Senator HARRIS. Who was Mr. Gerald G. Howard?

Mr. NICHOLS. We don't know who he was other than he was a business associate of Mr. Koehl and Mr. Huette.

Senator HARRIS. Did you view this item from your investigation, this advance of cash of $138,500 to the Jefferson County Development Corp., as a self-serving loan transaction?

Mr. NICHOLS. Yes, sir.

Senator HARRIS. Senator Mundt?

Senator MUNDT. I take it from your testimony, Mr. Walsh, that your chart is in error up there to the extent of $500. You said the debt per the books of the SBIC had been reduced to $131,500, but you list it there as $131,000.

Mr. WALSH. The information I had here was that the original advance was $138,500 and the debt to SBIC had been reduced to $131,000. My witness sheet is in error. The information on the chart is correct. Senator MUNDT. You are correcting your testimony, then, to say it is $131,000 instead of $131,500. So the chart is right?

Mr. WALSH. Yes, sir.

Senator HARRIS. The next transaction is the Dixieland Insurance Agency, according to that chart.

Mr. WALSH. Senator, if I may, I would like to introduce, in support of the information I have just testified to, a copy of a memorandum from the files of SBA concerning this matter. It is listed as SB-15. Senator HARRIS. Secured and authenticated by you from the original?

Mr. WALSH. Yes, sir.

Senator HARRIS. It will be admitted as exhibit 43.

(Document referred to marked "Exhibit No. 43" for reference and may be found in the files of the subcommittee.)

Senator HARRIS. What about Dixieland Insurance Agency?

Mr. WALSH. The investigation disclosed that Chris A. Huette, as of December 31, 1962, was the secretary and the director of the Commonwealth Mutual Insurance Co. of Pennsylvania; that Dean Kochl, as of this date, was the treasurer and director of the Commonwealth Mutual Insurance Co. Howard Baum, of Fairbury, Ill., was listed as an incorporator of Dixieland Insurance Co. in the State of Kentucky, and Howard Baum was the president, director, and sole stockholder of the Dixieland Insurance Agency, Inc.

Bloomington, between August 29, 1962, and February 7, 1963, advanced $53,000 to the Commonwealth Mutual Insurance Co., and $79,000 to Dean Koehl, agent. These obligations were assumed by the Dixieland Insurance Agency, Inc., as evidenced by a note dated January 25, 1963, for $132,000 from Dixieland Insurance Agency to Bloomington Small Business Investment Co.

Bloomington also disbursed on April 17, 1963, $5,000 to Howard Baum, which was covered by a note on that day of Dixieland Insurance Agency. Mr. Baum used this money as part of the purchase price of AMCAP Investments, Inc., another small business investment company.

The total that was due on the books of Bloomington Small Business Investment Co. from Dixieland was there shown as $137,000. As we have noted, $132,000 was actually disbursed to the Commonwealth Mutual Insurance Co. and to Dean Koehl.

Senator HARRIS. On these advances made to Commonwealth Mutual Insurance and Dean Koehl, $53,000 to the former and $79,000 to the latter, are those indebtednesses evidenced by notes, Mr. Walsh, or Mr. Nichols?

Mr. NICHOLS. No, sir; they were not.

Senator HARRIS. So there was no evidence of indebtedness in that situation until a note was executed by Dixieland Insurance Agency, Inc., on January 25, 1963?

Mr. NICHOLS. That is correct, sir.

Senator HARRIS. But the original advance of $53,000 to the Commonwealth Mutual Insurance Co. during this period you have testified to, Mr. Walsh, was to a company in which Chris A. Huette was secretary and director, and Dean Koehl was treasurer and director, both of those as of December 31, 1962?

Mr. WALSH. Yes, sir. If I may add, this company is an insurance company in Pennsylvania and is now being liquidated by the Insurance Department of the State of Pennsylvania.

Senator HARRIS. The other advance of $79,000 to Dean Koehl, agent, was directly to one of the co-owners of the stock of Bloomington Small Business Investment Co. I take it that no purpose is shown on the check or the books of the company; is that correct?

Mr. NICHOLS. That is correct, sir.

Senator HARRIS. There is no other explanation except "Dean E. Koehl, agent"?

Mr. NICHOLS. That is correct.

Senator HARRIS. There is nothing else in the files about that until that was a part of the indebtedness assumed later by the Dixieland Insurance Agency; is that correct?

Mr. NICHOLS. That is correct.

Senator HARRIS. Senator Mundt?

Senator MUNDT. Mr. Nichols, have you any information as to what has happened to AMCAP Investments, Inc.? Mr. NICHOLS. Yes, sir.

Senator MUNDT. Will you tell us about it?

Mr. NICHOLS. It is presently at the Department of Justice for appropriate action, Senator Mundt.

Senator MUNDT. Would you give us a little background on how it got into the Department of Justice?

Mr. NICHOLS. It was as a result of an investigation of the company by the Small Business Administration.

Senator MUNDT. I take it there must be some possible fraud involved for it to go to the Department of Justice; is that right?

Mr. NICHOLS. I am not competent to answer that question, Senator Mundt.

Senator MUNDT. You don't know how it got to the Department of Justice?

Mr. NICHOLS. On the basis of the information that was developed in the investigation; yes, sir.

Senator MUNDT. All right. What information was developed by the investigation?

Mr. NICHOLS. It was rather extensive, detailed, and similar to the situations which have been previously discussed.

Senator MUNDT. Did you make that investigation yourself, Mr. Nichols?

Mr. NICHOLS. Yes, sir.

Senator MUNDT. Will you give it to us, then, in just capsule form? Mr. NICHOLS. This company made investments after it obtained control by the purchase of the capital stock of the original organizers to the same companies that Bloomington Small Business Investment Co., made investments in.

Senator MUNDT. Which was then substantially just an enlargement of the circle of self-serving loans of Mr. Huette and Mr. Koehl; is that right?

Mr. NICHOLS. Yes, sir.

Senator MUNDT. Can you add anything to that, Mr. Walsh?

Mr. WALSH. Senator, I have reviewed the file on the AMCAP company extensively. It was a smaller operation than Bloomington. It was shown to have been purchased again with borrowed funds at about the same time that Bloomington Small Business Investment Co. was purchased.

The pattern on the loans was very similar, and I believe some of the same companies were also the receipients of loans. There will be a loss to the Government in that company, as I recall, of a little less than $150,000.

Senator MUNDT. Which would have to be added to the $990,000? Mr. WALSH. It was a separate corporation, Senator. It was a separate license.

Senator MUNDT. Added as far as the taxpayers having to pick up the burden for bad judgment and bad administration, and bad practices, by these two gentlemen, however, which resulted in a net loss to the taxpayers of substantially over a million dollars.

Mr. WALSH. The operator of the AMCAP was Howard Baum. He was the principal in the AMCAP company.

Senator MUNDT. I don't think Mr. Walsh got the question.
Will you read the question, please?

(The record was read by the reporter.)

Mr. WALSH. Senator, if I may revise my answer, the AMCAP Investment Co. is definitely going to be a loss to the Federal Government. We cannot say, however, that Mr. Huette and Mr. Koehl are responsible for that loss. The operator of AMCAP was a different gentleman, a Mr. Howard Baum.

Senator MUNDT. I am not trying to pin the loss on Huette and Koehl. I am simply pointing out that this inbreeding of another investment corporation has resulted in a totality of loss of $990,000 plus an assumed $150,000, to make it well over a million dollars. Mr. WALSH. Yes, sir; that is true.

Senator MUNDT. That is all.

Senator HARRIS. So your total self-serving loans, according to your investigation, and to which you have testified, Mr. Walsh, is $819,571? Mr. WALSH. Yes, sir.

Senator MUNDT. Out of a total of how much capital that the Small Business Investment Co. had available to help American small business with?

Mr. WALSH. There was a capital of $660,000 that was advanced by the SBA. There was a private capital of, I believe, approximately

$150,000 which was borrowed money. There was $180,000 of capital which came from the sale of preferred stock to two savings and loan associations. There was $150,000

Mr. ADLERMAN. Before you leave that, will you tell us what happened to those savings and loan companies, and how they were involved?

Mr. WALSH. The Tinley Park Savings & Loan Association failed. I don't know the exact date, but its assets were assumed by the Federal Savings and Loan Insurance Corporation, and among the assets that they acquired in this failure were shares of stock that were purchased by the company from Bloomington.

Mr. ADLERMAN. Was the Tinley Park failure involved with the Chatham Bank failure?

Mr. WALSH. There was an overlapping of the directorates of these companies; yes, sir.

Mr. ADLERMAN. And Mr. Huette was an officer of Chatham?
Mr. WALSH. Yes, sir.

Mr. ADLERMAN. Was he an officer in Tinley?

Mr. WALSH. No, sir.

Mr. ADLERMAN. How about Mr. Koehl? Was he an officer?
Mr. WALSH. No, sir.

Mr. ADLERMAN. There is now an action, or there should be an action, I imagine, or a claim, at least, by the Federal Savings and Loan Insurance Corporation to try to collect that $180,000 from the Bloomington Small Business Investment Co. ?

Mr. WALSH. They have a potential action, but none has actually been filed.

Mr. ADLERMAN. Does there seem to be any action on the Bloomington company at all?

Mr. WALSH. That has been a difficult question to answer. There has been no attempt to locate these assets for several years. There were loans on the books at the time of the last report which appeared to be legitimate, but I have been unable to find whether or not these loans are being paid or what has happened to them.

Mr. ADLERMAN. Has any repayment been made on any of the loans which we have described as self-dealing loans?

Mr. WALSH. No, sir; not to our knowledge.

Mr. ADLERMAN. So that at least $819,000 of the assets of Bloomington have not been repaid and they are still outstanding loans, with the possibility of collection being very small?

Mr. WALSH. Very small, indeed.

Senator MUNDT. As I understand your testimony, Mr. Walsh, and Mr. Nichols, it is that out of the total of $990,000 which was available to Bloomington to help the struggling small businessmen of that community, all but roughly $170,000 was sent out in self-serving loans, as represented by your chart?

Mr. WALSH. Yes, sir.

Mr. ADLERMAN. Would you take the next item, the Federal Deposit Insurance Corporation?

Mr. WALSH. The Chatham Bank made a loan to the Bloomington Small Business Investment Co. I believe the original amount was $225,000. That was reduced to $150,000. At the time of the last information that we had from the Bloomington books it was $150,000,

and the information on the books of Chatham at the time the Chatham Bank failed was $150,000.

The Federal Deposit Insurance Corporation, which is liquidating the assets of the Chatham Bank, has assumed this obligation and has, in fact, filed suit and obtained judgments against the Bloomington Small Business Investment Co. for the $150,000.

Mr. ADLERMAN. So in effect we have three Government creditors. We have the SBA, the Small Business Administration, which has a claim against Bloomington in the amount of $660,000; we have another Government agency, the Federal Savings and Loan Insurance Corporation, which has a claim for $180,000; and we have a third Government agency, the Federal Deposit Insurance Corporation, which has a claim of $150,000.

Mr. WALSH. Yes, sir.

Mr. ADLERMAN. And the likelihood of their collecting any of this is rather small?

Mr. WALSH. Yes, sir.

Mr. ADLERMAN. The Government stands now to lose $990,000?
Mr. WALSH. Yes, sir.

Mr. ADLERMAN. Mr. Walsh or Mr. Nichols, I notice in your report that you did make some check as to the other claims of the Government where Mr. Huette has been involved.

I note in your report you state:

Charles Huette, Jr., was an officer, director and stockholder of the Chatham Bank of Chicago prior to its insolvency. The FDIC, as receiver, has instituted a $5 million suit against Mr. Huette, Jr., and others, all former officials, alledging fraudulent conduct and conspiracy in the diversion of funds to various uses. The principals, with the exception of Mr. Huette, are also under criminal indictment and/or conviction on numerous counts involving varied financial transactions.

Is that correct?

Mr. WALSH. Yes, sir; that is correct.

Mr. ADLERMAN. So we have him not only involved in losses with Bloomington, but he is also involved with the losses in the Chatham Bank?

Mr. WALSH. Yes, sir; that is correct.

Senator HARRIS. Mr. Nichols, what caused the investigation order to be issued by SBA in 1963 in connection with this SBIC?

Mr. NICHOLS. Upon receipt of knowledge of the insolvency of the Chatham Bank of Chicago, in which Mr. Huette was an official, and since Mr. Huette was also an official of Bloomington Small Business Investment Co., the investigation was undertaken.

Senator HARRIS. What was the result of the examination report that you filed?

Mr. NICHOLS. It has been referred to the Department of Justice for appropriate action.

Senator HARRIS. Senator Mundt?

Senator MUNDT. Why was there no investigation of Bloomington between 1961 and the time that you got the CPA certificate on July 23, 1963 ?

Mr. NICHOLS. There was an examination by the Small Business Administration in July 1961.

Senator MUNDT. What did it show?