospelhorn, deputy bank commissioner for the State of Maryland, and receiver of the Baltimore Trust Co., and made oath in due form of law that the matters and facts set forth herein are true to the best of his knowleldge, information and belief. Witness my hand and notarial seal the date and year last above written. CATHERINE M. NOLL, Notary Public. Senator O'MAHONEY. Now, in addition to the foregoing, I received a letter dated May 20, 1956, from the nominee, Mr. Sobeloff. This letter will now be made a part of the record. I will hand the original to Mr. Sobeloff, in case he wishes to read it into the record himself. (The letter referred to is as follows:) Hon. JOSEPH C. O'MAHONEY, OFFICE OF THE SOLICITOR GENERAL, Senate Office Building, Washington, D. C. DEAR SENATOR O'MAHONEY: Permit me to comment on the principal features of the letter addressed to you by Mr. Charles Shankroff, which appears in the Congressional Record of May 17. Boiled down, Mr. Shankroff's letter levels three basic charges against me: 1. That in the sale of the Baltimore Trust Building I was counsel both for the receiver, as seller, and for the buyer. I was neither. 2. That I settled suits against the directors for an inadequate amount. 3. That I represented inconsistent interests in the settlement of the stockholders' liability. These charges are utterly without foundation. I. THE RECEIVER HIMSELF SOLD THE BUILDING AND NOT TO ANY CLIENT OF MINE The facts are, and the record shows, that I represented neither the seller nor the buyer in that transaction. The seller was the receiver but Mr. Shankroff persistently ignores the limited nature of my legal employment under the court's order, namely, that I had nothing to do with the liquidation of the assets of the receivership. My employment was limited to making an investigation of the causes of the failure of the Baltimore Trust Co., and later in suing the directors. I was appointed by the judge as an independent officer of the court. Mr. John Hospelhorn, the receiver, had other counsel in the administration of the estate. He confirmed on May 5 that I had no part in the sale of the building and was not consulted by him in respect thereto. This was a matter beyond my scope. I was not even aware of the sale when it was made. Nor did I represent the party that purchased the building from the receiver. In 1943, nearly years after I had completed my assignment and had been discharged by the court, a subsequent purchaser of the building (Raymond J. Funkhouser), whom I did not know at the time of his purchase, retained me, at the suggestion of his regular counsel, Mr. James Ingram, of Hagerstown, to have the receiver remove his filing cabinets which were occupying valuable office space in the building. That was the only occasion on which I had any business with or for Mr. Funkhouser. This was after the receiver had made final distribution to the creditors. I did not even know him when he bought the building and certainly did not know when the receiver made the original sale to someone else. From Mr. Hospelhorn's testimony I understand that the sale to Mr. Funkhouser was the third transfer after the receiver's sale of the building. In these circumstances Mr. Shankroff criticizes my professional conduct. Mr. Hospeihorn, the receiver, who was summoned to appear before the subcommittee to support the charges, completely refuted them. He verified that he, as receiver, sold the building and that I had nothing to do with it. II. THE DIRECTORS' SUIT: WHO SETTLED AND WHAT WAS SETTLED? The second charge is that I settled claims against the directors for an insufficient amount. Mr. Shankroff says in one part of his letter that the claim amounted to $20 million; elsewhere he fixes the amount at $56 million. Neither figure is correct. In my report I found that the directors had been guilty of neglect of duty and recommended suits. When 1 of the 3 counsel for the receiver declined to participate, I was appointed in his stead. Because of technical uncertainties as to jurisdiction duplicate suits were filed at law and in equity. In the main suit, to which Mr. Shankroff refers, the bill of complaint recited some 40 transactions in which losses had occurred. It was not claimed that the directors were liable for the total loss. In the prayer for relief the court was asked to order an accounting to determine what part of the loss was attributable to negligence in any particular transaction and upon which transactions individual directors were to be held liable. No specified amount was claimed. Mr. Shankroff's figures are arrived at by aggregating the various losses recited and on which no specific amount of liability was claimed. And he lumps together the duplicate suits to inflate the alleged total. Also he apparently adds up alternative counts where the same claim is alleged under different legal theories. Such a total is meaningless as a basis for judging the adequacy of the settlement price. The record further shows a specific notation in the judge's order that I did not recommend the settlement. Reasons for the settlement There were, however, strong practical reasons making the settlement advisable-difficulties of proof due to death, unavailability of witnesses, reluctance of others to testify, etc. The wisdom of the settlement satisfied the court at that time. Despite the wide scope of interests affected, which were represented by some of the leading lawyers at the bar, no exceptions were filed to the settlement. Mr. Shankroff's accusation is based upon his interpretation and speculation 20 years after the event. The repeated assertion that the Directors were charged with criminal liability is not true Repeatedly the Shankroff letter says that my report found criminal and civil negligence. This is not true. My report expressly absolved the defendants of fraud, bad faith, and all criminal liability. I refer to the report itself, vol. II, pp. 522 ff. See also photostat of published summary in Baltimore Sun, June 7, 1936. The featured headline reads: "Sobeloff's final report on affairs of old Baltimore Trust summarized-Officer of court finds reckless management-Recommends suit against directors, but asserts there is no ground for criminal action." In view of Mr. Shankroff's acknowledged familiarity with my report, his misstatement cannot be inadvertent; yet his argument is largely based on this incorrect premise. Such deliberate distortion and misrepresentation shows his accusations to be completely irresponsible. The Shankroff attack on James Bruce re Hendley transaction Mr. Shankroff says that James Bruce, a director, whose letter the committee chairman read into the record, "obviously lies." He refers to a transaction for which suit was filed by me and cocounsel against Howard Bruce. The odd twist that Mr. Shankroff gives the Hendley transaction may be based on a deliberate confusion of James Bruce with Howard Bruce in order to weave into his story the sensational allegation of Hendley's suicide, which, even if true, would be of douobtful relevance. It was Howard, not James, who returned to Hendley certain collateral. This happened long after James Bruce had left the bank, and I am criticized for not suing James Bruce. Howard Bruce, who surrendered the collateral, was sued for this. However, in fairness, I should add that Judge Stanton, after a full trial, found Mr. Howard Bruce not liable and absolved him. Certainly, I was not favoring either James or Howard Bruce, for both were sued. (James Bruce was named a defendant for other transactions and contributed substantially to the directors' settlement fund.) Attacks on others In his persistence to make these charges stick, despite the repudiation at the hearing, he now finds it necessary to denounce Mr. Hospelhorn as part of a "conspiracy to cheat and defraud the depositors and creditors"; to impugn the integrity of Senator Radcliffe; to accuse the witness, Mr. Stockbridge, of double talk"; and to doubt the candor of Circuit Judge Soper by referring to him as sitting "ominously silent" in the face of these charges. III. SETTLEMENT OF THE STOCKHOLDERS' LIABILITY Groundless, too, is the charge that I represented inconsistent interests in the settlement of the stockholders' statutory double liability. The court records show that in the latter part of 1935, while I was engaged day and night in the preparation of my report and was not doing any other work for the receiver, or indeed for any other client, a committee of lawyers negotiated with the judge to settle the $10 per share lilability for $5. I did not participate in these negotiations. Mr. Shankroff accuses me of the responsibility for inadequate assessments. I had nothing to do with the amount of the assessment, nor do I agree that it was in fact inadequate. No one at the time so thought. Any aggrieved party, whether the depositor or receiver or his counsel, or depositors' protective committee, could have objected and appealed. Mr. Shankroff's is the first challenge. Mr. Shankroff chooses to ignore the fact that what I did in my limited sphere and what the receiver and all others connected with the Baltimore Trust case did, was at every turn under the watchful eye of Judge O'Dunne, a man of the highest integrity and alertness. Mr. Shankroff is perhaps too new in Baltimore to know the firm position of Judge O'Dunne in the regard of the people of that city. It is sheer presumption for him to suggest after two decades that he has found irregularities that had been overlooked by a community and its press that were watching these proceedings with keenest interest. Respectfully yours, SIMON E. SOBELOFF. Senator WATKINS. Might I make the record absolutely clear by asking the nominee if this testimony may be received as under oath, the reading of this letter? |