On June 6, 1932, Charles Gates Dawes resigned as president of the Reconstruction Finance Corporation. On Sunday, June 26, directors of Chicago’s Central Republic Bank & Trust Co., of which General Dawes was chairman, met to discuss an emergency which threatened all Loop banks. Three hours after midnight, with RFC officials in Washington on the other end of an open telephone wire, negotiations were completed for a $90,000,000 “Dawes loan.” Much as it was, RFC money was not enough to keep Central Republic going and it withdrew from the banking field in October. Chairman Dawes resigned, started a new Dawes bank, City National Bank & Trust Co., which assumed deposit liabilities of the old Dawes bank. Two years later Central Republic was officially closed and RFC stepped in to superintend liquidation. Including payments made on the big loan and sale of collateral, RFC realized some $45,000,000. To make sure the Government did not lose too much, RFC on Nov. 19, 1934 filed suit against 5,000 Central Republic stockholders in 26 states, 3,500 of them in Illinois, to collect $14,000,000 as their liability at the rate of $100 per share. Of 140,000 shares outstanding, the Dawes family held 10,438.* General Dawes immediately squared up with RFC on his own 52 shares, but Dawes lawyers announced intentions of proving the strange thesis that the Dawes family investment company had no right to hold the bank’s stock, could therefore not be assessed.
Small stockholders were almost prohibited from defending themselves as individuals because of litigation costs. Stockholders’ groups, which quarreled among themselves, filed cross-suits charging Central Republic directors had no right to take the money, RFC no right to loan it. Finally brought to trial in Chicago last January before Federal Judge James Herbert Wilkerson, in whose court Alphonse (“Scarface Al”) Capone and Utilitarian Samuel Insull were tried, the Dawes Bank case took three months to hear.
Last week Judge Wilkerson gave his decision. Holding for the Government on every major point, he ruled Illinois stockholders must pay their share of $14,000,000 owing RFC, plus $1,400,000 in interest. Stockholders in other States will probably have to abide by Judge Wilkerson’s decision as there is little chance of 25 other trials being conducted. General Dawes made no comment, but one of the defense lawyers, Edward L. Johnston, said an appeal was probable. Even with stockholders’ contributions and increases in the value of collateral held, RFC stands to lose around $10,000,000 on the deal.
* Brother Henry May Dawes, a Central Republic director who is president of Pure Oil Co., last week was indicted by a Federal grand jury at Madison, Wis., with 45 other oil executives, on charges of Sherman Anti-trust law violations. Twenty-four oil companies were charged with entering upon unlawful agreements with respect to jobbers. Last August the “oil grand jury” returned indictments for price-fixing against most of last week’s defendants (TIME, Aug. 17).
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