INFLUENCE IN GOVERNMENT PROCUREMENT MONDAY, SEPTEMBER 17, 1951 UNITED STATES SENATE, INVESTIGATIONS SUBCOMMITTEE, COMMITTEE ON Washington, D. C. The subcommittee met at 10:10 a. m., pursuant to adjournment, in room 357, Senate Office Building, Senator Clyde R. Hoey (chairman) presiding. Present: Senator Clyde R. Hoey, of North Carolina; Senator John L. McClellan, of Arkansas; Senator Thomas R. Underwood, of Kentucky: Senator Joseph R. McCarthy, of Wisconsin; Senator Karl E. Mundt, of South Dakota; and Senator Richard M. Nixon, of California. Also present: Francis D. Flanagan, chief counsel; Howell J. Hatcher, chief assistant counsel; Carmine S. Bellino, accounting consultant; Jerome S. Alderman, assistant counsel; William Leece, assistant counsel; and Ruth Young, clerk. Senator HOEY. The subcommittee will come to order, please. George P. Luce, please come to the stand. Mr. Luce, will you hold up your hand? Do you solemnly swear the testimony which you give in this case shall be the truth, the whole truth, and nothing but the truth, so help you God? Mr. LUCE. I do. Senator HOEY. Have a seat. Mr. Luce, give to the reporter your name, address, and your connection. TESTIMONY OF GEORGE P. LUCE, CHAIRMAN, BOARD OF REVIEW, RECONSTRUCTION FINANCE CORPORATION Mr. LUCE. George P. Luce, 4000 Cathedral Avenue NW., Washington, D. C. I have been connected with the RFC since March 9, 1932. Senator HOEY. What position do you now hold? Mr. LUCE. I am now chairman of the Board of Review. Mr. LUCE. Since March 1947. Senator HOEY. What are your duties as Chairman of the Board of Review? Mr. LUCE. To review recommendations made by Washington examiners and agency examiners, make recommendations to the Adminisistrator now, formerly the Board of Directors. Senator HOEY. Do the applications which are filed for loans ordinarily come before your committee for review? Mr. LUCE. Yes, sir. Senator HOEY. Do all of them come before it? Mr. LUCE. Yes, sir. Senator HOEY. Do you remember this particular loan of $80,000 to the American Lithofold Co.? Mr. LUCE. I don't remember the $80,000 loan, sir. Senator HOEY. Do you remember the final loan of $565,000? Senator HOEY. What contacts, if any, did you have with Mr. Toole with reference to this loan? Mr. LUCE. Oh, I had numerous contacts with Mr. Toole. Mr. LUCE. Yes. Senator HOEY. He had worked with the RFC? Mr. LUCE. Yes, sir. I knew him from 1934 to 1943 as a loan examiner. Senator MCCLELLAN. I want to get this clear. When you say you had many contacts with Mr. Toole regarding this loan, which loan do you mean now, the first or last? Mr. LUCE. I mean the first loan. Senator MCCLELLAN. He testified that he had nothing to do with the last loan. I want to get the record clear. Mr. LUCE. That is correct. I am speaking of early 1949, as I recall it. Senator MCCLELLAN. All right. Senator HOEY. And your conferences with him related to this first loan of $80,000? Mr. LUCE. First loan-there were several loans, several applications. Senator HOEY. I know there were several, and they had previous loans from the Small War Plants, but the $80,000 loan, the first loan that the Lithofold Co. was granted by the RFC. Mr. LUCE. Yes, but I had contact with him regarding an application for $548,219.50, I believe it was. Senator HOEY. I see. Mr. FLANAGAN. To clarify the record, however, Mr. Luce- Mr. FLANAGAN (continuing). All the applications and all the matters that you contacted or were contacted by Mr. Toole regarding this application lead up to this $80,000 loan. Mr. LUCE. That is correct. Mr. FLANAGAN. They were all part of the same transaction, changed and amended? Mr. LUCE. That is correct. Senator HOEY. If the photographers want to take a picture, I will suspend and let them take it now. They can take it right now. All right. Mr. Flanagan, you may proceed. Mr. FLANAGAN. Mr. Luce, our exhibit No. 6 is a longhand report of an examiner by the name of H. J. Herrmann. The report was initialed by two members of the Review Committee. It is difficult to make out both of these initials. One appears to be Frank Ronan, and the other appears to be your initials. Mr. LUCE. That is correct; I have seen it. Mr. FLANAGAN. Are they your initials? Mr. FLANAGAN. Can you explain to the committee why this report of Mr. Herrmann was never made an official record in the RFC but merely left in longhand, notwithstanding the fact that it was initialed by two members of the Review Board? Mr. LUCE. The only explanation I could give of that is that, as I said before, that Mr. Toole submitted several proposals with regard to loans. This appears to have been one of them. I think probably he was told either by Mr. Ronan or by myself, that we couldn't recommend the $125,000 loan, so I don't think it was carried any further at that time. Mr. FLANAGAN. Was that an ordinary procedure in the RFC at that time? Mr. LUCE. That is rather difficult to answer. I would say it is unusual. We don't usually do that. Mr. FLANAGAN. Would it be fair to say that usually if an examiner prepares a report, regardless of whether he recommends a loan or a decline, and it is initialed by the Review Committee, that is made a matter of record and put in the file, is it not? Mr. LUCE. Yes, sir. Mr. FLANAGAN. Pertaining to the Board. Mr. LUCE. Yes, sir; that is normal procedure. Mr. FLANAGAN. And your only explanation is that in all probability the corporation, the American Lithofold Corp., changed its request, and for that reason this never got to the Board, is that your explanation? Mr. LUCE. I think that is correct; yes, sir. Mr. FLANAGAN. I believe the record will show, Mr. Luce, that the Review Committee of which you were then and still are Chairman, declined the American Lithofold loans on each occasion as they came before you, is that true? Mr. LUCE. Yes, sir. Mr. FLANAGAN. Looking specifically at the loan which was granted in the amount of $80,000 on March 3, 1949, do you have now any independent recollection of handling this matter on the 3d of March 1949? Mr. LUCE. No, sir; I haven't. Mr. FLANAGAN. Did you hear Mr. Toole's testimony the other day? Mr. LUCE. Yes, sir. Mr. FLANAGAN. When we refreshed his recollection by referring to his diary? Mr. LUCE. Yes, sir. Mr. FLANAGAN. At which time he stated that he came into the RFC on the morning of the 3d and was very disturbed that his loan had not been up before the Board on the previous day. Mr. LUCE. Yes, sir. Mr. FLANAGAN. He came to you? Mr. LUCE. Yes, sir. Mr. FLANAGAN. Do you recall having a conversation that morning on the 3d of March with Mr. Toole? Mr. LUCE. No, I don't recall, but I probably did if it is in his diary. I wouldn't Mr. FLANAGAN. Do you recall taking that loan up to the Board of Directors that morning or to any member of the Board, and asking that they sit special to consider that? Mr. LUCE. No, I don't recall definitely, sir. Mr. FLANAGAN. Can you tell from the minutes, which I will let you look at, whether or not that meeting on Thursday, March 3, was not a special meeting of the Board? Mr. LUCE. I have seen those minutes. It is called a special meeting by the secretary. However, it was on a Thursday, I believe, at 9:30 in the morning. Thursday is our regular Board day for loans. Undoubtedly I was there if Mr. Toole's dairy so indicates. I do not recall having presented the matter. Mr. FLANAGAN. I believe the record will also show-the record of the RFC-that this case was presented to the Board by yourself. Mr. LUCE. I don't know whether the record shows that or not, sir. Mr. FLANAGAN. The secretary's record shows that this case was presented by you. Mr. LUCE. Well, if that is the case, I presented it. Mr. FLANAGAN. Ordinarily what time does the Board meet? Mr. LUCE. I believe 9:30. I believe it was 9 or 9:30 in those days; now it is 10 o'clock. Mr. FLANAGAN. What we are trying to figure out here, while we know that Thursday was a regular meeting day, the minutes indicate that this was handled at a special meeting and was brought up specially before the Board by you. Mr. LUCE. There you have me, sir; I don't know. I mean I don't know that was a special meeting. If the secretary's records show it was a special meeting, it was a special meeting. Mr. FLANAGAN. The records also show 3 days before this-4 days before this on February 28 this loan was considered, at which time they had certain documents and information before them. Do you now recollect any additional information that you brought to the Board on the 3d, which would make them change their minds about granting this loan? Mr. LUCE. No, sir; I do not. Mr. FLANAGAN. You have no independent recollection of that? Mr. LUCE. No, sir. Mr. FLANAGAN. You do not deny, though, that it is quite possible as Mr. Toole states, that you did take it up before the Board? Mr. LUCE. No, sir; I do not deny it. Mr. FLANAGAN. And did arrange to get a quorum of the Board to consider it? Mr. LUCE. I believe the Board must have been in session. I might have gone to the Chairman's office, I may have gone to another director's office, but I believe the Board must have been in the Board room. Whether or not it was in session, I do not know. Mr. FLANAGAN. Was that an ordinary procedure in some cases to bring them up before special meetings of the Board? Mr. LUCE. Yes, sir. Mr. FLANAGAN. There was nothing extraordinary about that, was there? Mr. LUCE. No, sir. Mr. FLANAGAN. I assume that you handle a number of these cases every year in that manner? Mr. LUCE. Yes, sir; I do. Mr. FLANAGAN. But you now have no recollection why you brought up the American Lithofold case? Mr. LUCE. I think I know; yes, sir. Mr. FLANAGAN. Why? Mr. LUCE. Because Mr. Toole had submitted, as I said before, several proposals with respect to loans by Lithofold. He had been around the office for a number of days. I was anxious to dispose of the matter, to get an answer for him, for the company, whatever you want to term it. Mr. FLANAGAN. I assume that you had an opportunity to review the RFC files in this case? Mr. LUCE. I have to some extent; yes, sir. Mr. FLANAGAN. Did your review of the case and review of the files indicate that Mr. Toole or any other representative of the American. Lithofold Corp. ever submitted a proposal requesting an $80,000 working capital loan? Mr. LUCE. Not to me, I don't think. Mr. FLANAGAN. As a matter of fact, the records do not show any proposal of that type from American Lithofold at all, do they? Mr. LUCE. Not so far as the Review Committee is concerned. Mr. FLANAGAN. Their proposal, their last proposal, was this—and correct me if I am wrong-that they be granted a refunding loan of five-hundred-some-odd-thousand dollars, and in lieu of that, a working capital loan in the amount of $125,000. Mr. LUCE. That is correct. Mr. FLANAGAN. The record will further show that in the several weeks preceding this meeting of March 3, Mr. Dodds proposed that they be given $80,000 Mr. LUCE. I think that is correct. Mr. FLANAGAN (continuing). In lieu of the $125,000. Mr. LUCE. I think that is correct; yes, sir. Mr. FLANNAGAN. So it was not the American Lithofold proposal; it was a compromise on the part of an official of the RFC, was it not, a compromise proposal? Mr. LUCE. I don't know, of course, because I did not have anything to do with the $80,000 loan, although I might have presented it to the directors. Senator HOEY. Is it fairly frequent that that sort of thing happens, that an applicant will ask for one sum and that matter will be discussed with the members of the Board or the directors or examiners, and they will finally agree on some smaller sum? Mr. LUCE. Yes, sir. Senator HOEY. That occurs frequently? Mr. LUCE. Yes, sir. Senator HOEY. There is nothing unusual about that? Mr. LUCE. No, sir. Senator HOEY. Any further questions? Mr. FLANAGAN. No. Senator HOEY. Senator McClellan? Senator MCCLELLAN. Mr. Luce, you say you had nothing to do with the $80,000 loan. I understand that resulted from negotiations in regard to applications for a larger loan, is that correct? Mr. LUCE. Yes. When I say I had nothing to do with it, Senator, I meant that I don't think the proposal for an $80,000 loan was submitted to me. I may have presented the matter to the directors. Senator MCCLELLAN. That is the point I wanted to get cleared up. here. Mr. LUCE. Yes, sir. 81249-51-pt. 3- 13 |