The Nonpartisan Leader Newspaper, October 27, 1919, Page 5

. Examiners Find Fargo Bank Solvent Langer’s Assistant Attempts to Dodge Issue When Confronted by Facts in Hearing Before North Dakota Supreme Court - BY STAFF CORRESPONDENT S THE result of an all-day hear- ing before the supreme court of North Dakota at Bismarck, Oc- tober 15, the Scandinavian- American bank .case had been placed, in its entirety, not only before the law courts, but be- fore the court of public opinion. Boiled down to essentials, the case before the court was this: “Was the bank insolvent when it was closed by Langer and Hall ?” Bank Examiner O. E. Lofthus answered this question, after a six days’ examination of the bank, by stating, in the conclusmn of“an exhaustive re- ; port: “I am satisfied this bank is mot only solvent but also retains its surplus and some undivided profits. * % * The closing of the bank was unnecessary and -unjustified.. Considering the interests of the. bank’s patrons, the stockholders; the public and the state of North Dakota, and knowing that the bank is solvent, has an excess reserve amd is in condi- tion to resume business, it is my opinion that it should be opened and allowed to resume business.” Assistant Attorney General Albert E. Sheets, who appeared to defend Langer and Hall, attempt- ed to dodge the question of whether the bank was solvent or not. Sheets had said in his report, when the bank was closed, that it was “hopelessly in- solvent.” Justices of the supreme court insisted on knowing what Sheets meant. by this statement. Did Sheets mean that in the face of the figures cited by the state bank examiner, that the bank was insol- vent now? _No, Sheets didn’t mean that, it appear- ed. He finally confessed that at this time “it is entirely possible the bank has been made solvent.” Then what did Mr. Sheets mean, two weeks ago, in saying that the bank was “hopelessly” insolvent ? the tourt wanted to know. Mr. Sheets didn’t at- tempt to explain. Sheets having admitted that the bank might be solvent now, the court started to find out why he had declared it insolvent two weeks ago. Was it because of the bank’s reserve Sheets was asked? Examiner Lofthus had pointed out that the reserve . was $85,000 above legal requirements. Did Mr. Sheets know of any depositor having been refused ~his money when he requested it? knew nothing of this kind. From point to point the court chased the evasive Mr. Sheets. Finally the lawyer was driven, in desperation, to make this statement: “There probably wasn’t any single item that was sufficient cause for closing' the bank, but the lump total of conditions was.” This was the strongest case that the enemies of the bank were able to make—a mere statement of . an attorney’s opinion. - Contrasted to this was the evidence presented to the court by Examiner Lofthus—his own carefully. considered report after a six days’ examination, an independent report prepared on the financial condi- tion of the bank by the Equitable Audit'company and some 20-odd affidavits, refuting practlcally every claim set forth by Langer and I-Iall in clos- ing the farmers’ bank. Lofthus showed the court that hls deputy, Halldorson, in the part that he played in clos- ing the bank, acted altogether without author- ity, as he had been sent to Fargo-io look into a savings and loan company, 'accused of freezing out stockholders, and for no other purpose. Lofthus showed that before the bank was closed he had taken steps to have the bank take out some loans regarded as of doubtful value as the result of an examination just completed. EXCESSIVE LOANS PAID WITHIN LEGAL LIMIT - Mr. Lofthus said, in reviewing ‘HalldoTson’s re- port, that there were some excessive loans shown. — “These I urged be brought within their proper limi- tation. Some of these were paid in full or part and brought within their legal limit during my six days’ control of this bank. “Of the $734 194.82 reported as 20 spec1a1 items (questioned) in Halldorson’s report I find the fol- " lowing situation at this time: has been paid since September 27, 1919; that I can see no apparent, loss on the rest of them I found among this hst an overstatement of loans by Hall- No, Mr. Sheets That about $106,000 ° dorson and that, in many instances, the amounts listed are incorrect. In one instance a credit of about $8,000 and in another about $1,700 were over- looked by Halldorson and not allowed as credits against face of notes. “That especially the post-dated checks of the Na- tional Nonpartisan league are desirable collateral because they are in small amounts and spread over wide territory and the history of their payment shows a wide margin of safety.” Total collateral shown by Mr. Lofthus’ tabulated report is $2,477,251.12, or nearly two and one-half times the amount of loans. r. Lofthus finds that following the method of calculation uniformiy followed in regard to state banks, the Scandinavian had a reserve $85,000 above legal requirements, besides holding some $50,000 in Liberty bonds. “In conclusion,” says the Lofthus weport, “I find Halldorson’s report inaccurate, misleading and unjustifiable; that he refused to be check- ed and properly and to his own interest be re- lieved of his responsibilibty. From my investi- gation of ‘his report I am positive he could not have gained sufficient knowledge of the finan- . cial status to qualify him to properly pass judgment as to this bank’s solvency.” The report of the Equitable Audit company of Minneapolis is the result of a thorough investiga- _STATE BANK’S CHIEF F. W. CATHRO tion of the affairs of the bank and comprises 22 typewritten pages. M. W. Thatcher, president of the audit company, in making the statement, certi- - fied that: “Deputy Bank Examiner Halldorson’s, re- port of September 27, 1919, is thousands of dollars short of the bank’s actual financial condition and that our report, as of October 14, 1919, is a true staterhent of its affairs.” The audit company report shows that Halldorson, in attempting to prove that the Scandinavian-Amer- ican bank did not have sufficient reserves, used an entirely different method of calculation from ‘that which had been used by him and all other deputy bank examiners in ‘previous examinations.’ If the Scandinavian-American bank ‘was below its re- serves, as Halldorson attempted to show, then three other banks, which Halldorson had examined just previously, were also far under their reserves and should have been closed if the same method of cal- . culation were used. The audit company report says that “of $46,503 - listed as ‘bad: debts’ (by Halldorson) several thou- PAGE FIVE sand dollars have been paid while we have been making this examination; of the remainder those which appeared might result in a loss were with- drawn or reduced by the directors paying in the necessary amount of cash.” In regard to the post-dated check loans the audit company’s report says that the Audit Bureau of Circulation lists these as worth 85 cents on the dol- lar. They are “not excessive,” the report states, adding: “These loans are fully secured and it is a good and safe business for this bank.” Of loans listed as “past due paper” by Hall- dorson, the report shows that of $169,973 listed un- der this heading a firm of reputable Fargo attor- neys consider “poor” only $5,849.50. Concerning the $25,000 paper taken up by the directors the report says: “A large portion is col- lectible but is too slow for the bank to handle.” This was all classed as “bad debts” by Halldorson, but in the six days during which Examiner Lofthus was in charge of the bank $7,765.34 was paid voluntarily, while the directors took up an addi- tional *$25,000 to expedite matters. GUARANTY FUND COMMISSION PRAISES STATE EXAMINER On Tuesday, October 14, when the examination of the bank by Examiner Lofthus and the audit company was being completed, a meeting of the depositors guaranty fund commission was held at Fargo to look into the affairs of the Scandinavian- American bank. This is a commission composed of bankers who would have to pay from the guaranty fund any losses that might be sustained by an in- solvent bank. After seeing the progress that was being made by Examiner Lofthus in saving the bank that the state banking board had attempted to wreck, the. ~ guaranty fund commission adopted a resolution stating, in part: “We wish to commend State Bank Examiner O. E. Lofthus for the manner in which he has handled the affairs of the bank while in his charge and we _ are especially pleased to note that a large number of loans have been paid in full, while others have been reduced, and that the work of collection is be- ing carried on with diligence and every effort made to conserve and preserve the rights of all persons interested as well as the stockholders and officers of the bank.” Besides the reports of the Equitable Audit com- pany and of Examiner Lofthus affidavits were sub- mitted to the supreme court attesting to the sol- vency of the bank and disproving every material statement made by Langer and Hall and then' tool, Halldorson, in closing its doors. ; One series of affidavits shows that advance notice of the closing of the bank was given in Fargo and in the Twin Cities, in an attempt to cause a run on the bank and reduce its resources. A number of affidavits deal with the high charae- - ter of the so-called League loans. An employe of the bank, F. C. Heaton, who was quoted by Langer as stating that 75 per cent of post-dated checks were returned unpaid, sets forth that what he did - say was that it depended upon the locality—that in pTosperous localities not suffering from drouth, rust or grasshoppers, 98 per cent of the checks were paid, but4hat collections never were less than 75 per cent. It is shown that the Consumers United Stores, backed by League farmers, have a net worth of $85,000 above all debts, and that since the bank was closed $53,000 worth of loans made on their paper and objected to by Halldorson, have been taken up. ~ . Officers of the bank made affidavit that of i, one series of small personal loans classed by " Halldorson as “bad debts” or as questionable, $10,555.92 has been paid and additional loans amounting to $25,000 have been taken up by . the directors. Coming to some of the larger loans to individuals objected to by Halldorson on the ground of “insuf- ficient security” it is shown by affidavit that the $26,000 “Miller loan” has behind it property worth “ - $282,000, with indebtedness of. only $48,000. On the $33,000 “Danielson loan” it is shown that this property, 1,136 acres of farming land in Clay coun- ty, Minn., produced crops of $35,000 in 1918 and of $31 000 in 1919, besides having $10,000 worth of 4 sheep which produced $2,000 worth of wool in the last year. The total value of the Danielson hold- ~ings'is shown to be $199,000.