These bonds, it was claimed, had been selling from fifty to seventy-five cents up to that time, and the opinion publicly expressed by the receiver that the land grant would fail and thereby make the security invalid, necessarily depressed the price of the bonds and militated against the interests he was bound to protect and advance. Such conduct, the committee said, could not be justified by any theory creditable to his sagacity or his fidelity, and that it was his duty to have observed silence and to have disposed of the bonds as rapidly and advantageously as possible under authority of the court.
It was the opinion of the committee that this departure from a faithful discharge of his duties to the creditors and owners of the bank was the inception of a plan well matured and skillfully executed by which the receiver would ultimately obtain the control and ownership of the property and franchise of the canal company for himself and his friends.
The exact terms of the syndicate agreement, it was stated, were not made known to the committee which first investigated this matter in 1874, having been excluded upon the ground that it might affect the litigation pending at that time.
At the time of the second investigation, in 1880, this litigation had been concluded. The canal company had been placed in bankruptcy, its property had been sold, and a new company had been formed with Mr. Davis, the receiver of the bank, as its president. This company was then the owner of the property and in possession of it.
The committee then took up the question of the authority of the receiver to make the stockholders and depositors of the unfortunate bank a party to an agreement to, as the report expressed it, "wreck the canal company." Section 5234, of the Revised Statutes of the United States, was quoted as containing the full measure of the powers and duties of the receiver of a national bank. This section provides that the receiver "shall, under the direction of the Comptroller, take possession of the books, records and assets of every description, of such association, collect all debts, dues, and claims belonging to it, and upon the order of any court of competent jurisdiction, may sell or compound all bad or doubtful debts, and on a like order may sell all the real and personal property of such association on such terms as the court may direct," etc.
It was contended by the committee that the receiver's plain and only duty and authority under the section of the law quoted was to have applied to the court for an order to compound or sell the debts of the canal company to his trust, but that no such application was made to the court and no order to compound or sell was obtained. The testimony before the committee showed, according to the report, that the receiver applied for an order to compound a particular debt due the bank, which was granted, but the only evidence that he acted under authority of the court in making the syndicate contract and in using the assets of the bank in this illegal arrangement was in the proceedings of the bank against one Alfred Wild, a debtor of the bank, to put him in bankruptcy, in which Wild had obtained an injunction to stay the sale of some of the canal bonds pledged for the payment of his debt to the bank.
The receiver was charged by the committee with gross perversion of the facts in attempting to justify his illegal action by the approval of the court in a proceeding in which his syndicate plan was not adjudicated or passed upon by the court.
The report of the committee on the previous investigation of this matter, it was stated, did not approve the receiver's course, but attempted to justify it on the ground "that he had seen fit in his own way to save the debt, which, in the end, would pay all depositors and leave a surplus to be divided among the stockholders." In other words, the committee said, it was a case of the end justifying the means, although the means resorted to were unauthorized and contrary to law.
The receiver, the committee stated, also fortified himself behind the fact that two Secretaries of the Treasury and the Comptroller of the Currency had approved his syndicate plan, but the committee denied that these officials had any authority as executive officers of the Government to confer upon the receiver any power to do that which the law had vested in the judicial departments.
The committee expressed the opinion that if the receiver had obeyed the law and had not subordinated the interests of the bank to his own purposes, quite as much or more might have been realized on the bad and doubtful debts due the bank, much less interest would have accumulated against the bank, and the stockholders would have escaped with little or no assessment to make good the deficiency in assets to meet liabilities to creditors.
The committee concludes its report as follows:
There is no leading fact in evidence before the committee that is not consistent with this theory of his conduct as receiver. And back and behind all this is the indisputable fact that to accomplish his ends, he found it necessary to disregard the plain and reasonable provisions of law enacted for his guidance, and to throw the responsibility of his acts upon officers who had no more power than he to disobey or to recommend disobedience to its positive injunctions.
The officer who violates the commands of the law, enacted to direct or control him and to protect the rights of others, cannot complain that all reasonable and fair presumptions are made against his official acts. If he undertakes to discharge the duties imposed upon him by law in his own way and not in the way pointed out by that law, he assumes responsibilities that are not to be evaded, although the motives of his action may appear to have been far more creditable than those which seem to have controlled the receiver of the Ocean National Bank.
The committee declared that but for the fact that the receivership was so near its final closing, a resolution would have been reported to the House recommending the receiver's removal from office, and expressed the opinion that the assessed stockholders, or any of them, could, without additional legislation, prosecute an action against the receiver to recover from any of the assets of the bank remaining in his hands the amount of the assessment which they were forced to pay, or to institute a suit on his official bond for a breach of its conditions.
This report was signed by Hon. A. H. Buckner and seven other members of the Committee on Banking and Currency.
Hon. W. W. Crapo and Hon. S. B. Chittenden, members of the committee, also signed it, but with the following qualifications:
We concur in the above report, so far as it condemns the departure from the directions given in the national banking law to receivers in the liquidation of the assets of national banks. It was the duty of the receiver of the Ocean National Bank to comply strictly with the terms of the statute in the disposition of the assets placed in his hands. Instead of doing so, he exercised a discretion which, even if well intended, was unwise and in violation of law.
The conclusions expressed by the majority and minority members of this committee as to the powers and duties of a receiver of a national bank are absolutely sound, and it would be well for every receiver of such a bank to follow strictly this wholesome admonition.
And this advice applies with equal, if not greater force, to Comptrollers of the Currency. The acts of the receiver are subject to the approval of the Comptroller and all failed banks are liquidated under his general directions. If the receiver and the Comptroller adhere strictly to the law in the liquidation of the affairs of insolvent banks, even then their acts will be sometimes, and frequently have been, subject to the criticisms of those whose interests are or have been affected thereby. But when they disregard the well-defined rules prescribed by the statute for the liquidation of a trust, they assume a responsibility for which they are individually liable under their bonds.
The conditions complained of and condemned by the Banking and Currency Committee in 1880 have not been without their parallel in later years, as far as the}' relate to methods pursued in the liquidation of receiverships and the handling of insolvent banks contrary to the manner prescribed by law, and some of these methods would not stand the test of the courts or Congressional investigation.
In dealing with the property rights of others in the liquidation of failed banks the closer the Comptroller of the Currency adheres to the plain letter and spirit of the national banking laws, and requires his subordinates to do likewise, the less liable he will be to mistakes, criticism and responsibility for the results, even though such results may not be as satisfactory as those which, in his judgment, might have been reached through some other course or procedure which, if successful, would not materially benefit the creditors of the failed bank, but if unsuccessful would subject him to censure. The Comptroller of the Currency is no more justified in embarking in experimental methods in the liquidation of an insolvent national bank, because of the possibility of attaining better pecuniary results by pursuing a course other than that prescribed by law, than the banker was in the first instance in making the unlawful and speculative ventures in anticipation of greater possible profits which involved the bank in the losses which made the receivership necessary.
The worst feature of this kind of administration is the dangerous precedent and bad example it sets for the younger officials of the Government service, who are trained in an atmosphere impregnated with a disregard of legal restrictions, and are taught to believe that administrative policy and business expediency are superior to law and order and that the end sought to be accomplished justifies the means.
In no Bureau of the several executive departments did this policy prevail to so great an extent as in the Currency Bureau during the administration of President Taft, but without his knowledge and contrary to his emphatically expressed public utterances on the subject.