A. G. & E.: Round I

Since Cheops let the contracts for the building of the pyramids, there has been no such juicy piece of pap as the job of reorganizing the $1,000,000,000 Associated Gas and Electric system, which fell into the bankruptcy courts Jan. 10. Biggest reorganization in history, it involves a utility empire that sprawls over 27 States, has contacts with 54 Senators, 307 Representatives, brigades of State legislators, spends around $94,000,000 a year on coal, wages, construction, supplies. Sure to stay in court for years, it will provide jobs for several trustees (not unusual price: $50,000 a year each), who will need corps of lawyers, accountants, statisticians, engineers, etc., to help them prepare a reorganization plan, administer the business, sue the former directors if necessary. A prime target of the Public Utilities Holding Company Act, its $1,000,000,000 of paper assets and 150 constituent operating companies can expect to be sharply scaled down, rearranged, recapitalized, thus bringing more security underwriting business to hungry Wall Street than it has seen from one source in many a year. In Wall Street, in Washington, in many a lesser place the burning question last week was: who is going to dish out all this pap?

Legendary are the corporate complications of Associated. Metaphysical, ingenious, a cost-accountant's flea-circus, they are as far above cash-register economics as Einstein is above arithmetic. Legendary also is the personality of Associated's creator, pudgy, laughing, strongarm Tactician Howard C. Hopson. Hopson learned the utility ropes as head of the Capitalization Division of New York State's progressive Public Service Commission, worked 15 hours a day, slept in his office, binged Homerically, ran up astronomical bills telephoning his Janizaries at all hours in all parts of the country, candidly spoke of his "collapsible securities," and was delivered by heart disease into the hands of male nurses just before his system's top holding companies, CO. and CORP., began tottering (TIME, Dec. 25). Nearest thing to a Hopson representative at that time seemed to be former U. S. Attorney General Homer Cummings, counsel for Hoppy's three sisters. A good friend of Cummings, Roger E. Whiteford, went in as president of CO. at $10,000 a month. Last week President Whiteford resigned, unable to collect pay from his insolvent employer. Typical of Hopson corporate architecture is the fact that Whiteford turned out to be the first and only employe CO. had had in at least eight years. Reason: all top officers had been paid by Hoppy personally, who then billed their services down the line to the operating companies CO. controlled. Last check, drawn in January, by Associated's two top holding companies was for $5,000 worth of penny postcards and printing to notify its 250,000 security holders that Hoppy's heir was a U. S. District Court.

First of many a seriocomic fracas (past and to come) on the vast Associated battlefield was the choice of the Court. As their last free act, Hoppy's strategists sought an anti-New Deal judge, petitioned for the receivership in the northern New York district. First hearing was held in Malone, N. Y. population: 8,657. Location: just below the Canadian border, beyond which Associated's most intimate set of books were cached until the U. S. Department of Justice retrieved them a few weeks ago. This was not Associated's first flight to the northern New York judicial district. In 1936, after having steered a security holders' suit to a northern judge, Hoppy settled out of court when Chief Justice Hughes sent reorganization virtuoso Judge Julian Mack up from the southern tier to handle the case.

In Malone, Judge Frederick Howard Bryant was pelted with protests from security holders who didn't have the price of a ticket to Malone, who would have had to pitch tents if they had reached it. The town was suddenly full of lawyers. Up from Washington came Treasury men to defend their $5,000,000 tax claim, protest as prior creditors against running the show in the snow country. Up also came SEC lawyers to argue that Associated's seat of business is New York City, that the security holders' committees are there, that the case should be tried there. Up from their New York City headquarters came Associated's lawyers, asking to have President Whiteford named trustee. Meanwhile, Republican Judge Bryant was getting more than a bellyful of other requests. Mentioned for trustee were Congressional lame duck Republican Bert Snell, New York Republican Lawyer-politician Ken Simpson. Upshot was that Judge Bryant, dubbing it "not a mournful departure," shipped the case to the southern district. There it bounced into the lap of Democratic Judge Vincent Leibell. Associated strategists, fighting for a friendly trustee, turned their attention to friends in the Democratic Party.

No sooner had Associated been dragged back to New York than another row broke out, this time within the New Deal. Conservative Henry Morgenthau, New Deal Attorney General Bob Jackson, aging New Deal Senator George Norris, Brain-truster Ben Cohen and others wanted the SEC to become trustee itself, as it may under Ben Cohen's Holding Company Act. Their argument: an SEC trusteeship would be the surest way to keep the old Associated crowd from muscling into the reorganization, assure the fairest break for the small holders of Hoppy securities, of which there are almost as many as there are meters in the Associated system. Their fear: that a lax trustee might fail to integrate the sprawling Associated properties as required by Section 11 of the Holding Company Act (the famed "death sentence"), thus set a bad example for the integration of less vulnerable systems. But SEC did not want to be trustee. By a four-to-one vote (Commissioner Eicher dissenting) it informed Judge Leibell he would have to find a completely disinterested party, and it informed fearful New Deal friends that its broad veto powers over any reorganization plan would safeguard Section 11.

First disinterested name to float from the judge's office was that of a modest, softspoken, pro-bono-publico millionaire. Johnny Hanes had left Wall Street to serve as liaison between business and the New Deal, first as an SECommissioner, then (until last December) as Undersecretary of the Treasury. He had quarrelled with many New Dealers, was anxious to get back into business, had turned down several lucrative offers. The Associated trusteeship tempted him because it combined business with a chance to do a job in the public interest. But no sooner was his name proposed than lightning began to play around his head. It started when New York Times Columnist Arthur Krock wrote a column which he thought would give his friend Hanes a good sendoff. Wrote Krock: ". . . Holders of these [Associated] assets and liabilities, in a series of informal meetings, decided that their choice for trustee was Mr. Hanes." Came the storm. Senator Norris, a power-trust-blaster from way back, blasted away at the words "informal meetings," deduced they must have included the very banking or management groups whom a trustee might have to prosecute. He advised the SEC to probe the situation "to the bottom." Krock blasted back, denying the inference, telling the Senator he had the sequence of events all wrong. In his counterblast, however, Krock revealed that Hanes had been recommended to the court by (among others) Homer Cummings.

While subterranean current flashed between Washington and New York, SEC Chairman Jerome Frank answered Senator Norris' letter. He saw no need for the suggested probe since Hanes had candidly informed the SEC exactly who his backers were. The list: a member of the investment firm of Lazard Freres & Co., which has no direct interest in Associated; officials of the Chase National Bank, which has; Guaranty Trust Co.; Bankers Trust Co.; and CO. President Roger Whiteford, wrote Frank, has "been made president of that company at the instance of the sisters and a brother-in-law of Mr. Hopson." The SEC had decided (Commissioner Eicher again dissenting) that these facts did not constitute "statutory disqualification" of Mr. Hanes, but should be called to the attention of the Court.

Well above suspicion were the motives and integrity of Wall Street Alumnus Hanes. But by week's end it was certain that he would not be a trustee of Associated. Homer Cummings' kiss had proved sure death in New Deal Washington, and Homer Cummings' friends and clients had thereby lost Round I of the great Associated battle to the New Deal. As Judge Leibell was pondering other names at week's end, Associated's 1,762,000 customers, unperturbed by the fight half-a-dozen holding companies away, found their lights went on and off as usual.

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