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19730 P4.4

COMMITTEE ON GOVERNMENT OPERATIONS
SAM J. ERVIN, JR., North Carolina, Chairman

JOHN L. MCCLELLAN, Arkansas
HENRY M. JACKSON, Washington
EDMUND S. MUSKIE, Maine

ABRAHAM RIBICOFF, Connecticut
LEE METCALF, Montana
JAMES B. ALLEN, Alabama

LAWTON CHILES, Florida

SAM NUNN, Georgia

WALTER D. HUDDLESTON, Kentucky

CHARLES H. PERCY, Illinois
JACOB K. JAVITS, New York
EDWARD J. GURNEY, Florida
WILLIAM V. ROTH, JR., Delaware
BILL BROCK, Tennessee

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154. Letter dated May 1, 1974, from Henry E. Petersen,
Assistant Attorney General, to Senator Gurney re the
National Crime Information Center and Sci-Tek with
three attachments__

155. Letter dated June 24, 1974, from Michael J. Codd,
police commissioner, city of New York, to Senator
Gurney re the National Crime Information Center...
156. Letter dated January 22, 1974, from Lt. Robert Kapper,
commanding officer, bond and forgery squad, New
York City Police Department, to Senator Gurney re
National Crime Information Center___

157. Letter dated May 31, 1974, from Leonard Newman,
assistant district attorney of the county of New York,
to Senator Gurney re practices in the banking and
securities industries concerning stolen securities.

158. Letter dated January 24, 1974, from Clarence M. Kelley,
Director, Federal Bureau of Investigation, to Senator
Gurney re National Crime Information Center
securities file data___

159. Newspaper article dated June 18, 1974, from the Times-
Union, Jacksonville, Fla., entitled "U.S. Charges
Eleven Here With Counterfeit Operation".

160. Letter dated May 29, 1974, from J. J. Mullens, assistant
director, State of New York Department of Audit and
Control, to Senator Gurney re amount and disposition
of unclaimed dividends_.

161. Charts-securities validation system dollar/data distri-
bution by participation June 14, 1973-74.
162. Securities validation system detection and recovery
of lost, missing, stolen and counterfeit securities..
163. Lists of participants of securities validation system..........

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164. Securities validation system data base profile..
165. Securities validation system supportive documentation.
166. Computer printout from Manufacturers Hanover Trust
Co. showing various corporation securities that have
been reported lost, misplaced, stolen or are unregis-
tered_.
167. Letter dated June 13, 1974, from Senator Jackson to
David Rockefeller, chairman of the board, Chase
Manhattan Bank, N.A., re request to appear as
witness_

168. Letter dated June 17, 1974, from Senator Jackson to
Frank Wille, Chairman, Federal Deposit Insurance
Corporation re request to supply information...
169. Letter dated June 24, 1974, from Frank Wille, Chair-
man, Federal Deposit Insurance Corporation to
Senator Jackson; letter dated June 24, 1974, from
Frederick Solomon, Director, Division of Supervision
and Regulation, Federal Reserve System to Senator
Jackson; letter dated June 21, 1974, from John D.
Gwin, Acting Comptroller of the Currency.

170. Letter undated from Internal Security Association/
Financial Firms, New York, N. Y., to Senator Jackson.
171. Letter dated June 13, 1974, from Senator Jackson to
William M. Witter, chairman of the board and chief
executive officer, Dean Witter & Co., Inc., re appear-
ance as witness_.

172. Letter dated June 17, 1974, from Senator Jackson to James Needham, president, New York Stock Exchange, re appearance as witness...

173. Research report on "Magnitude of Lost and Stolen Securities at NYSE Member Firms," published by the New York Stock Exchange__

Proceedings of—

June 25, 1974

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June 26, 1974_.

*May be found in the files of the subcommittee.

ORGANIZED CRIME

SECURITIES: THEFTS AND FRAUDS

TUESDAY, JUNE 25, 1974

U.S. SENATE,

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

OF THE COMMITTEE ON GOVERNMENT OPERATIONS,

Washington, D.C.

The subcommittee met at 10 a.m., in room 1202, Dirksen Senate Office Building, pursuant to section 4, Senate Resolution 269, approved March 1, 1974, Senator Henry M. Jackson (chairman of the subcommittee) presiding.

Members of the Subcommittee present: Senator Henry M. Jackson, Democrat, Washington; Senator Walter Huddleston, Democrat, Kentucky; and Senator Charles H. Percy, Republican, Illinois.

Members of the professional staff present: Howard Feldman, Chief Counsel; F. Keith Adkinson, Assistant Counsel; Stuart M. Statler, Chief Counsel to the Minority; Robert Sloan, Special Counsel to the Minority; Brian Conboy, Minority Counsel to the Committee; Philip R. Manuel, Investigator; William B. Gallinaro, Investigator; and Ruth Young Watt, Chief Clerk.

Chairman JACKSON. The subcommittee will come to order.

[Members of the subcommittee present at time of convening: Senators Jackson, Huddleston and Percy.]

Chairman JACKSON. The Permanent Subcommittee on Investigations today resumes hearings in its continuing inquiry into the role of organized crime in the billion dollar stolen securities racket.

Witnesses will be officers of major banks and brokerage houses. They will testify on steps they have taken to control the theft of securities and to prevent the use of stolen, counterfeit, and bogus securities in banking transactions.

In previous hearings, the subcommittee has shown how organized crime elements have penetrated the Nation's financial community. Witnesses, some with connections in organized crime, have told how securities are stolen, traded, sold for cash, or used as collateral in loan transactions.

The uses of stolen and counterfeit securities are varied. But the purposes are always the same. They are either to convert the securities into cash or to establish credit or the appearance of solvency and substantial assets.

One year ago we heard testimony that over $5 billion in securities were recorded in a voluntary, centralized computer system as being stolen, lost, or otherwise unaccounted for with a staggering $50

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billion estimated as the grand total. I am informed that over $11 billion is now actually recorded in that system.

The situation is both serious and dangerous and strong Federal action is warranted.

Spokesmen for the financial community testified early in this investigation that they were aware of the traffic in stolen securities and the role of organized crime in this racket. They said that they were taking steps to control the problem.

We will inquire of representatives of major banks today and of the major brokerage houses tomorrow if the steps they have taken have been successful.

We will inquire of the banks today why they have spurned a computerized data bank that, theoretically, could identify every single security unaccounted for.

We will inquire if security losses are a major factor in the demise or fragile condition of some of our leading financial institutions. These are a few of the important questions which will be raised at these hearings.

But, we also seek the advice and expertise of these financial institutions so involved in the economic fabric of this country.

For at a time when we see constant attacks on the American dollar, investor confidence at an all-time low and Arab oil money posing an economic threat to the Western world, we can ill afford the possibility of further financial shocks at home.

The Chair wishes to state that Senator Huddleston will serve as the chairman today. I regret that I am in the midst of a continuing conference in connection with the armed services procurement bill. He will preside over the hearings for the balance of the day, and probably tomorrow.

I am most appreciative to him for undertaking this assignment. Senator Percy, who has cooperated so ably, I believe has a statement that he wishes to make at this time.

[At this point Senator Jackson withdrew from the hearing room.] Senator PERCY. Thank you, Mr. Chairman. We have some very distinguished witnesses today from the commercial banking field and we are looking forward very much indeed to hearing them.

These hearings have been called by the subcommittee with one purpose in mind: To determine what, if any, steps have been taken by the securities industry and the entire financial community to deal with the burgeoning problem of securities thefts and frauds. The testimony to be offered today and tomorrow is the culmination of over 3 years of hearings and general oversight by this subcommittee of the securities fraud racket.

We intend to determine whether the promises of the financial community to prohibit obvious and well-documented abuses have been fulfilled or whether banks and brokerage houses have continued to close their eyes to the widespread use of stolen and counterfeit. securities within legitimate financial markets and business circles. The problem of stolen and counterfeit securities in interstate and international commerce is of staggering proportions. This has been adequately established in earlier hearings of this subcommittee. It is now estimated that approximately $50 billion in stolen, counterfeit, lost, or otherwise unaccounted for securities are being used to defraud

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