The day following this $50,000 deposit Paymaster Robinson became uneasy as to the safety of the funds in this bank, and transferred his entire balance, amounting to $51,252, to the credit of the Treasurer of the United States.
It also appears that the $200,000 deposited by Paymaster Paulding was remitted to Bayne & Company, under an agreement that the large amount of securities held by that company would be released and returned to the bank, but the only securities that appear to have been returned were 850 shares of the stock of the Washington, Georgetown and Alexandria Railroad Company, which the cashier of the bank took possession of, claiming them to be his individual property. The cashier was the treasurer of this railroad company. He testified before the committee that he, as treasurer of the railroad company, issued to Bayne & Company 2850 shares of the stock of the company, of the par value of $285,000, under a promise of Bayne & Company to return to him genuine certificates to replace this issue, but that the stock never was returned, consequently there was an overissue of the stock of the railroad company to that amount.
In October, 1865, there was a change in the officers of the bank. William Bayne resigned as president, and the cashier, Leonard Huyck, was appointed to succeed him, and Charles A. Sherman was made cashier. In January, 1866, C. W. Boteler, one of the original organizers of the bank, was appointed vice-president. Mr. Boteler testified that although the By-Laws of the bank required weekly meetings of the board of directors, practically no meetings were held. Whenever a quorum of the board happened to be present on meeting days Mr. Huyck would inform them that there was no business for them to transact. Although a Finance Committee, composed of the president, the vice-president and the cashier, were authorized to transact all the business of the board, Mr. Boteler, the vice-president, finding that he was not consulted in regard to loans or other important business of the bank, had a resolution passed by the board prohibiting any loans being made except by the unanimous consent of the Finance Committee. Notwithstanding this fact, it appears that the president of the bank continued to act as though the bank were his own and neither consulted Mr. Boteler nor the cashier in regard to his transactions.
This bank seemed to have started upon an iniquitous career from the very beginning. The name of J. B. Stewart appears as one of the original subscribers for 600 shares, or $60,000 of the capital stock. Stewart testified that he never subscribed for any shares, that he never signed the organization certificate, had never owned or transferred any stock, nor attended any meetings of the stockholders or directors, and that he never knew any of the stock of the bank stood in his name until he saw a published list of the stockholders at the time of the failure. The notary public before whom the organization certificate bearing Mr. Stewart's signature was acknowledged testified that at the time of the acknowledgment of the signatures to the certificate he looked around and saw that all of the signers were present, except Mr. Stewart, and that he certified that Mr. Stewart was present because Mr. Oscar A. Stevens, who signed Stewart's name to the paper, was present, and as Stevens often attended to business for Mr. Stewart he assumed that it was all right and certified to Stewart's personal acknowledgment of his signature.
Stewart testified that when the bank commenced business he opened an account with it and arranged to draw for money as he should require it, depositing 950 shares of stock of the Washington, Alexandria and Georgetown Railroad Company as security, and that he also deposited with the bank for safe keeping $169,000 of bonds of the Union Pacific Railroad Company which he held in trust. These bonds, Stewart stated, he learned shortly before the bank failed had been sent by Huyck, the president, to Bayne & Company, and by that firm hypothecated for loans from various banks in Baltimore without his knowledge or consent, and when he called at the bank after the failure to pay his loan secured by the railroad stock he found that this stock had also been abstracted and disposed of in the same manner as the bonds.
It is plainly evident from this testimony and other facts brought to light by the Investigating Committee that this bank from the very outset was, as stated by the committee, in the hands of a reckless, unscrupulous and dishonest management.
The report of the committee in commenting on the indiscriminate depositing of public moneys by disbursing officers in banks of their own selection severely censured Paymaster Paulding for using public funds to save the Merchants National Bank and Bayne & Company from failure.
In regard to the deposits of the other disbursing officers, the committee stated that while it did not appear that such deposits were made for an unlawful purpose or that the disbursing officers received any benefit directly or indirectly from them, the only reason for making some of these deposits appeared to be a desire on the part of these disbursing officers to gratify a vanity in patronizing the banks by displaying the control they exercised over the public moneys to their credit. One of the disbursing officers testified that the only inducement that influenced him to withdraw money from the Treasury Department and deposit it in the Merchants National Bank was that he thought the First National Bank of Washington had more than its share of public money, and wishing to see the public funds more fairly distributed among the national banks, he withdrew $25,000 from the Treasury and deposited it in the Merchants National Bank only a few days before its failure.
The committee, as a result of the conditions revealed by this investigation, reported a bill which became a law, taking from disbursing officers all control in the selection of banks in which to keep the public funds intrusted to them. The committee expressed the opinion, however, that the Treasury Department had given a construction to the law not contemplated by the committee, which seemed to take away much of its efficiency.
The report of the committee concluded with a recommendation for the adoption of a resolution submitted directing the Secretary of War to institute such legal proceedings as should be deemed necessary for the punishment of the managers of the Merchants National Bank, and others who aided or abetted them in committing a breach of trust by misapplying the public money intrusted to them for safe keeping, and also such proceedings as should be found necessary to recover any portion of such money.
The committee also sent a circular letter to each and every national bank designated as a public depositary, requiring the bank to prepare and forward to the Committee on Banking and Currency a statement showing the amount of money standing to the credit of the United States or the United States Treasurer, any disbursing officer or agent of the United States, the name of such officer or agent, and the amount to the credit of each as shown by the books of the bank in May, 1866.
An assessment of one hundred per cent. was levied by the Comptroller upon the stockholders of the Merchants National Bank to pay the debts of the association, but only $16,488 of the $280,000 liability was collected. The total collections by the receiver from all sources amounted to $312,992, while the amount of the claims proved against the bank was $669,513, on which they received dividends of only 24.70 per cent. The receivership was finally closed May 14, 1883.