There is every reason to be sympathetic with stockholders and junior creditors who purchased railroad securities for investment years ago and who now find that they have sustained, or are facing, total or almost total losses on their investments. But those losses are in no sense due to section 77 of the Bankruptcy Act. They are attributable to factors affecting the railroad industry or particular railroads, or else to bad management, of to both.

Management was certainly a factor in the Rock Island. Dividends totaling $25 were paid on the common stock of the Rock Island from 1927-30 and in 1931 a dividend of $2.25 was paid. During the same years, 1927-31, $31.50 a share was paid in dividends on one class of preferred stock and $27 a share on another class. And during those same years interest was paid on the general mortage bonds at only 4 percent. Yet by June 7, 1933, the Rock Island was in reorganization.

In any case, the original investors in the stock and junior bonds would not be the principal beneficiaries of the law. The principal beneficiaries, other than Alleghany Corp., would be those who bought the stock at a few cents a share at a time when everyone supposed that it was valueless. The statement filed by. Mr. Wilkie Bushby with the subcommittee of the Committee on the Judiciary of the House establishes that over 90 percent of the common stock, exclusive of that owned by the St. Louis-San Francisco Railway Co. and that owned by a nominee for the Chase National Bank, 81 percent of the 7-percent preferred stock, and 87 percent of the 6-percent preferred stock have been transferred from the names of those who held it on June 7, 1933, when the reorganization proceeding was commenced. I believe that Alleghany Corp.'s support of legislation of this type is the most important factor in the whole situation. The annual Report of Alleghany Corp, shows that on December 31, 1946, Alleghany Corp. owned 499,200 shares of the common stock of the Missouri Pacific and $11,152,000 of Missouri Pacific Convertible Bonds, a junior bond issue.

For years the Missouri Pacific common stock was listed by Alleghany Corp. as having no value in the reports which Alleghany Corp. was required to file under the Investment Company Act and it is a matter of record in Alleghany Corp.'s statements that its principal interest in legislation of the type of H. R. 3237 is due to its junior investments in the Missouri Pacific.

However, Alleghany Corp.'s statement shows that on December 31, 1946, it owned $17,849,000 principal amount of bonds of the Rock Island system and I have no doubt that it was then, and still is, the largest single creditor of the Rock Island. Similarly, it owned $6,099,000 principal amount of bonds of the Central of Georgia Railway Co. and I have no doubt that it was, and still is, also the largest single bondholder of the Central of Georgia.

These vast holdings of Rock Island and Central of Georgia securities were purchased in recent years and until very recently the Alleghany Corp. has taken no part in those proceedings.

I believe, and charge, that Alleghany Corp.'s principal interest in the Missouri Pacific, Central of Georgia, and Rock Island is to increase the power of Alleghany Corp. as a holding company and of those who dominate it.

I think the committee's attention should be called to the fact that of the eight railroads which I have listed above:

Alleghany Corp. is the largest single creditor of two of the three largest railroads: The Rock Island and the Missouri Pacific;

Alleghany Corp. is also the largest creditor of two of the three whose plans are nearest consummation: The Central of Georgia and the Rock Island.

Seven of the eight roads have either a single stockholder or a controlling stockholder. Five of the seven big stockholders are themselves railroads. Not one of those five stock-owning railroads is, so far as I know, supporting the proposed legislation. The only controlling stockholder of any of the eight railroads which is supporting the legislation in Alleghany Corp.

When I testified before the House subcommittee, I said that I foresaw that, if the proposed legislation becomes a law, the time will come when Congress will see the need for investigation to learn how it came about. I repeat that statement.

The proposed legislation is a replica of section 2 of S. 1253 which was sponsored in the Senate by Senator Wheeler when he was chairman of this committee. It was pointed out at the hearing before this committee that Alleghany Corp. would be the principal beneficiary of the legislation and that it was the most conspicuous railroad holding company in the United States. Senator Wheeler had been known for years as a foe of holding companies and as the Senator led the fight for the Public Utility Holding Company Act. The apparent reversal of Senator Wheeler's convictions as to the desirability of holding companies was a surprise to me as well as to many others. I now call attention to these facts:

Prior to May 7, 1946, Senator Wheeler's son, Edward K. Wheeler, was retained as a lawyer by Alleghany Corp.

On or about May 7, 1946, Senator Wheeler's son, Edward K. Wheeler, appeared as counsel for Alleghany Corp. in a petition for the removal of the trustee of the Missouri Pacific and the trustee of the Frisco, who were brothers, entitled "Alleghany Corporation v. Guy Atwood Thompson, Trustee in Reorganization of the MissouriPacific Railroad Company, and Frank A. Thompson, Trustee in Reorganization of the St. Louis-San Francisco Railway Company." When debating in behalf of S. 1253 on the floor of the Senate on June 15, 1946, Senator Wheeler spoke also in support of the case which his son was conducting as counsel for the Alleghany Corp. He said:

Mr. President, in connection with this railroad scandal I want to call attention to the fact that in St. Louis a Federal judge appointed two brothers, who are law partners, as trustees for two bankrupt railroads. One brother was appointed trustee for one railroad and the other brother as trustee for another railroad. Those two brothers each operate a railroad, both of which are in competition with each other. In my judgment that is a violation of the Interstate Commerce Act.

Although Senator Wheeler undertook to exert pressure on the Interstate Commerce Commission by making a speech in the Senate supporting the case pending before the Commission in which his own son was counsel, Alleghany Corp. later dropped the case. Mr. Robert R. Young said about it in a speech before the National Press Club on May 8, 1947:

In December, finding no support from Mr. Truman and having a better way to spend our money than in an idle pantomine, we dropped the case, and so did the Commission.

Mr. Burton K. Wheeler now appears as counsel for the Chesapeake & Ohio Railway Co. and Alleghany Corp. in what, I have no doubt,

is their most important proceeding now pending before the Interstate Commerce Commission, that is

In the matter of the applications of the Chesapeake & Ohio Railway Co. (1) under section 5 (2) of the Interstate Commerce Act, as amended, for authority to acquire the properties of Norfolk Terminal & Transportation Co., and (2) under section 20a of the Interstate Commerce Act, as amended, for authority to assume, as primary obligor, obligations and liabilities in respect to the payment of the principal of an interest on $500,000 principal amount of first mortgage 5-percent gold bonds of Norfolk Terminal & Transportation Co.

I would like to explain a little bit about the appeal from Judge Igoe's order of June 1946 about which Mr. Hagerty was questioned. That order directed that the plan be remanded to the Commission for further consideration, and in it Judge Igoe made an express finding that the plan was unfair to the junior creditors.

Now, the Rock Island plan is, I think, quite unique among all these reorganization plans in this respect: All of the classes of creditors which are affected by the plan, get allotments of common stock. That applies even to the bonds which I represent, the general mortgage bonds, which are a first lien. Part of their allotment is in common stock. The unsecured convertible bonds get an allotment of common stock. Everybody gets an allotment of common stock.

Senator REED. Including the senior creditors?

Mr. BOURNE. All creditors get common stock. It follows that if there are changed conditions, and this is the point I argued in the circuit court of appeals, the common stock goes up in value and everybody is automatically benefited because the common stock is worth more than it otherwise, would be.

Our argument in the circuit court of appeals was, therefore, that there was no occasion to remand the plan to the Commission unless there was something there for the stockholders. And we satisfied the circuit court of appeals that there would have to be an increased value of upwards of $100,000,000.

I made the leading argument on that appeal, and my recollection is very distinct that that was the telling point in the argument. It was commented on immediately by Judge Minton, who used to be a Member of the Senate.

The decision of the court was unanimous.

In addition, we argued, and we were sustained after a very extensive argument that there were really no changed conditions. That is to say, that what increase in assets had taken place was less than was expected when the Commission approved the plan.

Now, that case was argued very fully before the circuit court of appeals, an able court, which has had a great many of these cases, and we got a unanimous decision.

Senator REED. If the court agreed with you, it is always an able court, Mr. Bourne.

Mr. BOURNE. I always like one that agrees with me better than one that does not, but I think the standing of that court is unquestioned. The thing that impresses me, if I may say so, is that these cases and these questions which you gentlemen here consider are argued on the facts in detail.

The sole question of changed conditions was the basic point argued in the circuit court of appeals and our adversaries, Senator, they quoted statements from the two reports of last year report 925 and

1,170, and we undertook to say, and I think we showed conclusively that the statements made there about the Rock Island and its cash situation and amount of accrued interest were so completely erroneous that they had to be ignored by the court and the court did not mention them in its opinion.

Now, my feeling about it is this, Senator: You have a statute there, 77, which may have defects, but it is fundamentally sound. And a plan must be compatible with the public interest. It must be fair and equitable. And we work on these cases, we have a decision from the Commission, we have decisions from the courts, and we have been up for the circuit court of appeals twice in connection with the approval and in connection with the confirmation. The greatest amount of work is done to develop the facts. The cases are argued on the facts, and we get a decision from the tribunals which I would expect were best qualified to decide.

I know that if our committee felt that any of this plan was unfair, we would not oppose this legislation as we do. So much for that.

Now, in my statement, I have made a reference to an Alleghany case, which is at the very end of the statement, and the reference may be obscure. That is the proceeding under which the Alleghany is seeking permission to release from the deposit in trust the stock of the New York Central. The Chesapeake & Ohio and the Alleghany, they want to release from that deposit in trust the New York Central stock which Alleghany bought and sold to the Chesapeake & Ohio and substitute in place of it the Nickel Plate stock.

The reason it has that long and irrelevant title is that that is the proceeding in which the Commission first required the Alleghany and Chesapeake & Ohio to deposit stocks in trust, and when they tried to obtain a modification so as to get the New York Central stock out, then it has the same title that the case originally had.

Now, I would like to read, if I may, a short answer to Mr. Purcell. Senator MYERS. I did not hear Mr. Purcell. I was not here. Mr. BOURNE. You may say here, perhaps, as you indicated to Mr. Hagerty, that there are some expressions of opinion here. I would like to say that we have this matter pending in the circuit court of appeals now.

Senator MYERS. I did not get your premise.

Mr. BOURNE. Well, my premise is this: If I say anything here about Mr. Colnon or Judge Igoe, I am sticking strictly to answering what they have said.

In speaking of the appeal from Judge Igoe's refusal to confirm the plan of reorganization, Mr. Purcell said at pages 318-139 of the transcript:

Mr. PURCELL. I must say that I was considerably suprised that the circuit court of appeals reversed the judge's ruling because I had felt that the judge had the power and discretion to send the plan back to the Commission for review and I did not think that the circuit court could reverse the judge's ruling in the absence of a strong showing of an abuse of discretion which, of course, was not present in this case in my opinion.

Senator REED. Well, there was no attempt made, was there, to show an abuse? Mr. PURCELL. No, there was not.

Mr. Purcell had previously said that he was "very familiar with the Rock Island proceedings." His statement that there was no attempt to show an abuse of discretion is inexcusably incorrect. In concluding

our brief on the appeal dated November 8, 1946, at pages 59-60, we said:

If it be argued that it is a matter for the discretion of the district court whether or not to confirm a plan, the answer is that, if that be the rule, it presupposes the exercise of a judicial discretion, and that an appeal always lies when there has been an abuse of discretion. There was such an abuse of discretion in this case. Or, to characterize the situation more accurately, there was a complete failure to exercise a judicial discretion.

In answering my charge that

Alleghany Corp.'s principal interest in the Missouri Pacific, Central of Georgia, and Rock Island is to increase the power of the Alleghany Corp. as a holding company and of those who dominate it

Mr. Purcell said, at page 338:

The present Missouri Pacific plan, if Alleghany Corp. exercised the options which it would have under that plan, would give Alleghany Corp. about 11 percent of the class B voting stock of the Missouri Pacific. Under that plan, you will find Alleghany Corp. would get about 11 percent.

That answer was adroit. What Mr. Purcell calls the "present Missouri Pacific plan" could not be carried out under the proposed new legislation for which he was testifying. The effect of the proposed new legislation would be to give control to the debtors, and Mr. Purcell testified at page 335 that Alleghany Corp.'s ownership of the voting stock of the Missouri Pacific "represents about 32 percent of the total." Alleghany controls the Chesapeake & Ohio with less than 7 percent of the voting stock.

At page 339, Mr. Purcell said:

As this committee well knows, any voting stock in carrier corporations which Alleghany receives as the result of reorganizations or otherwise, must be disposed of with the voting trustee which has been set up under a voting trust agreement approved by the Interstate Commerce Commission, and Alleghany would not have the right to vote those stocks.

The answer to Mr. Purcell's observation on that subject is that, even though Alleghany may have to deposit stock with a voting trustee, it can apply for leave to have the deposited stock released from the deposit, just as it has done in the case of the New York Central with former Senator Wheeler as its counsel.

Furthermore, it can attempt to exert pressure on the Interstate Commerce Commission by a publicity campaign, high-lighted by offensive speeches of Mr. Robert R. Young. I did not say that the effect of the passage of the proposed legislation would be automatically to increase Alleghany Corp.'s voting power. I said that Alleghany Corp.'s principal interest or object was to increase its power to control. At page 348 Mr. Purcell said:

Now, you have probably heard quite a good deal about the plan which one of the trustees, Mr. Colnon, submitted. He proposed a plan which, in substance, was in line with the President's veto message.

This description, like Mr. Colnon's testimony about his own plan, is strikingly incorrect. The outstanding feature of S. 1253, which the President vetoed, and of the proposed amendments to S. 249, is that the stock could not be affected at all. Mr. Colnon's plan as submitted to the court was incomplete, ambiguous, and obscure, but. he explained it more fully before the subcommittee of the House Committee on the Judiciary. He testified there that he planned to give

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