CORPORATIONS: Bethlehem Loses

When the $7,500,000 Williamsport Wire Rope Co. found itself on the brink of bankruptcy in 1932, Bethlehem Steel Corp., which held 17% of Williamsport’s stock, advised the company to go into receivership. In 1937, Federal Judge Albert W. Johnson ordered that the company be sold. He approved a bid of $3,300,000 from Bethlehem Steel, and wiped out stockholders’ interests. Bethlehem’s total cash outlay in the deal was only $89,000. It paid the balance by turning over $1,200,000 par value of Wire Rope’s bonds, and certain bank claims and “open accounts” it had bought.

During the war, Bethlehem built Wire Rope into one of the largest manufacturing plants of its kind in the world, with an estimated worth of $50 million. But the more prosperous Wire Rope grew, the more unhappy former stockholders became In 1946, they filed suit to have the 1937 sale annulled on charges of fraud. An investigation of Judge Johnson’s court by a House subcommittee (headed by Estes Kefauver) gave them plenty of ammunition. Charged the subcommittee: “This wicked, evil and mendacious judge” had “corruptly, connivingly and deliberately” conspired with Bethlehem to sell it the company. Into Judge Johnson’s pocket, and those of his family and friends, had gone $210,000 in administrative expenses which Bethlehem had paid to the receivers’ attorney. These payment’s said the subcommittee, had constituted a “conspiracy” to influence the sale.*

Last January, after taking 4,943 pages of evidence, a Special Master of Federal Court agreed with the House subcommittee; the Master recommended that the 1937 sale be annulled on grounds of fraud. Last week in Scranton, Federal Judge Albert L. Watson did just that. Said he: “Only [thus] can the court be certain that all defrauded parties will have been restored to their rights.” Bethlehem, which expects to appeal, will hold the company in “constructive trusteeship” for the “rightful owners,” the original stockholders.

* Judge Johnson was later indicted for “conspiracy to obstruct justice and to defraud .the Government” along with nine relatives and friends. Four were not tried because of the statute of limitations. Johnson and two relatives were acquitted, but the remaining three were convicted.