Investigation of the Circumstances Surrounding the Disappearance of $7.5 Million of U.S. Government Securities from the Vault of the Federal Reserve Bank at San Francisco,California

INVESTIGATION OF THE CIRCUMSTANCES SURROUNDING THE DISAPPEARANCE OF $7.5 MILLION OF U.S. GOVERNMENT SECURITIES FROM THE VAULT OF THE FEDERAL RESERVE BANK AT SAN FRANCISCO, CALIF.

MONDAY, APRIL 22, 1963

HOUSE OF REPRESENTATIVES,

SPECIAL SUBCOMMITTEE OF THE
COMMITTEE ON BANKING AND CURRENCY,

San Francisco, Calif.

The subcommittee met, pursuant to call, at 10 a.m., in the assembly room, Federal Reserve Bank, San Francisco, Calif., Hon. Henry S. Reuss (chairman of the subcommittee) presiding.

Present: Hon. Henry S. Reuss (presiding); Hon. Charles A. Vanik and Hon. Burt L. Talcott, subcommittee members.

Also present: J. R. Stark, counsel to the subcommittee, Leo Schimel, and Kenneth Hunter, General Accounting Office.

Mr. REUSS. The hearing of the special subcommittee of the House Committee on Banking and Currency is now in session.

Let the record show that this special subcommittee has been appointed by the chairman of the Committee on Banking and Currency of the House of Representatives for the purpose of investigating the circumstances of the disappearance of $7.5 million in U.S. Government securities from the vault of the Federal Reserve Bank in San Francisco; that this hearing is being conducted in the assembly room of the Federal Reserve Bank in San Francisco, commencing at 10 o'clock in the morning, and that the members in attendance include myself, Henry S. Reuss, of Wisconsin, chairman of the subcommittee; Representative Burt L. Talcott, of California, on my right; and Representative Charles A. Vanik, of Ohio, on my left.

Our concern in this investigation is with such questions as the adequacy of the safeguards against loss maintained by the Federal Reserve bank, and other affected Government agencies; the nature and thoroughness of the investigation made after the loss was discovered; and the question of whether or not sufficient consideration was given to protecting the public against financial loss.

There is also a collateral issue concerning the details of how the news of the loss came to appear in the public press at a time when this committee, the banking community, and the public were unaware of the details.

In my State of Wisconsin some years ago, there was a rather tragic accident in one of the freight switching yards, and one of the railroad employees who had been a witness to the accident was asked to describe

how the fatal accident occurred. The witness, whose name I think was Swenson, said, "Well, I was walking down one side of the freight car, and there I saw Ole's head and shoulders. Then I walked around the other side, and I saw Ole's legs and the other part of his body, and right away I said to myself, 'My God, something must have happened to Ole." "

Well, I think that story is analogous to the reason for this subcommittee being out here. We are concerned with the mysterious disappearance of the $7.5 million in securities, and with no preconceptions at all in the matter we are interested in bringing to light all the facts involved.

I want to express the gratitude of the subcommittee to Mr. Eliot J. Swan, president of the Federal Reserve Bank of San Francisco, and to his associates here, as well as to members of the subcommittee's staff, and of the Comptroller General's staff, the General Accounting Office in Washington, and its San Francisco suboffice, who have been here for some days. They have been accorded every courtesy and cooperation by the bank, and we are very grateful to you, Mr. Swan, and to your associates, for those courtesies.

Our first witness this morning will be Mr. Swan and, as I understand it, Mr. Swan, you have a total of three documents which you would like to offer into the record?

Mr. SWAN. Yes.

Mr. REUSS. I suggest, if it is agreeable to you, that you offer those documents, and they be received, and then you can proceed in your

own way.

Mr. VANIK. Mr. Chairman, before you proceed with Mr. Swan's testimony, is this an open meeting?

Mr. REUSS. Yes, let the record show that this is a public hearing, that the matter was discussed with the Federal Reserve Bank of San Francisco beforehand as to whether there was any reason for an executive session. It was determined there was no such reason, and I am personally glad it is a public meeting.

Mr. TALCOTT. Were you going to make some announcement about picture taking and electronic devices?

Mr. REUSS. Thank you, Mr. Talcott. In accordance with House rules, there will not be any television or radio direct coverage of the hearing. The press has taken some pictures beforehand and, after the hearing, of course, it will be open to the press and the other media to question any witness or any members of the committee they wish, but during the hearing the House rule will be observed.

Mr. TALCOTT. Will there be any recording of the proceeding, other than the reporter?

Mr. REUSS. The official reporter who is here this morning will make the only official transcript.

Mr. TALCOTT. May I ask your name, sir?

The REPORTER. Paul R. Latham.

Mr. TALCOTT. Would you put that in the record, please?

Mr. REUSS. Mr. Swan, would you be good enough to come forward, please?

STATEMENT OF ELIOT J. SWAN, PRESIDENT, FEDERAL RESERVE BANK, SAN FRANCISCO, CALIF.

Mr. REUSS. Will you please identify yourself for the record, Mr. Swan?

Mr. SWAN. Eliot J. Swan, president, Federal Reserve Bank, San Francisco, Calif.

Mr. REUSS. Will you be good enough to identify the written statements which you intend to introduce? If you have copies of them, my colleagues would like to have a copy.

Mr. SWAN. I have a statement here, Mr. Chairman, on the circumstances of the incident itself. I have another statement on this question of the release of the information.

Mr. REUSS. Are they both dated April 22, 1963, which is today? Mr. SWAN. Yes.

Mr. REUSS. Please identify them. The first statement, a chronology of the disappearance, is 10 mimeographed pages in length, is that correct?

Mr. SWAN. Yes, sir.

Mr. REUSS. The second statement is an account of how this matter came to appear in the press, consisting of three pages?

Mr. SWAN. Yes.

Mr. VANIK. Shall we identify those by number?

Mr. REUSS. We will call the 10-page document exhibit A, and we will call the 3-page document exhibit B and, without objection, they will be admitted into the record.

(The above-entitled documents were marked "Exhibits A and B" and were made a part of the record.)

Mr. SWAN. We should also like to submit a report from the Board of Governors to the committee, dated April 1, 1963, and we would like to have this made a part of the record.

Mr. REUSS. What is that entitled?

Mr. SWAN. Apparent inadvertent destruction of certain Treasury certificates of indebtedness at the Federal Reserve Bank of San Francisco.

Mr. VANIK. Mr. Chairman, will that be indicated as exhibit C? Mr. REUSS. Let the April 1, 1963, document be designated exhibit C, and without objection admitted into the record.

(The above-entitled document was marked "Exhibit C" and was made a part of the record.)

Mr. VANIK. Mr. Chairman, before Mr. Swan proceeds, could he introduce the other gentlemen sitting at the table?

Mr. REUSS. Mr. Swan, would you introduce your associates?

Mr. SWAN. On my left is Mr. H. E. Hemmings, first vice president of the bank.

On my right is Mr. J. L. Barbonchielli, vice president, and Mr. George Hartlin, general auditor.

Mr. REUSS. Now, having placed these three exhibits in the record, will you please proceed in your own way, either to read, summarize, or paraphrase them, in accordance with your own desires.

In accordance with the House rules they are now formally a part of the record.

Mr. SWAN. I should like to read them, if I may, Mr. Chairman.

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