INFLUENCE IN GOVERNMENT PROCUREMENT THURSDAY, OCTOBER 4, 1951 UNITED STATES SENATE, THE EXECUTIVE DEPARTMENTS, The subcommittee met, pursuant to adjournment, at 10: 15 a. m. in room 357, Senate Office Building, Senator Clyde R. Hoey (chairman of the subcommittee) presiding. Present: Senator Clyde R. Hoey, of North Carolina; Senator John L. McClellan, of Arkansas; Senator Thomas R. Underwood, of Kentucky; Senator Karl E. Mundt, of South Dakota; Senator Joseph R. McCarthy, of Wisconsin; and Senator Richard M. Nixon, of California. Also present: Francis D. Flanagan, chief counsel; Howell J. Hatcher, chief assistant counsel; Jerome E. Adlerman, assistant counsel; William A. Leece, assistant counsel; and Ruth Young, clerk. Senator HOEY. The subcommittee will come to order. Mr. Gabrielson, the photographers will take one picture when you are sworn in and then you won't be bothered further. Mr. GABRIELSON. Thank you, sir. Senator HOEY. Will you stand up, please, sir. Hold up your right hand. Do you solemnly swear that the testimony you give in this hearing will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. GABRIELSON. I do. Senator HOEY. Thank you. Have a seat. Mr. Gabrielson, before you begin testifying I want to call one witness to just put a document into the record from the RFC. Mr. GABRIELSON. Do you wish me to retire? Senator HOEY. Just sit where you are. Mr. Frank Ronan. Mr. Ronan, hold up your right hand. Do you solemnly swear that the testimony you give in this hearing will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. RONAN. I do. TESTIMONY OF FRANK T. RONAN, DIRECTOR, OFFICE OF LOANS, RECONSTRUCTION FINANCE CORPORATION Senator HOEY. Mr. Flanagan, will you place in the record the document. Mr. FLANAGAN. Will you give your full name and official position with the RFC for the record. Mr. RONAN. I am Frank T. Ronan, director of Office of Loans, RFC. Mr. FLANAGAN. And you and other officials of the RFC have prepared a chronology with regard to the Carthage Hydrocol loan? Mr. RONAN. Yes, sir. Mr. FLANAGAN. Do you have that chronology with you? Mr. RONAN. Yes, sir. Mr. FLANAGAN. This was prepared from the official records of the RFC? Mr. RONAN. Yes, sir. Mr. FLANAGAN. And it includes not only a chronology of the three loans themselves, but various changes and modifications in the loan terms? Mr. RONAN. Yes, sir. Mr. FLANAGAN. And also includes a list of the stockholders of Carthage Hydrocol and one of the owning companies, the Hydrocarbon Research, Inc.? Mr. RONAN. It does. Mr. FLANAGAN. Will you place that in the record now, and if there are any questions at a later time, we will either interview you or someone else in that regard. Thank you. Senator HOEY. You may retire. (The document referred to above reads in full as follows:) CARTHAGE HYDROCOL, INC. New York, N. Y. (Plant at Brownsville, Tex.) OCTOBER 2, 1951. This company was organized on September 12, 1945, as successor to Carthage Chemical Co., of Carthage, Tex. Its business is manufacturing and marketing petroleum products and derivatives, such as high-quality motor gasoline, highgrade Diesel oils and crude alcohols, using natural gas as a raw material. For the conversion of natural gas to premium gas and other petroleum derivatives the Hydrocol process is to be employed. This process was perfected by Hydrocarbon Research, Inc., a company instrumental in the organization of Carthage Hydrocol, Inc. The original officers of the company, the present officers, directors, and stockholders of borrower and Hydrocarbon Research, Inc., are listed in exhibit A attached hereto. Loan authorizations and important actions relating to such authorizations are as follows: September 11, 1944.-Executive committee approved memorandum from the Secretary of Commerce, dated September 8, 1944, a copy of which is attached marked "Exhibit B." (Directors acting: Messrs. Mulligan and Klossner.) April 8, 1946.-Approved loan of $9,000,000. (Directors acting: Messrs. Allen, Bodman, Mulligan, and Gunderson.) Unanimously recommended by agency and Washington. April 12, 1948.-Approved loan of $3,500,000. (Directors acting: Messrs. Goodloe, Gunderson, and Mulligan.) Recommended by agency and Washington examiner but submitted without recommendation by Washington review committee as a question of policy. April 25, 1948.-Approved loan of $6,000,000. (Directors acting: Messrs. Hise, Dunham, Gunderson, Mulligan, and Willett.) Recommended by agency, Washington personnel, except examiner who submitted without recommendation as a question of policy, and Washington review committee. All of the foregoing loans were made in connection with the construction of borrower's plant and represented not more than 50 percent of the total cost thereof, the borrower being required to inject a total of $19,500,000. The amount actually subscribed by stockholders to date is $28,000,000. December 16, 1948.-Modified resolutions in minor respects and acted on Gabrielson's compensation for legal services and as president. In connection with legal fees for 1945 it was required that a stand-by agreement be executed by Gabrielson for a balance of $9,000 and the legal fee for 1947 was approved for $6,000. Unanimously recommended as approved. (Directors acting: Messrs. Hise, Bodman, Gunderson, Mulligan, and Willett.) February 7, 1949.—Amended preceding action based on Gabrielson's request for reconsideration. This eliminated required stand-by agreement and resulted in permitting payment of legal fees and salary as president as set forth in exhibit Cattached hereto. Unanimously recommended as approved. (Directors acting: Messrs. Hise, Gunderson, Mulligan, and Willett.) April 25, 1949.-Modified loan resolutions 1 and 2 in several respects, including change in repayment schedules to provide for first installment of $175,000 on October 1, 1951, instead of October 1, 1949, on first loan and $75,000 on October 1, 1951, instead of October 1, 1949, on second loan. Unanimously recommended as approved. (Directors acting: Messrs. Hise, Dunham, Gunderson, Mulligan, and Willett.) Declined to approve borrower's requests that $3,500,000 be injected and expended by principals prior to disbursement of second loan and that RFC recognize moneys received from Stanolind Oil & Gas oC. for their share of cost of utility facilities (approximately $2,000,000) as moneys expended by borrower, Recommended for approval by agency, for decline by Washington examiner and review committee. (Directors acting: Messrs. Hise, Dunham, Gunderson, Mulligan, and Willett.) July 6, 1949.—Modified loan resolutions 1 and 2 to permit injection of required working capital periodically and concurrently with disbursements on account of the loans and eliminated condition requiring agreement that principals will provide funds to complete plant. Unanimously recommended for decline. (Directors acting: Messrs. Hise, Dunham, Gunderson, Mulligan, and Willett.) April 17, 1950.-Declined to accede to borrower's request that moneys paid to borrower by Stanolind Oil & Gas Co. for its share of the cost of utility facilities be considered as "injected working capital." Unanimously recommended for decline. (Directors acting: Messrs. Hise, Dunham, Gunderson, Mulligan, and Willett.) May 2, 1950.-Reconsidered previous request and approved it provided borrower's indebtedness to Stanolind Oil & Gac Co. on account of the advances be subject to stand-by agreement. Agency suggested approval conditioned on stand-by-Washington examiner approval. Review committee approval subject to stand-by. Directors acting: Messrs. Hise, Dunham, Gunderson, and Willet. May 24, 1950.-Approved elimination of stand-by agreement covering advances by Stanolind Oil & Gas Co., provided such advances are in addition to moneys required to be paid borrower by its subscribers. Unanimously recommended. Directors acting: Messrs. Hise, Dunham, Gunderson, and Willett. September 24, 1951.-Declined by borrower's request for deferment to maturity of installments due October 1, 1951, on first and second loans of $175,000 and $75,000, respectively. Favorably recommended by agency and Washington review committee; declined by Washington examiner; declined by Administrator Symington. PUBLIC INTEREST The need for borrower's product is evidenced by letters from the following, copies of which are attached as exhibits: Exhibit D: Assistant Secretary of the Navy W. John Kenney, April 3, 1946. Exhibit G: V. Bush, president, Carnegie Institution of Washington, April 3, 1946. Exhibit H: W. K. Lewis, Massachusetts Institute of Technology, Department of Chemical Engineering, April 4, 1946. Exhibit I: Under Secretary, Department of the Interior, Oscar L. Chapman, March 16, 1948. 81249-51-pt. 3—-—54 EXHIBIT A OFFICERS, DIRECTORS, AND STOCKHOLDERS OF CARTHAGE HYDROCOL, INC. Officers The officers as indicated in borrower's first application were as follows: Guy George Gabrielson, vice president and director. President: Guy George Gabrielson. Directors Mr. Guy George Gabrielson, president, Mr. L. H. Lindeman, vice president, the & Webster Service Corp., 90 Broad Mr. J. F. Schoellkopf IV, Niagara Share Mr. P. C. Keith, president, Hydrocarbon Mr. H. Neil Mallon, president, Dresser Mr. Harry T. Klein, president, the Mr. Michael Halpern, vice president, Mr. John F. Lynch, president, La Gloria Mr. W. Frank Miller, vice president, Stockholders Hydrocarbon Research, Inc., 115 Broad- Forest Oil Corp., Forest Oil Building, Niagara Share Corp., 70 Niagara Street, United Gas Corp., Shreveport, La. La Gloria Corp., Post Office Box 779, Western Natural Gas Co., National The Chicago Corp.,, 135 South La Salle The foregoing were the original stockholders. During this year new stockholders were added and the interests now appear as follows: Carthage Hydrocol, Inc., tabulation of subscriptions as at July 2, 1951 (1) All of the common stock was subscribed for at $1 per share except that held by Hydrocarbon Research, Inc. Total paid for outstanding stock $222,750. (2) The 61 shares of common stock and $8,100 6-percent promissory notes held by Gurdon W. Wattles have since been acquired by Frank Dawson, Allen K. Brehm, and Albert Wolfe. OFFICERS, DIRECTORS AND STOCKHOLDERS OF HYDROCARBON RESEARCH, INC. |