Philadelphia Shocker

Big Business and Best Families are more closely united in Philadelphia than in any other major U. S. city. Success in trade may not lead to the Wistar Parties, the Philadelphia Club, the Fishing Company of the State in Schuylkill or the Assembly, whose roster of names has changed but little since it was founded in 1748. But in Philadelphia, as in Boston, finance and society tend to merge in a vast accumulation of personal trust funds. There the Stock Exchange and the Racquet Club stand almost cheek by jowl. Last week, to Philadelphians in their clubs and counting rooms came a profound shock. A dozen of the city's best people and biggest money men were indicted for the grossest kind of fraud.

The Philadelphia indictment, while not entirely unexpected, had come with unusual speed in the wake of a flying squad of Congressional investigators. The case concerned the State's oldest (incorporated in 1807) and largest (assets of $132,000,000) guaranteed mortgage company, The Philadelphia Co. for Guaranteeing Mortgages, which collapsed in 1933 and is not to be confused with the venerable Pennsylvania Co. for Insurances on Lives and Granting Annuities. At the time Philadelphia Co. F. G. M. went under, its officials prepared the receivership petition, took it to the home of a Federal judge in Easton, Pa., secured appointment of themselves as receivers. The fallen company was apparently in efficient hands and most Philadelphians gradually forgot about its troubles. Among those who did not forget were the thousands of investors, nearly one-half of them women, who had lost a good part of their savings.

Last May, when the purple path of Congressman Adolph Joseph Sabath's committee investigating bondholders' reorganizations led to Philadelphia for a second time, Philadelphia Co. investors packed the Federal Building to hear what the Philadelphia Inquirer called "one of the most sensational exposes of alleged practices in Philadelphia's top-rank financial world within memory of the present generation." When the Sabath committee scored, the investors cheered. When the sweating bankers offered explanations, they booed and waved empty pocketbooks. Sample revelations:

P:Philadelphia Co. in 1931 reported to investors net earnings of $725,000, to the Government for income tax purposes a net loss of $40,799.

P:Philadelphia Co. sold $200,000 worth of bonds of the midtown Sylvania Hotel when back taxes were unpaid. The company's President Thomas Shallcross Jr. admitted this violation of the law was "a very poor practice."

P:"Second" first mortgage bonds were issued on the Sylvania when the "first" first mortgage bonds were already in default. Sales Manager Eli Kindig said he sold them "with mental reservations."

P:One I. C. Pennington, a $35-per-week clerk without "any assets at all," signed surety bonds totaling $40,000,000 on such properties as the swank Bellevue-Stratford and Ritz-Carlton Hotels.

After three days of hearings U. S. Attorney Charles D. McAvoy stepped in, announced he would seek grand jury investigation. Seventeen days after the Sabath Committee arrived in Philadelphia, a jury began its task. On Sept. 18, the first indictments were returned, on Sept. 28 a second batch. But they were not made public and the jury continued to dig.

Last week the jury informed Federal Judge Oliver Booth Dickinson that there would be no more indictments. The time had come to name names. Promptly Judge Dickinson, 79, for 22 years a member, of the Federal judiciary, ordered the previous indictments made public, issued bench warrants for twelve persons on four counts for using the mails to defraud and two counts of conspiracy. In the dozen were such prominent Philadelphians as:

President Shallcross, former president of the Philadelphia Real Estate Board, secretary of the Union League. Said he as he posted $10,000 bond: "All that I ask is a fair trial."

James Willison Smith, president of the Land Title Bank & Trust Co., a member of the General Council of the General Assembly of the Presbyterian Church in the U. S. A. Said he: "I cannot understand. . . ."

C. Stevenson Newhall, president of the Pennsylvania Co. for Insurances on Lives & Granting Annuities, director of a dozen Philadelphia companies. Said he: "If mistakes were made, they were errors of judgment."

Walter Biddle Saul, member of the Board of Education, partner in Saul, Ewing, Remick & Saul, counsel for Philadelphia Co. as well as for such bigtime Philadelphia enterprises as John Wanamaker and John B. Stetson. Said he: "I was and still am proud of the work which my office and I did in connection with the reorganization of Philadelphia Co."

Not named by the grand jury was Philadelphia's Mayor, S. Davis Wilson, who was last to testify before it. In 1934 he objected to the proposed Philadelphia Co. reorganization as ''a gigantic racket engineered by insiders." Subsequently he approved it, became a director. Also omitted from the true bills were Joseph E. Widener, who was a Philadelphia Co. director, and Clerk Pennington who signed the worthless bonds.

Cynical Philadelphians foresaw a fight to have the indictments quashed, scant possibility of convictions, much less of prison sentences, if & when the cases come to trial. Much talk about political spite work behind the indictments rose from the Union League and Rittenhouse clubs. And the Republican Ledger sprang to the bankers' defense with a story reporting the indictments under the head: ACCUSED DENIED RIGHT TO EXPLAIN IN MORTGAGE QUIZ.

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