1905-09-20-New York Times-Larger Equitable Loan Found By Paul Morton

New York Times

20 September 1905, page 1

LARGER EQUITABLE LOAN FOUND BY PAUL MORTON

This Also Was Operated Through Mercantile Trust Company.

ORDERS SUIT FOR RECOVERY

Society Will Also Demand the Return of $265,000 Paid on the $685,000 Transaction.

President Paul Morton of the Equitable Life Assurance Society made public a letter yesterday which he had just sent to all the Directors, revealing the details of a second "Yellow Dog" loan transaction in the Equitable, operated through the Mercantile Trust Company, of proportions materially greater than the $685,000 loan to James W. Alexander and Thomas D. Jordan, which James H. Hyde secured by his indorsement as Vice President of the society.

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Dates Back to Western National.

The newly discovered deal dates back to the days of the old Western National Bank, which in 1894 was discovered by the National Bank Examiners to have on its books a loan of $113,055 to John W. Young, the promoter of the United States Shipbuilding Company, on security that was not acceptable, and objectionable security for other loands, bringing the total up to $661,491, with interest. Gen. Fitzgerald's secretary, George V. Turner, made a note for $661,491 indorsed by Marcellus Hartley, John E. Searles, Louis Fitzgerald, W. N. Coler, Jr., and Henry B. Hyde to the Mercantile Trust Company, and with the proceeds of this the securities were transferred to the latter institution, where they still remain. Mr. Morton figures out the total expenditures by the Mercantile Trust in the matter to be $3,542,135, exclusive of the original Young loan and its accrued interest.

Of this amount the Equitable Life put up $718,264.96, and at one stage of the case $500,000 was extracted from the Commercial Trust Company of Philadelphia, $200,000 from the Western National Bank, and $100,000 from the Equitable Trust here.

In addition to all this, Mr. Morton tells how ex-President Alexander of the Equitable, in May 1899, shortly after the death of Henry B. Hyde, certified that the indorsements of the Turner note were on account of the Equitable Life, and that the advances had been made on that account.

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Mr. Morton's Letter.

"To the Directors: I have prepared the following statement regarding the so-called 'Turner loans' and the 'J. W. A. No. 3 Account' with the Mercantile Trust Company, regarding which I made a full statement to the board at its meeting held Aug. 23, in order that the Directors who were not present at that meeting may be fully informed regarding these important matters:

"In November, 1894, this society held 8,281 shares, or a little less than two-fifths, of the capital stock of the Western National Bank. Before the society became interested in the stock of this bank the latter had made certain loans upon collateral as follows:

To John W. Young--Salt lake and Fort Douglass R. R. Co. bonds and stock; Salt Lake and Eastern Ry. Co. stock; Salt Lake Doc Co. stock and Deming, Sierra Madre and Pacific Ry. Co. stock . . . . . $113,055

To Kentucky Mineral and Timber Co.--Contracts for the purchase of certain lands in Southeastern Kentucky . . . . . 258,394

To Amity Land and Irrigation Company--Representing a controlling interest in certain irrigation ditches in Prowers county, Col. . . . . . . . . 264,599

. . . . 636,048

Interest to Nov. 15, 1894 . . . . . . . . . . . . 25,443

Total . . . . . . . . . . . . . . . . . . . 661,491

"These loans were not paid and the bank had taken over the collateral, which, however, the Bank Examiner had objected to as an asset of the bank. Whereupon, Mr. Henry B. Hyde who was President of the society at the time and also a Director in the bank, arranged to transfer the collateral to the mercantile Trust Company int he following manner: The collateral was first assigned by the bank to Mr. George V. Turner, secretary to Mr. Louis Fitzgerald, then President of the Mercantile Trust Company. Contemporaneously with the assignment Turner, on the security of the collateral, obtained from the trust company a loan of $661,491, (the exact amount that the collateral stood at on the books of the bank.) evidenced by his note dated Nov. 15, 1894; and this amount was turned over to the bank in payment for the collateral which it had assigned to Turner. Upon Turner's note there was indorsed a guarantee of payment by Marcellus Hartley, John E. Searles, Louis Fitzgerald, W. N. Coler, Jr., and H. B. Hyde, and upon all renewals of the note, the same guarantee was indorsed.

"These gntlemen were all Directors of the Western National Bank and held considerable amounts of its stock. Mr. Hyde was also President of this society, as stated, Mr. Fitzgerald was President of the Mercantile Trust Company and a Director of this society and Chairman of its Finance Committee; Mr. Hartley was also a Director of this society and a member of its Finance Committee. In addition to these indorsements, the same guarantors, on March 21, 1895, executed a sealed agreement of guarantee covering the original amount of the loand and sums advanced by the Mercantile Trust Company up to that date in attempts to develop the collateral. On Nov. 9, 1896, a further sealed agreement of guarantee was executed by all the original guarantors covering the amount to which the loan had then grown, $1,276,478.49, and all future advances that should be made in accordance with the terms of guarantee.

Collateral for Young Loan Worthless

"Soon after the Mercantile Trust Company assumed these loans in November, 1894, it was found that the collateral for the loan to John W. Young was wholly worthless; but it was decided to attempt to develop the other security known as the "Kentucky property," and the "Colorado property," and enormous sums were expended for that purpose, with the result that on July 1, 1905, the cost of the "Kentucky property" stood on the books of the Trust Company at $619,067, and the cost of the "Colorado property" at $2,809,633. The cost of the "Colorado property" was assumed by the Commercial Trust Company to the extent of $500,000 by the Western National Bank (now the national Bank of Commerce) to the extent of $200,000, and by the American Deposit and Loan Company (now the Equitable Trust Company) to the extent of $100,000, on certificates of participation issued to them, respectively, by the mercantile Trust Company on Jan. 23, 1900; and agreements were executed by Turner and the guarantors or their representatives consenting to the issue of the certificates and agreeing that the collateral should apply to them equally with the notes held by the Mercantile Trust Company.

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