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Illustrative of their circuitous financial transactions is a December, 1951, transaction. On December 5, 1951, Senator McCarthy received a loan from the Riggs National Bank, Washington, D. C., of $6,000 against his demand note secured by 200 shares of Seaboard Air Line Railroad Company common stock. With this $6,000 he purchased two Cashier's Checks, one in the amount of $4,500 and one for $1,500. The $4,500 check he deposited in his regular checking account at the Riggs National Bank on December 21, 1951, together with a $2,000 check of Ray Kiermas for a total deposit of $6,500. The Cashier's Check in the amount of $1,500 was deposited in the Riggs National Bank account of Ray Kiermas on December 10, 1951. There may be a reasonable explanation for these transactions, but in the absence of such explanation, obvious questions arise.

Why the use of Cashier's Checks? Why was not the $6,000 loan credited directly to Senator McCarthy's account? Why the exchange of checks between Senator McCarthy and Ray Kiermas?

Whether Senator McCarthy's Activities on Behalf of Certain Special Interest Groups, Such as Housing, Sugar and China, Were Motivated by Self-Interest

From time to time, articles have appeared in the press and reports have been received by the Subcommittee indicating the possibility that Senator McCarthy may have championed the cause of certain special interest groups including those relating to certain phases of housing, sugar and Nationalist China. There were also charges that he may have done this in self-interest.

Housing

In this connection the Subcommittee has little to add to what has already been stated previously under the heading of the Lustron fee payment wherein the receipt of money from the Robert Byers firm and other matters were also discussed. Other questions which naturally come to mind from these facts as previously set forth are:

Was Senator McCarthy's appearance at Columbus, Ohio in connection with the promotion of Byers' homes related to his position as Vice-Chairman of the Joint Housing Committee and membership on the Senate Banking and Currency Committee?

Did Senator McCarthy receive any fees, loans, or contributions from any other housing manufacturers, similar to that received from Byers and Lustron?

Sugar

In that the press from time to time characterized Senator McCarthy as the champion of certain sugar interests and as the Senator obtained the endorsement of a $20,000 Appleton State Bank note from Russell M. Arundel, a Washington representative of Pepsi-Cola, at a time when Pepsi-Cola was interested in certain legislation, etc., the Subcommittee believed that the propriety of said conduct was a subject for further inquiry.

Senator McCarthy was a member of the Senate Banking and Currency Committee, and its Subcommittee on Sugar, since January 6, 1947. As sugar rationing and price controls were still in existence during 1947, the determination as to whether said controls were to be

continued in any form, or terminated, was the responsibility of the Congress, and particularly the Banking and Currency Committees. The Department of Agriculture advocated the continuation of sugar controls, whereas the Pepsi-Cola Company and its hundreds of bottlers throughout the country, among others, urged decontrol.

As related in greater detail in another portion of this report, Senator McCarthy was greatly over-extended in his loan position at the Appleton State Bank from the time of his election to the Senate in November of 1946 and throughout 1947, and the Bank was constantly requiring additional collateral, liquidation of pledged collateral and/or reduction of his loans. On or about December 5 or 6, 1947, Senator McCarthy hurriedly conferred with Russell M. Arundel (according to Arundel's testimony on June 12, 1952, before this Subcommittee) to apprise him of his financial predicament and the pressing notes held by the Appleton State Bank, and Arundel endorsed a $20,000 six-months note for Senator McCarthy, on or about December 8, 1947, which was used as collateral for Senator McCarthy's Appleton Bank loans.

His acceptance of a $20,000 favor from the Washington representative of the Pepsi-Cola Company at the very time he was attacking the Government for its manner of handling sugar control makes it difficult to determine whether Senator McCarthy was working for the best interests of the Government, as he saw it, or for Pepsi-Cola.

In view of the fact that Senator McCarthy has failed to appear before this Subcommittee to offer his explanation of the aforementioned transactions the following questions remain unanswered:

Was it proper for Senator McCarthy, while serving on the Banking and Currency Committee and its Subcommittee on Sugar, to seek and accept the endorsement on his Bank Note for $20,000 by a person vitally interested in sugar legislation?

Was there any relationship between Arundel's endorsement of Senator McCarthy's $20,000 note on or about December 8, 1947, and Senator McCarthy's special appearance to interrogate the Army Secretary on December 9, 1947, before the Committee on Appropriations regarding the Army's purchase of Cuban sugar, which purchase had been previously criticized by Pepsi-Cola? Did Senator McCarthy's over-extended debt position with the Appleton State Bank and the Bank's constant demand for liquidation of the indebtedness or an increase in his collateral, influence Senator McCarthy's position on the sugar decontrol issue to such an extent that he followed the "Pepsi-Cola line"!

China

Unconfirmed reports were received by the Subcommittee to the effect that when Senator McCarthy began his "public phase" of his fight against communism early in 1950, his activities in this direction were general but that subsequently he began to follow what was termed the line of the China lobby.

As an example of this, it was pointed out that General George C. Marshall has been one of the individuals attacked by the "China Lobby" and on June 14, 1952, Senator McCarthy delivered a 65,000word speech in the Senate attacking General Marshall. (Cong. Rec.

p. 6752.) It was also inferred that Senator McCarthy may have received financial assistance or other considerations from members of this group.

The Subcommittee did want to question Senator McCarthy about these reports and charges as well as other information in its files relating thereto. From an investigation standpoint, the principle is the same whether Senator McCarthy may have represented housing, sugar, or some other special interest group, whether or not related to the issue of communism. However, in the face of the reasons which the Senator has used in refusing to cooperate with the Subcommittee, namely, because S. Res. 187 was communist inspired and any criticism or investigation of him was an aid to communism-the Subcommittee has been reluctant to conduct any extensive inquiry of this matter or to discuss it in this report.

In fairness to Senator McCarthy, it should be said that the Subcommittee has not received any evidence to date reflecting that he received money from members of the China Lobby.

It has been ascertained that Mr. Alfred Kohlberg, a New York City importer, frequently identified as connected with the China Lobby, sent Senator McCarthy a $500 check to assist him in his fight against communism and that Senator McCarthy returned this by letter of April 11, 1950 on the grounds that "it might be misconstrued by leftwing commentators." There was, however, information developed incident to the Subcommittee investigation that there was contact between Senator McCarthy's office in Washington and Alfred Kohlberg in New York City on at least nine separate occasions during the period from April to September 1952 (Exhibit 128).

Whether Loan or Other Transactions Senator McCarthy Had With Appleton State Bank or Others Involved Violations of the Tax and Banking Laws

Taxes

The facts relating to tax matters have been previously set forth under sub-headings, "William P. McCarthy Transactions," "Senator McCarthy's Transactions with the Appleton State Bank," "Appleton State Bank Interest Manipulations."

In view of this it appears unnecessary to repeat them at this point in the report.

Banking Laws

The facts and circumstances relating to Senator McCarthy's transactions with the Appleton State Bank have also been set forth earlier in this report, particularly under the sub-heading, "Senator McCarthy's Transactions with the Appleton State Bank." However, the laws relating to these matters and a brief discussion of the particular circumstances is set forth as follows:

The Wisconson Statutes published in 1939 provide in Section 221.29:

Limit of Loans. (1) The total liabilities of any person . . . to any bank, for money borrowed . . . shall at no time exceed twenty per cent of the amount of capital stock and surplus of such bank or fifteen per cent of the amount of capital and surplus of such bank. .... (Exhibit 129.)

Amendments to this section thereafter did not alter the foregoing limitation.

The Wisconsin Statutes published in 1949 provide in Section 221.29: Limit of loans and investments. (1) (a) The total liabilities of any person... to any bank for money borrowed shall at no time exceed 20 per cent of the capital stock and surplus or 15 per cent of the capital and surplus of such bank . . ." (Exhibit 130.)

In 1945 and 1946, The Appleton State Bank had outstanding capital stock of $200,000 and a surplus of $300,000 with a loan limitation to one person of $100,000.

Section 7 (a) of the Securities and Exchange Act of 1934 provides: For the purpose of preventing the excessive use of credit for the purchase or carrying of securities, the Board of Governors of the Federal Reserve System shall, prior to the effective date of this section and from time to time thereafter, prescribe rules and regulations with respect to the amount of credit that may be initially extended and subsequently maintained on any security (other than an exempted security) registered on a national securities exchange .

Regulation "U" issued by the Board of Governors of the Federal Reserve System pursuant to the provisions of Section 7 of the Securities and Exchange Act of 1934, as amended to July 20, 1949, provides in part as follows:

On and after May 1, 1936, no bank shall make any loan secured directly or indirectly by any stock for the purpose of purchasing or carrying any stock registered on a national securities exchange in an amount exceeding the maximum loan value of the collateral, as prescribed from time to time for stocks in the supplement to this regulation and as determined by the bank in good faith for any collateral other than stocks...

The margin requirements in effect between February 5, 1945, and July 4, 1945, was 50% and between July 5, 1945, and January 20, 1946, it was 75%. By the terms of Regulation "U", the bank between February 5, 1945, and July 5, 1945, was unable to legally loan money for carrying stock registered on a national securities exchange in excess of 50% of the value of the stock, and between July 5, 1945, and January 20, 1946, in excess of 25% of the value of the stock.

Between December 21, 1945, and May 23, 1946, the loan to Joseph R. McCarthy was in excess of $100,000, the loan limitation of the Appleton State Bank, and in violation of the Wisconsin bank statutes. For the purpose, ostensibly, of complying with the law, the Bank carried in a separate account that portion of the loan in excess of $100,000 in the name of Howard McCarthy, and transferred an equitable amount of the collateral to the Howard McCarthy account. The loan to Senator McCarthy was constantly in excess of the collateral requirements of the Bank, as evidenced by the numerous letters from the Bank to Senator McCarthy. It was under collateralized by the terms of Federal Reserve Board Regulation "U", which provided a margin requirement of 50% or greater at all times between February 5, 1945 and the present time.

The most flagrant disregard for the state banking laws and the Federal Reserve Board regulation was the financing by the Appleton State Bank of the acquisition by Senator McCarthy of 5,000 shares of Chicago, Milwaukee, St. Paul & Pacific Railroad stock in December 1945. On December 21, 1945 the loan account of Joseph R. McCarthy was increased by $149,176.00 raising the balance to $169,540.70, which was $69,540.70 in excess of the bank's legal loan limit (Exhibit 131). The $149,176.06 represented a check for that amount issued to Wayne Hummer & Company (Exhibit 132) which was credited by Wayne

Hummer & Co. on December 26, 1945 to the account with Appleton State Bank and was used to pay for 5,000 shares of C. M. St. P. & P. R. R. stock purchased between November 28, 1945 and December 26, 1945 (Exhibit 133). By the terms of Regulation "U" it would appear that the bank was precluded from loaning more than 25% or $37,294.01 to purchase stock having a market value of $149,176.06. Within a few days after increasing the loan to Senator McCarthy to $169,540.70, an amount in excess of the loan limit or $69,540.70 was transferred to an account in the name of Howard McCarthy.

On April 22, 1947 the Bank wrote Senator McCarthy advising him of the market value of his collateral and reflecting a deficiency of $11,200.00 in the Bank's requirement of 120% of the loan balance (Exhibit 134).

The market value of listed stocks on that date was. 50% of market value of listed stocks_

Other collateral_.

$21, 137.50

10, 568. 75

32, 356. 10

42, 924. 85

53, 919.00

Amount of loan____

Undercollateralized per Federal Reserve Bank Regulation---- $10, 994. 15 On March 14, 1949 the Bank wrote Senator McCarthy informing him that his collateral valued at $66,594.66 provided a margin of only 11 percent plus over the loan balance as against the Bank's requirement of 20 percent. This letter indicated that $22,830.00 of the collateral held as security for Senator McCarthy's loan was owned by Ray Kiermas, Senator McCarthy's Administrative Assistant (Exhibit 135). After February 5, 1945, the Federal Reserve Board regulations at all times provided for a margin of at least 50 percent of the market value of listed stocks. On this basis there appeared to be a deficiency in the collateral of $15,824.05 computed as follows:

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