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here, we have certainly seen a case where not only have the interests of the taxpayers been totally unprotected, but the intent of the Congress in the policy established in this act has been grossly violated.

Have you anything further you want to say?

Mr. Huck. Only to tell you that there was no intentional violation at all.

Senator HARRIS. Very well.
You may be excused.

Senator Mundt. Do you want your statement to appear at this point in the record, your prepared statement ?

Senator HARRIS. I have already inserted it into the record.
I trust you don't desire to read it aloud. It is part of this record.

Mr. ZUMAS. We are willing to defer to the committee's wishes on that. It does not make any difference to us.

Senator HARRIS. In the interest of time, that is what we will do. We will call now Mr. Finneran.

stand and be sworn? Mr. Finneran, do you swear that the testimony you are about to give before the subcommittee will be the truth, the whole truth, and nothing but the truth, so help you God?

Mr. FINNERAN. I do, sir.

Will you

TESTIMONY OF FRANCIS J. FINNERAN, ACCOMPANIED BY

COUNSEL, LYKES M. BOYKIN

Senator HARRIS. Please state your name for the record.
Mr. FINNERAN. My name is Francis J. Finneran.
Senator HARRIS. And your residence?
Mr. FINNERAN. Westport, Conn.

Senator HARRIS. You understand you are entitled to be represented
by counsel at this proceeding. Are you represented by counsel ?
Mr. FINNERAN. I am, sir.
Senator HARRIS. Is that the gentleman!

Mr. Boykin. I am Lykes Boykin, Solar Building, Washington, D.C.

Senator HARRIS. It is my duty to advise you, Mr. Finneran, that anything you say in this proceeding may be used or held against you in some other legal proceeding. Do you understand that?

Mr. FINNERAN. I do, sir.
Senator HARRIS. Very well.

Mr. FINNERAN. If I may, Mr. Chairman, I should like to request your permission and that of the committee to read an opening statement.

Senator HARRIS. When did you furnish this statement to the staff, Mr. Finneran?

Mr. FINNERAN. Mr. Boykin, my attorney, at 6:30 last evening.
Senator HARRIS. When were you subpenaed?
Mr. FINNERAN. One day last week.

Senator HARRIS. Here is what the ruling will be at this time. It is one of the rules of this committee that any prepared statements that are to be used in such proceedings as

this will be furnished for the examination of the committee and staff at least 24 hours prior to the time you are to testify.

That has not been complied with. What we will do with the statement is, without objection, it will be received into the record of the case. You will not read it at this time.

Now, as to the chart which you prepared

Senator MUNDr. Before you get to that, I see a part of your statement which I think is in error on the first page, in the third paragraph. You say that you paid back the principal, and you paid back $82,000 interest. Then you say:

Admittedly, a number of mistakes were made in our operation of Putnam, but at least all Government funds were repaid.

So far, so good

And the Government made a profit of some $82,000 on the money loaned to profit.

Where do you get that idea? I thought that was interest.
Mr. FINNERAN. Interest and profit.

Senator MUNDT. When the Government has to borrow the money to loan it to you, it can't be profit.

Mr. FINNERAN. Well, in any case, it is that much more than we borrowed.

Senator MUNDT. That is interesting. You paid it back with interest. I don't want the record to show that the Government made a profit on your operation. It got back what it put in, plus the interest on the money that it loaned you. Isn't that correct?

Mr. FINNERAN. It is, Senator. I certainly don't want to quibble over this. But were it a bank it would be profit.

Senator MUNDT. No, it would not be profit to a banker. I used to be a banker. There is a difference between what I pay a depositor and what you pay me which would be profit. But Uncle Sam does not have any free $400,000 it can loan you. It had to borrow it from somebody and pay interest on it.

Mr. FINNERAN. That is correct.

Senator MUNDT. It may have made a profit of 1 or 2 percent, I don't know what the difference between the two interest rates are, but it certainly is not any $82,000 profit.

Would you agree to that?
Mr. FINNERAN. Yes, sir,

Senator MUNDT. I have not read the rest of your statement. I hope it is more "on the beam” than that because that is not right.

Senator HARRIS. You prepared the statement and you will now state to the committee under oath that it is true and correct and states. the facts to the best of your knowledge?.

Mr. FINNERAN. I do, sir.

Senator HARRIS. Very well, on that basis this statement will be admitted into the record of the committee and in evidence in this hearing.

I will withhold judgment about the chart. We may receive it. My present feeling is that it will not be admitted into evidence. We have not had an opportunity to examine it. We will want to ask you some direct questions and if you want to refer to the chart to refresh your own memory, of course, you are allowed to do that, as you could with any paper or other document that might help you refresh your memory for testimony.

(Prepared statement of Francis J. Finneran may be found in the files of the subcommittee.)

Senator Harris. Mr. Finneran, did all of the money going into Putnam come from one of two sources: money borrowed from banks or money borrowed from the Government?

Mr. FINNERAN. That is right. The capital in Putnam Investors came from Huck, Ivey, and Finneran. It was borrowed.

Senator HARRIS. Were joint personal loans of yourself, Mr. Huck, and Mr. Ivey at the Connecticut Trust Co. and the City Trust Co., in 1961, used as the source of the original $150,000 private capital of Putnam Investors?

Mr. FINNERAN. They were, Senator.

Senator Harris. Then on the basis of that private capital, did Putnam then secure $300,000 from the SBA under the SBIC program?

Mr. FINNERAN. We did, Senator.

Senator HARRIS. That was all the capital at that time that Putnam Investors had ?

Mr. FINNERAN. That is right.

Senator Harris. Was there an agreement with the City Trust Co. not to draw out the money borrowed from them during the life of the loan?

Mr. FINNERAN. There was an agreement with the City Trust Co. that minimum balances would be maintained in that bank in that amount. It was my understanding, and I did not get into the mechanical handling of this, that it did not specify that this be Putnam balances.

Senator Harris. Did you have any other balances there?

Mr. FINNERAN. Not at that time, Senator. This was a new relationship with this City Trust Co.

Senator HARRIS. But the situation was this, was it, Mr. Finneran, that a part of that $150,000 that you represented to SBA you had in private capital in Putnam was, as a matter of fact, at the time that represention was made, unavailable for withdrawal unless it was replaced with some other money, of course?

Mr. FINNERAN. It was my understanding that it was available, Senator.

Senator HARRIS. Hadn't a letter been written to the City Trust Co. that that balance would be maintained? You heard the evidence we had, and the letters read that were written to City Trust Co., one of which you signed personally. You don't deny that you signed it?

Mr. FINNERAN. I signed one of them; yes. But the one that I signed, I am quite certain-if I may see one, Senator

Mr. Boykin. Mr. Chairman, as I recall, that was placed as an exhibit in evidence, the letter from the City Trust.

Senator Harris. I do not think we need to belabor the point.

Would your testimony be the same as Mr. Huck's, different from the way I interpret what that letter plainly says, that you say it meant something a little different, as he says, that you could replace that with some other funds and so forth?

Is that your testimony?

Mr. FINNERAN. What I am saying, Senator, is that my understanding was that this fund in the Putnam balance could be used and withdrawn, both from a standpoint of understanding with the

bank, together with the legal aspect of it being a corporate and separate entity.

But further, the laws in the State of Connecticut are such that a court process is unnecessary for attachment.

Senator HARRIS. What kind of a process? A court process ?

Mr. FINNERAN. Court process is unnecessary to attach accounts in Connecticut.

Senator HARRIS. What does that have to do with it?

Mr. FINNERAN. That means that money was completely free money and exposed.

Senator HARRIS. Not if you had agreed with the bank that you would not withdraw that balance so long as the loan was outstanding, would it?

Mr. FINNERAN. I believe so, Senator. Technically, I was neither an officer, a director, or an employee of Putnam; technically, I say.

Senator HARRIS. But your wife was, though.
Mr. FINNERAN. Yes, sir.

Senator HARRIS. And you admit, of course, that you did the business for her. Your statement admits that.

Mr. FINNERAN. Yes, Senator. I am not at all denying it.

Senator HARRIS. She simply was a front for your operation in this company.

Mr. FINNERAN. I would prefer not to see it that way.
Senator HARRIS. What would you call it!
Mr. FINNERAN. Well, I-

Senator HARRIS. She did not make the decisions based on her stockholder's interest. You were her No.1 adviser.

Mr. FINNERAN. Yes.
Senator HARRIS. Is that correct?

Mr. FINNERAN. That is right, sir. And also adviser to Putnam and the other shareholders.

Senator HARRIS. Do you wish to make any further explanation of the situation with the City Trust about whether you could withdraw those funds?

Mr. FINNERAN. Other than on that technicality and from a legal standpoint, I could not commit Putnam funds.

Senator HARRIS. I understand that.
Who dealt with the SBA? Did you have any personal contact with
SBA during the time you or your wife were associated with Putnam
Investors ?

Mr. FINNERAN. No, Senator.
Senator HARRIS. Who did ?

Mr. FINNERAN. Primarily, all contacts were handled through the attorney, Stephen Tate.

Senator HARRIS. You knew that as part of the application for this money you got from SBA there was a letter from City Trust Co. attesting to the fact that Putnam Investors had a balance of so much money in that bank. Isn't that so? You know that letter was part of the application, did you not?

Mr. FINNERAN. I don't recollect, Senator. I was not and never had been part of the detail of the operation.

Senator HARRIS. Was your wife?
Mr. FINNERAN. No. This would be with the attorney.

Senator HARRIS. I understand that. But you understood that an application was filed with SBA? Mr. FINNERAN. I am certain that it was;

certainly, Senator. Senator HARRIS. Was money out of the Putnam bank account used to pay off the personal loans that you had borrowed for initial capital in Putnam of yourself, Mr. Huck, and Mr. Ivey at the City Trust Co. and the Connecticut National Bank?

Mr. FINNERAN. I have an explanation of that, Senator.

Senator HARRIS. You can answer “Yes," "No," or "I don't know,” and then give your explanation.

(The witness conferred with his counsel.) Nr. FINNERAN. May I have the permission of the committee, Mr. Chairman, to use my chart?

Senator HARRIS. You can refresh your memory but you will have to answer the question, Mr. Finneran. You can use it to refresh your memory, look at that or any

other

papers you need to and answer this question, which I put to you again: Was Putnam money used to pay off the joint personal notes you, Mr. Ivey, and Mr. Huck had at these two banks, the City Trust Co. and Connecticut National Bank?

Mr. FINNERAN. It turned out that these did, inadvertently, so do. Senator HARRIS. You say "Yes,” but then you qualify it by saying "Inadvertently."

Mr. FINNERAN. This is the only way I can give you an answer of yes or no, Senator.

Senator Harris. Would your testimony about what you mean by “inadvertent” be the same as that given before this committee just now by Mr. Huck?

Mr. FINNERAN. In the case of

Senator HARRIS. I am trying to shorten it. You heard Mr. Huck's testimony!

Mr. FINNERAN. Yes. Senator HARRIS. And my questions to him about this and his use of the word "inadvertent." Would your explanation be substantially the same as he has given?

Mr. FINNERAN. Yes, Senator.

Senator HARRIS. There is no use of our going over that, then. We do not want to argue with you, and we have no desire to harass witnesses. We are trying to get to the interest of the Government and the taxpayers which we are sworn to protect. That is what we are trying to get at.

Where did the additional $100,120 come from which was additional capital added to Putnam Investors, Inc., original capital in 1962?

(At this point Senator Mundt withdrew from the hearing room.)

Senator HARRIS. Senator Mundt has had to leave the committee at this time. We will place into the record a statement signed by Senator McClellan and Senator Mundt permitting us to proceed under the rules of this committee.

U.S. SENATE,
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS,
OF THE COMMITTEE ON GOVERNMENT OPERATIONS,

August 3, 1966. Pursuant to Rule 5 of the Rules of Procedure which was amended by the Committee on Government Operations for its Senate Permanent Subcommittee on Investigations on June 3, 1965, and re-affirmed on January 12, 1966, permis

67–788—6613

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