Morning Oregonian., May 08, 1920, Page 7, Image 7

THE MORNING OREGONIAN, SATUKD4Y, MAY 8. 1920
7
STATE TREASURER'S
ACTION CONDEMNED
Huge Profits Reported Made
by Bond Dealers.
REMEDIAL ACTION URGED
Marion Count- Grand Jury In Re
port Recommends Legislation
to Prevent Abuses.
'Continued From First Pase.)
I
high rate of interest without look
ing to the value of the property back
of the bonds that must ultimately re
deem the principal. 'Safety first' ap
plies to investing in bonds as much
as to any other human conduct.
Claim Advances Opposed.
"We condemn the system that has
obtained in the office of the state
treasurer for many years, of making
advances on salaries and claims
against the state before the same
have been audited by the auditing
officer of the state, namely, the sec
retary of state.
"The records further reveal that
bonds which were not yet in existence
had been sold by Morris Bros., Inc., to
the state treasurer at an exorbitant
profit and payments in full made
thereon by the treasurer. It is claimed,
however, that delivery of the bonds to
the state treasurer was secured by
bonds deposited as collateral.
"The most flagrant example of ex
cessive profits is the sale of $100,000
water bonds of Reedsport to the state
treasurer; the bonds that were pur
chased from the thriving little town
f Reedsport and sold to the state at
the enormous gross profit of $16,019.90.
"The town of Reedsport was incor
porated on June 19, 1919. On August
25 thereafter, the municipality, by its
officials, entered into a contract with
Morris Bros, for the amendment of
is charter to provide for an election
thonzing the council to issue water
ds in the amount of 100,000. At
t .time a contract was entered into
h Morris Bros.. Inc., for the sale
the bonds for' the sum of $92,320.
rrls Bros, undertook the legal work
of amending the charter, but before
the amendment of the charter or the
voting of the bonds Morris Bros.,
Inc.. on October 28, 1919, sold the pro
posed bonds to the state of Oregon for
the sum of $108,339.90, and received
payment therefor.
"An election followed, the charter
amendment was adopted, and the
bonds were voted November 10. Bonds
"were thereafter issued by the council
and executed by the officers of Reeds
port and delivered to Morris Bros.,
Inc., on. December 24 following; like
wise, delivered to the state on the
same day. The bonds were then paid
for by Morrl3 Bros., Inc.
Middleman Gets Profit.
"We might remark in passing that
this is an impressive illustration of
the cost of doing business, through a
middleman. The state of Oregon, in
purchasing the bonds of one of its
own municipalities, permits a middle
man to exact a gross profit of $16,
019.90, a condition that should not
and must not exist longer."
Reminding Governor Olcott by stat
ute that it is the duty of the chief
executive from time to time to advise
the legislature regarding needed en
actments, as he in his judgment
deems expedient, the grand Jury
makes the following recommenda
tions:
"No county, school district or mu
nleipality of any kind should be per
misled to sell its securities without
fiivOig notice to the state and publicly
advertising the sale of any and all
bonds in some local as well as metre
politan paper. .
Direct Dealing Advised.
"The state should go into the open
market and bid on the bonds of its
agencies. When the state of Oregon
nas any considerable sum of money
lor investment in bonds, it should
make the fact known and give all of
its agencies, or the holder of the ob
ligations of its agencies, an oppor
tunity to submit their securities to
he state for investment.
"Why should not the state of Ore-
u n use as mucn intelligence in in
csting its funds as it does in buying
supplies for its public Institutions?
"The right to invest the money of
the state in bonds should be left to
no individual person. The legislature
should create a board consisting of
at least three members thereof, and
It would not be necessary to create
any additional state officers for such
purpose.
legislature Held Competent.
"he legislative assembly of the
tate of Oregon is competent to enact
jegislation and frame such a statute
as would be for the common welfare
of all the state's agencies and the
state itself; and, to use the oft quoted
language of Chief Justice Marshall
in Gibbons vs. Odgen, the state and
its subdivisions should dwell and act
in "that epirit of harmony and con
ciliation which ought always to char
acterize the conduct .of governments
standing in the relation which that
of the union and those of the state
bear to each other.'"
The report praises Treasurer Hoff
for his policy of investing Industrial
accident funds in Oregon bonds, but
expresses regret that he did not se
lect school bonds to a larger de
gree. The state treasurer also is fe
licitated upon working his office staff
a full eight-hour day, whereas, the
report comments, many of the other
state departments fail to give a full
day's work for a day's wage. This
little aside may be taken to indi
cate that the grand jury was in
terested in its ta.sk.
"The investigation developed the
fact that bonds were often paid for
before delivery, runs the report. "At
the time of the investigation all sums
paid for undelivered bonds were se
cured with collateral."
Concerning this phase, the auditor's
report is quoted as follows:
"There appears to be no complete
record in the treasurer's office of
these collateral securities which had
been furnished in the past pending
delivery of the bonds which were pur
chased. In some cases a pencil mem
orandum had been made on the ledger
page, but at the time the purchased
bonds were delivered this memoran
dum had been erased. For this rea
son we cannot give a complete state
ment of all collateral which has been
held by the state treasurer."
Record System Criticized.
In further comment upon the audi
tor'? report the grand Jury said:
"We particularly direct attention
to the auditors' criticism of the book
keeping method used in the state
treasurer's -office for a number of
years past; likewise to the auditors'
criticism of the method of keeping the
record of collection of inheritance
taxes in the treasurer's office for a
similar period."
Ktheridare Testimony Given,
Portions of the testimony taken by
the grand jury, when tjjose concerned
In the" bond transactions were called,
are also inscribed in the record, in
cluding the statement of John I. Eth-
eridge, president of Morris Brothers.
"When I first started doing busi
ness with the state." testified M:
Etheridge, "I wae called down to Salem
by Mr. Hoff and went into conference
with Mr. Hoff and Mr. Richardson, and
they said they had about $400,000 for
investment which they were not con
fident they could keep continually in
that investment and that they desired
that these funds should be invested;
but they wanted to be sure, if they,
were so invested, if they had to return
some of these bonds originally taken
with it, that I would take them back
and pay them the price they paid me.
"I thought it over for some time
and thought here's an investment of
$100,000 with every likelihood of
funds being continually invested, and
I thought it would give me a friend
ship with the state treasurer if they
were so invested, and I said I would
do that, but said, I won't do It and
pay you exactly what you paid. For
instance, if a bond bears 6 per cent
interest, it would not be fair for you
to require me to take these bonds
back and have me pay all that interest
back to you. Five per cent would
not cover . . . there might be a
change in the market, so we hit upon
4 per cent interest, provided we did
have to repudiate these bonds. . . .
"We took a lot of bonds that they
raised a question about; we sent a
letter down here and we said that
some of these bonds had been pre
viously reserved for other customers,
and he immediately came to the office
and said: 'We are going to turn these
bonds back because we don't want
these kind of bonds; If we want bonds
to keep we. are going to keep them
'HOTELS TOO SCARCE,
DECLARES S. BENSON
Tourists Being Warned to
Keep Away From Oregon.
ROADS DAMAGED BY LOGS
He (meaning the state treasurer)
bought $400,000 worth of bonds; now
the details I would not remember. He
bought $400,000 worth of bonds, the
majority of which were gone over
and discussed . . . which he was1
going to sell back to me and buy
bonds of a higher rate just as soon
as we could get them. It was only by
eternal vigilance that we could get
the 525s on the market and were able
to exchange. . . . Lots of those
bonds would have sold on a 5 per
cent basis. He was insistent on get
ting these bonds. . . .
'You see, Mr. Brown, at the time of
the original investment we hadn't the
bonds really wanted for permanent
Investment. That is why he put in
this repurchase clause. They didn't
give him the yield he wanted."
Richardson Explains Deal.
The reason for the large business
transacted with Morris Brothers was
explained hy J. G. Richardson to the
Marion county grand jury in the fol
lowing testimony:
'As I attempted this explanation
the other day, when Mr. Hoff and I
had had time to study our funds we
found that there was an exceptionally
large fund being carried in the ac
counts. We couldn't understand why
there was something over $500,000 in
the industrial accident account. I
don't know whose suggestion it was,
but! think Mr. Hoff suggested that
we ought to invest that money as
much as possible. He wanted to es
tablish the policy of making every
dollar of interest that we could make
for his term, so an agreement was
entered into with Mr. Etheridge rep
resenting Morris Brothers, that Ethe
ridge come to Salem to our office.
'We explained the situation to him
and told him that we were not fa
miliar with our funds; that we did
not know whether we could purchase
securities and retain them, or
wnetner we would nave to have our
money on demand or at any time, so
we made this arrangement with him,
and It was done after Mr. Hoff and I
discussed it fully, and was to save
any brokerage. Now if we had pur
chased, securities outright and the in
dustrial accident department had made
demand on us for money that we had
in securities, it would be necessary
for us immediately to throw these
bonds on the market, thereby adding
to the cost of brokerage for resale of
the bonds. So to get away from that
we sold on this plan that the bonds
we purchased from Morris Bros, would
be subject to resale at any time we
needed the money, and if we did re
sell them then we were to get 4 per
cent interest on our money. That is
the agreement as I remember it."
Bond Deals Enumerated.
The report enumerates the bond
purchases of the state treasurer from
the firm of Morris Bros., in the fol
lowing summary:
Exhibit "C" of the auditors' report
contains special transactions of the
state treasurer with Morris Bros.,
Inc., from January 6, 1919, to Mwch
16, 1920, showing that the state treas
urer had purchased from Morris
Bros., Inc., bonds at a cost to the
state of $424,969.82, which were resold
to Morris Bros., Inc., for the pur
chase price, the state treasurer col- I
lecting interest on the sum invested
in the bonds at the rate of 4 per
cent, amounting to $3085.06.
Securities purchased by the state
treasurer, exclusive of those pur
chased from Morris Bros., Inc., from
January 6, 1919, to March 15, 1920, are
described in exhibit "D" of the audi
tors' report and show that bonds of
the par value of $456,312.36 were pur
chased from a number of firms deal
ing in bonds, at a cost of $468,880.24.
Personal Purchases IVoted.
Exhibit "E" of the auditors' report
shows the following strictly personal
and private purchases of bonds by
O. P. Hoff from Morris Bros., Inc.,
from January 6, 1919, to March 15,
1920:
"State Treasurer Hoff purchased
from Morris Bros., Inc., exclusive of
'special transactions' listed in exhibit
'C of the auditors' report, from Janu
ary 6, 1919, to March 15. 1920, bonds
of the par value f $1,106,629.09, at a
cost to the state of Oregon of $1,172,
223.12, which bonds cost Morris Bros.,
Inc.. $1,088,147.03. making a gross
profit to Morris Bros.. Inc., of the sum
of $84,076.09. In addition thereto, Mr.
Hoff purchased from Morris Bros. ..Inc.,
at a cost to the state of $155,263.55,
city of Ontario paving gold bonds,
city of Rainier betterment gold bonds,
city of Rainier refunding bonds, city
of Scio electric light and water bonds.
"The last mentioned bonds had been
paid for at the commencement of our
examination, but frad not been de
livered to the state treasurer; how
ever, they are now in the possession
of Mr. Hoff as the treasurer of the
state, having been delivered to him
pending our investigation. The audi
tors report advises that various se
curities were held by the state treas
urer as collateral, pending the 'de
livery of the aforesaid bonds. We are
not advised, what said bonds last re
ferred to cost Morris Bros., Inc.. nor
were we acquainted with Morris
Bros, profit thereon."
Auditor Maltes Comment.
A letter written by E. E. Pinney
Oregon manager of the Fidelity &
Deposit company of Maryland, who
has audited the books of the state
treasurer from time to time, is In
cluded in the grand jury's report as
commentary upon inadvisable meth
ods now in use. The letter concludes
"I do not thlriK the grand Jury can
make any more pertinent recommen
dations than that the next legisla
ture make provision for a board
which shall have charge of the in
vestments of the state's funds. It la
not right that this Immense amount
of money should be Invested by on
man atone, no matter wno that man
is. Different states have different
plans for the making of state Invest
ments, and I am confident if the mat
ter is brought to the attention of the
legislature a good feasible working
plan can be round. '
Most Paring Jobs Under Contract
on Pacific Highway Likely to
Be Finished This Summer.
"More hotels are needed along the
Pacific highway," declares S. Benson,
chairman of the 6tate highway com
mission, who has returned from
California. "Conditions in this re
spect are Just about as bad in Cali
fornia, yet down south they tell
tourists to keep away from Oregon
as they, cannot get into hotels, and
then they also say that it is impos
sible to drive through to Portland be
cause of the condition of the road.
"As for the highway, traffic can
get through, but the hotel problem
is another matter. Roseburg, in par
ticular, should have another hotel, for
it is about a day's run from Portland,
and a day's run to Medford or Ash
land Of course, to build at the pres
ent price of material, is almost prohibitive."
Oregon Well to Front. j
Mr. Benson says that there is a
reat era of road building through
out the United States and that Ore
gon is well to the front. He declares
that Oregon Is getting a pavement
of which it can be proud, but the
pavement is not constructed for some'
of the traffic now using It, for in
stance, logs.
"When over the highway," says the
commissioner, "I saw a number of
loads of logs. The highways are not
built for that kind of traffic, and
these loads were crushing the old
concrete pavement on the Siskiyou
grade. It Is nonsensical to tolerate
the damage of thousands of dollars
to a highway for the benefit of a few
people. When i was in Salem I took
up this matter, and regulations will
be issued keeping log loads off the
highwaj'.
"In California the roads are going
to pieces, but are being maintained at
heavy expense. Many miles of grades
in Oregon on the Pacific' highway
have been put in bad shape by the
traffic over them during the wet sea
son, with the result that they are
ragged and rough. These grades will
be dragged and this . dragging will
go on In several counties.1
Labor Question Serions.
"From what I can gather, most of
the paving jobs under contract on
the Pacific highway will be finished
this year, unless there is a labor
shortage. The labor question is more
serious on grading contracts than on
paving, for small and specialized
crews are needed on pavement work.
Hot stuff plants have resumed and
uniess something unforseen occurs,
all of the paving jobs on the Pacific
highway should be completed before
the rains of the fall.
"Little if any new work will be
contracted for this year unless the
bond market improves. The market
is now weak and securities are not
bringing what they would normally."
f
PLAYING
NOW
SPECIAL
FRANCESCO LONGO
One of the world's most brilliant
piano soloists, will play:
"Hungarian Fantasia" (Liszt), ac
companied by Rivoli Concert Orchestra.
C. Gardner Sullivan has never before in his distin
guished career written a story so big, so enthralling
as "SEX" not merely powerful and technically fine
it is artistically amazing. And in treatment it is as
wholesome and genuine as a mother's embrace.
Special Sunday Concert
12:30 Noon, May 9, 1920
Calif of Bagdad .Boildieu
Blue Danube J. Strauss
Chanson Indoue Rimski-Korsakow
La Boheme Fuccini
Tiano solo by Francesco Longo
Hungarian Fantasia F. Liszt
Accompanied by Rivoli Orchestra
STARTS
TODAY
IN PERSON
EUGENIA GILBERT
Late of the Thomas Ince Studios,
Los Angeles, in a special dancing
prologue, to be presented in con
nection with the super photo play,
"Sex."
Some May Say It's Startling, Sensational,
Even Bold, but We Assure You That AH
Should See It.
DEAL HELD FRAUDULENT
TRANSFER OF PAPER COM
PANY ASSETS ASSAILED.
FACTORY WAGE WANTED
Washington Conferees to Discuss
Minimum Working Scale.
SEATTLE. Wash., May 7. Nine
conferees, three representing each
grroup employers, employes and pub
lic were selected by the- state indus
trial welfare commission at its meet
ing here Thursday to meet in Olympia
May 18 and 19 to discuss a minimum
wase for factory workers.
The employers' grroup will be rep
resented by R. H. Butler, Seattle; T.
W. Moore, Spokane and Mark Ewald,
Olympia. Employes delegates are
Miss Rose Simoneaux, Tacoma; Miss
Hilda Freeman, Spokane, and Miss
Alice Farrell, Everett. The public
will be represented by Mrs. Helen M.
Stevens, Seattle; Mrs. R. C. McCredie,
Sunnyside and YV. M. Kern, Walla
Walla.
Clam Season Nets Big Returns.
ABERDEEN, Wash., May 7. (Spe
cial.) Grays Harbor clam season
now nearingr a close, has been much
better than last season, according to
local packers, and, with fair weather
to June 1. will be fully up to normal.
Last year the pack was considerably
below the average. Diggers this
years have been making big money
and some of them will run over,J1000
for the three months' work. The
price this year is $3.23 each hundred
pounds.
Astoria Transaction Erected With
out Notice to Stockholders,
M. J. Lynch Asserts.
That assets of the Astoria Pulp &
Paper company were turned over to
the Portland Paper Box company, the
Blake-McFall company and the Port
land Paper Package company fraud
ulently, without notice to stockhold
ers and at a time when assets were
ore than sufficient to meet liabili
ties of the concern, are allegations
in a complaint filed in the circuit
court yesterday by Matthew J. Lynch,
demanding an accounting and the ap
pointment of a receiver ror an tne
Astoria's concern's property in the
hands of the other companies, Which
are made defendants.
Mr i.vnch owned 30 shares, in tne
Astoria company of the par value of
S3000 and declares that. he never re
ceived notice of the proposed transfer
of assets, nor received any settlement
as a result of it. The plamtur as
serts that C. H. Leadbetter and L. L.
Leadbetter, directors of the Astoria
company, who are made co-defendants,
effected the transfer some time
in 1919. He insists that tne company,
capitalized at $100,000, was a going
concern.
SUGAR DUE AT YAKIMA
216,000 Pounds Expected to Last
District's Needs Ten Weeks.
V
YAKIMA, Wash., May 7. (Special.)
Six carloads of sugar, 216.000
pounds, are due to arrive in Yakima
next week, according to announce
ment by wholesale grocers. This
quantity, it is estimated, will be suf
ficient for the needs of the Yakima
district for 10 weeks. The Seattle
Just Received
DARDANELLA
for the
NEW EDISON
' Hear
This Wonderful
Re-creation Biggest
Hit of the year
niniiMiM
We invite owners of Edi
son Phonographs to our
Record Department.
Our stock is most com
plete. Our Edison serv-.
ice the best.
illinium
REED-FRENCH
Twelfth and Washington
Broadway 750
longshoremen's strike may interfere
with the unloading of the shipment
In that case the time when the sugar
will arrive is uncertain.
The sugar will be the first to arrive
here under the new price of $i2.7o to
the wholesaler and f.
taller.
4.33 to the re-
Lcwis River Bulkhead Finished.
KF.r.SO. Wash.. May 7. (Special. -
Burcham Bros, have completed con
struction of the new piling bulkhead
at Robinson Bend on the Lewis river
It is 1S00 feet in length and was
built by the county and the road dis
trict to protect the Lewis river and
Pacific highways. The county Is
riprapping in front of the bulkhead
at a cost of about $23,000. County
Engineer Fred C. Cramer is super
vising th work.
Actaal.
irem
-OF-
Get this straight!
You can't make a good
cup of coffee ' unless you
have good coffee to make
it with.
We can't make good
coffee without good coffee
beans, right blend, right
grind, right packing in
vacuum-sealed tins, the
only way to get the full
strength and flavor to you.
Is Schilling's the only
coffee packed this way?
No; there arc several
some good, two or three
really fine. Schilling Coffee
is money-backed.
' A Schilling f Company
San Francisco
WOOD-JOHNSON-HOOVER-McADOO-WILSON
BRYAN COX
EDWARDS LOWDEN
And the Other Presidential Candidates Is Clearly Shown
In "The Digest's" Mammoth Poll
of 11,000,000 Voters
There are from fifty to sixty thousand votes being received daily in THE LITERARY
DIGEST'S great presidential poll of 11,000,000 voters. As the vote grows and all sections
of the country begin to be represented, a number of editors comment on the really popular
expression of opinion which these ballots represent. The Troy Record makes the interest
ing suggestion that by means of such polls "it may be possible for the people to shake them
selves free from paid publicity and artificially stimulated candidacies and indicate the men
they want to that class of representatives who really want to know." In trade and labor
circles, in political clubs, in fact, wherever men and women congregate throughout the
country, THE LITERARY DIGEST poll is arousing the most intense interest, as is evi
denced by our daily mail.
More than 700,000 votes are tabulated and shown in THE LITERARY DIGEST for
May 8th. When it is remembered that eleven million voters, almost two-thirds of the vote
cast in the last presidential election, are being canvassed some idea of the magnitude of
the enterprise will be gained. Every ballot is mailed in an envelope, and delivered through
the U. S. Postoffice personally to the voter addressed. Return postage on the ballot is pre
paid, and the voter has only to check or write the name of his or her party and the first
and second choice for Presidential candidate. Thus every vote cast is absolutely a secret
ballot.
If you are not following; this unique poll through the pages of THE DIGEST weekly, begin to do so
this week. Other important articles in Jhis number of THE DIGEST are:
The Fight for the Republican Nomination
Profiteers, Jailed and Unjailed
Sixty-Cent Cotton?
Mexico's Gun-Powder Primary
Causes of Japan's Panic Does It Contain
a Warning for Us?
President Masarylc on Socialism
Bolshevism as Spring Medicine
A 132-Year-Old Kentuckian
Why Mail Matter Is Side-Tracked
Topics of the Day
New Theatrical Zones
America's Fatal Neglect of Its Mothers and
Babies
The New Chinese Bible
Prison Cruelty and the Church
The President's Power of Pardon A Diffi
cult Duty Danger of Too Much Leni
ency The President's Responsibility
Speculation in German Securities
The State of Maine, Now With Us More
Than 100 Years
Best of the Current Poetry
Interesting Illustrations Portraits and Cartoons
May 8th Number on Sale Today Newsdealers 10 Cents $4.00 a Year
xisa "t The f"
FUNK & WAGNALLS COMPANY (Publisher of the Famoia NEW Standard dictionary). NEW YORK