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THE TEXAS PAWING TRACE *:4.f > 00We will serve no listritirr -will hew hard to the truth as we find It and the right as group or party but we see it. The one great rule of composition is to , speak the truth’. Thoreau Vol. 47 ‘In Independent Liberal Weekly Newspaper TEXAS, DECEMBER 21, 1955 10c per copy No. 33 128,000 Depositors Caught in U.S. Trust Case Bank-Like Texas Company Was Held Insolvent in June Auditors Alerted Insurance Commission 20 Months Ago; $5 Million in Deposits Since Then; ‘Worst Since ’33’ AUSTIN . More depositors than any Texas bank can claim have been caught .sliRrt by the apparent . collapse of U.S. Trust. & Guaranty Company, a baif,-bank,’ half insurance hybrid mated out of political influence and financial manipulation. The Texai Observer can report that state auditors first told Texas Insurance Corrithission officials.twenty months agoin May ‘or June, 1954 that the company might .be bankrupt and that its investments in a sullvidiary might be illegal. There followed a story of start-andstop investigation and official indecision -which did not come to an end until 128,000 Texans-had poured $5, 800..000 into U.S… Trust’s coffers, mostly in return forl”.certified drafts,” which were little more than receipts for their money. Stories of personal tragedy poured into Austin from all over the state. The bankrupt company had offices in 22 Texas cities. In addition to its deposit business, it had written insurance. for roughly 30,000 policyholders, which made the state’s suit for its re-, ceivership last week a major. insurance case as well. U.S. Automotive, its subsidiary before A. B. Shoemake; the master craftsman of the enterprise:at-4 tempted to barter off his stock to an Arkansas corporation he apparently financed, owned four Dodge-Plymouth dealerships and 22 garages. The Texas Observer reported Shoemake’s operations last May, but the daily press .did not .pick up the story. The Observer ‘told Drew Pearson that he. should conSidtr dropping U.S. Trust’s sponsorship ..of him on 13 Texas teelvision stations, but Pearson flew toTexas and was’ convinced by Shdetnake that U.S. Trust was sound. The Observer has had a private hour-and-a-half conference with the SENATOR CARLOS ASHLEY three insurance commissioners and their staff heads and has interviewed dozens of state officials and senators all over the state. S TATE BANKING Commissioner J. M. Falkner told the Observer this week that the U.S. ‘Trust case involves more depositors than any bank failure in the United States since 1933, and that no TeAs bank has as many as U.S. Trust did. Garland Smith, chairman of the Insurance Commission who had sole authority to close down the company before Sept. 6, 1955, said: “I don’t know any bankruptcy in the history of Texas that affects more people. It’s very regrettable…. I can’t sleep at night, I mean thinking about those people.* U.S. Trust was the first company organized under Chapter 7 of the Insurance Cod.e. This chapter permits an insurance company under the Insurance Commission to accept deposits and savings. At least two other companies have been organized under the chapter since 1954; one of themin San Antoniois accepting deposits. Deputy Banking Commissioner Harry Bengtson said: “I don’t know any other name to call ’em \(U.S. Falkner cried out : “Don’t ‘call it a bank s “It’s the worst thing that’s hap; pened in the countryin a long time, Jesse James, State Treasurer and another member of the Banking Cotnmission, said. “Wasn’t that horrible r exclaimed Senator War i ren McDonald of Tyler, “That’s one of the worst things that’s happened in this country ‘ in a long time.” Two possible gubernatorial candidates made statements. Ralph Yarborough said in Austin there should be a grand jury investigation; that the ; AUSTIN A. B. Shoemake was intensely in., terested in preventing the Legislature from adopting a bill last session to place his deposits-accepting U.S. Trust & Guaranty Company under the State Banking Code. One state senator said this week that his law partner worked -for Shoemake; another that Shoemake tried to hire him but was refused; and another that he would prefer not to say whether he received money from Shoemake this year. SENATOR CARLOS ASHLEY of Llano, leader of the group of Shoemake defenders in the Senate, told the Observer he “would rather not make a statement” when asked directly if he had received any funds front Shoemake this yea*, He This is A. B. Shoemake of Waco, president of U. S. Trust & Guaranty Company, 3.9ich was placed in a temporary receivership Dec. 15 by AUSTIN After a June, 1955, finding by the Board of Insurance Commissioners that U.S. TrUst & Guaranty was insolvent, its president, A. B. Shoemake, engaged in a complicated series of conporate transactions which accomplished a $1.6 million reinsurance agreement with an Arkansas company he financed. Shoemake also transferred real assets held by U. S. Trust to a is a lawyer. Monday morning of this week he visited George. Butler, supervising examiner of the Insurance Commission. Asked there if he was looking into the U.S Trust case, he replied : “Yes, I’m keeping up with it.” The Observer had asked Ashley by long distance Monday “if A. B. Shoemake paid you any funds this year.” “I don’t care to make any statement about it at this time,” Ashley said. “You don’t care to. say `no’ at this time ?” he was asked. “I don’t care to make any statement at this time.” Lobbyist for Shoemake last sessl’on was R. C. “Doc” Lanning, a former state senator himself. Lanning was chairman of the State Board of Control until Feb. 15 of this year. order of an Austin district judge. The company had $5,800,000 from 128,000 depositors and only $700,000 in cash on Dec. 15. subsidiary, U.S. Automotive, which appears now to be owned by’ the Arkansas company, The Observer has confirmed the details of Shoemake’s corporate juggling with officials of two state agencies and with a qualified spokesman of U. S. Trust. Shoemake caused U. S. Trust to make a $500.000 loan to an Arkansas party on Aug. 8. A Willis Lewis of Arkansas then formed Arkansas Fire and Marine Insurance Company of Little Rock, with a capitalization of $500,000, encumbered, however, with a note for the full amount to U. S. Trust.. The Arkansas .company was certificated to do business in Texas on Aug. 24, 1955, by. Garland Smith, chairman of the Insurance Commission. Shoemake then asked the commis … sioners to permit him . to -re-insure $1.6 million worth of automobile insurance policies held by U. S. Trust with the Arkansas company. The board, as Smith says, was not “required” to approve this because it did not involve all of U. S. Trust’s insurance ; but the Observer understands that some board officials had knowledge of the agreement. A reinsurance agreement means that the reinsuring company agrees to ae.\(Continued SHOEMAKE SOUGHT TO HIRE SENATORS CORPORATE JUGGLING