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New Wounds ammand Old Historic Report But Preliminary AUSTIN. One of the rarest documents ‘in Texas history—-a special State Auditor’s report on influence-peddling payments to legislators and otherscontains many interesting details about A. B. Shoemake’s U.S. Trust & Guaranty. The report, explained to the Capitol press corps and many out-of-town newsmen by Auditor C. H. Cavness last week, shows that Shoemake spent $275,000 for legal work, advertising, and public relations in two years. Payments are recorded in those accounts to Rogers Kelley, Edinburg, Kilmer Corbin, Lubbock, and Warren McDonald, Tyler McDonald having been a victim of circumstance, apparently, since he accepted $350 from Shoemake for a title examination, then was offered a $3600 “retainer” with no work to do, refused it, and indignantly fought U.S. Trust & Guaranty’s special bills all session. Payments also appear to R. C. Lanning, a former senator who was chairman of the Board of Control at the time he received the money. The report shows the payments to the legislators, plus additional cash withdrawals from U. S. Trust and Southern Medical of $16,000 within a month of the last legislative session’s Jan. 11 opening, another $2,000 to Shoemake during this month, and a total withdrawal to cash of $29,450 during the session. Including the $500 check to Cabin on Dec. 16, 1954, and a $2,500 cash item charged to “advertising” on the last day of the company’s life, Dec. 14, 1955, the total cash withdrawals from the Shoemake firm were $50,550. Corbin was paid $500 from office cash. A notation said it was for “legal cases in process of being assigned.” Another $500 check was drawn from the Lubbock office on Dec. 21, 1954 five days after the .check made out to Corbin. The Dec. 21 check carried the notation: “Cash attention A. B. Shoemake.” Corbin is from Lubbock. Shoemake and McDaniel drew $20,500 from the company the last day they could 77Dec. 14, 1955but McDaniel-apparently didn’t -make it to the bank in time with one of his checks. \(On the fifteenth U.. S. Trust was thrown into receivership and its assets the day before for “traveling expenses,” and McDaniel got one lastday $4,000. check cleared, but his $7,500 Dec. 14 draft against the comp a ny was not paid. McDaniel was paid $1,000 by the company in 1954, when the. Legislature was not in session, and $17,250 in 1955, when the Legislature’mas. ‘Checks made out to him started on Jan. 8, 1954, and continued throughout that year, but they did not exceed $250 until Jan. 8, 1955, three days before the legislative session opened, when he received $500. McDaniel’s name then disappears from the payout ledger until four days after the end of the session, when he was paid Kelley’s firm was paid $2,400 on Jan. 14, 1955, three days after the Legislature opened, and another $2,400 on March 17, 1955, when the session was two months old. This was for legal work by the firm, Kelley stated. 1954, from U. S. Trust. Lanniner b received $10,000 from U. S. Trust between Dec. 15, 1954, and Feb. 9, 1955, as shown by checks to him of $2,500 each on Dec. 15, 1954, and Jan. 10, .1955, and of $5,000 on Feb. 9, 1955. He lobbied for Shoemake throughout the session. Gayness’s report showed the Kamin agency was paid $19,507.43 in 1954. and $95.992.03 in 1955 by U.S. Trust. Kamin handled Drew PearSon’s account with U.S. Trust. That company also paid “other’ ad vertising:expensesincluding newspa per ads –7a .$127,503 in the twQ iyear s. AUSTIN Daily new wounds are being in: fficted and old ones reopened in the wildfire Texas insurance scandals. In a civil suit, the state last week sued American Atlas Corporation, Joe Irwin’s Dallas holding company for American Atlas Life insurance Company, and his J. A. Irwin, Inc., charging Irwin tried to use the companies “to enrich himself and his family in utter disregard of the rights of the stockholders of American Atlas Corporation.” The state seeks the receivership of both companies. An unnamed senator charged last Week that insurance examiners’ reports were “edited” to take out negative facts at a “central office” by an unnamed person and that the legislative budget .board so stated in a report to the Legislature two years ago. He said he had learned that insurance commission employees had received paid-up insurance policies as gifts from companies. In the U.S. Trust & Guaranty case, Reline Allred, Jr., foriner attorney for the state’s liquidator, gave reporters copies of an August, 1954, memo he said he gave the insurance commissioners at that time. Byron Lockhart, an attorney for the state’s liquidator, warned in the memo that “reliable information” he had indicated U.S. Trust’s assets were over-valued by $950,000. If this was so, Lockhart’s informant warned, the company was insolvent. Attorneys for U.S. Trust .filed a formal denial of all the state’s allegations of insolvency and ‘fraud last week. In Houston a full-fledged federal inquiry into U.S. Trust was was promised. John Bates, attorney for a certificate holders committee in Waco, charged that Receiver J.D. Wheeler is responsible for having allowed U.S. Trust’s assets to depreciate by between $150,000 and $200,000 by failing to contest the Insurance Commission’s action last week in putting U.S. Life Insurance Co. out of business. The company was a subsidiary of U.S. Trust. Attorneys for Southern Medical and Hospital Servicesanother subsidiaryfiled a suit charging the commission’s placing it under supervision and requiring a stockholders’ election of new directors in 30 days is “arbitrary and capricious” and “lacks all elements of good sense and judgMerit.” A new management had been selected but the commission did not approve of it. To steady public confidence in Texas life insurance, 28 companies of AUSTIN Earl Gammage, president of Pan American Casualty Company, confirmed to the Houston Press last week the Observer’s story that he took two Texas insurance commissioners on a vacation at his summer Home in Mexico City last October. The two commissioners, J. Byron Saunders, chairman of the commission, and Garland Smith, until recently the chairman, told the Observer last week that it was true they had taken this-trip and that BenJack Cage of Insurance Company of Texas had flown them from Miami to Havana for a part of a day in the summer of 1953. Saunders also flew to California for a convention as guest of John Ferguson of Houston Fire and Casualty of Fort Worth, the Observer reported. “I knew Mr. Saunders when we were both attorneys and he practiced in Tyler,” the Press quoted Gammage. He and Saunders have been friends for “years and years,” Gammage said. “It was strictly a pleasure trip. Nothing whatsoever about insurance was discussed,” ; Gammage said. “The Saunders and ,Srpiths came to Flous. ton to visit me and. my family, and we decided to go to Mexico. We went by the Texas Life Convention, all legal reserve stock firms, announced they are working out a plan to re-insure the policies of any Texas legal reserve stock life insurance company that goes defunct this year. They emphasize that no policyholder in such a Texas company has lost money to date. The Insurance Commission announced it is making a general check on insurance being sold to servicemen at Texas military bases. _CHARLES BETTS, Austin district Judge, granted the state’s request for a temporary restraining order halting the activities of American Atlas Corp. and J. A. Irwin,_ Inc., of Dallas. Atty. Gen. John Ben ‘Shepperd filed the action against the two companies. The suit seeks to cancel the charters and place the firms in receivership. Betts set a hearing for Jan. 20 on the state’s request for an injunction. The state’s suit alleges J.A. Irwin, Inc., is Itivin”s “alter ego … subject to his complete control, direction, whim, and caprice.” It charges American Atlas Corp. paid $170,094 in “personal cash advances to Joe A. Irwin and the payment of ‘personal bills of Joe A. Irwin’ which amounts’ were charged to J.A. Irwin, Inc.,” and that J. A. Irwin, Inc., owes this much to the Atlas corporation. The state says that in an effort to reduce a liability of $160,936, owing American Atlas by J. A. Irwin, Inc., Irwin caused American Atlas Corp: to issue two checks for $55,000 in return for all the outstanding stock of Southwest Mortgage Company. “… the purchase price of the stock of such company was only $10,000,” the state, charges, and the remaining $100,000 “was transferred … to Southwest Mortgage Company, which immediately loaned all of that money to J. A. Irwin, Inc.” The latter company then applied the .$100,000 to its debt to American Atlas Corp., says the state. Irwin has been associated with own-: ership or management of four other companies cracked down on by the Insurance Commission recentlyHome Service Casualty, Dallas Fire & Casualty, All American Horne Lloyds, and American Atlas Life Insurance Co., all of Dallas. SECRETARY OF STATE Torn Reavley and State Auditor C. H. Cavness filed criminal charges of theft over $50 against M. A. Ward and A. D. Holdcraft of Dallas, president and vice-president of the Mer regular airline, but it was a ‘joint’ proposition. I certainly was not seeking favor with the insurance commission.” Gammage said both the commissioners’ wives and his own wife and children went along. Asked if Gammage had been the host, Saunders had told the Observer: “We paid part and he paid part.” Smith had interpolated: “You might say we went as his guests. He has a home in Mexico City.” Saunders Said: “That’s true.” .. Ferguson, said the Press, first “heatedly denied” that Saunders had made the trip, then said : “Saunders only rode out; he didn’t come. back. We’re old friends.” He said the topic of discussion aboard the plane was “insurance and the meeting.” \(It was a firmed the California flight to the Observer. Cage has not yet commented on the Miami-to-Havana flight. The Observer is still trying to get in touch with him. Smith and his wife also flew to Hawaii for a rest as guests of Charles McCormick, president of International Life Insurance Company, which owns the Austin building in which the Insurance Commission’s offices are housed. cantile Investment Corporation of Dallas, and against a former officer Longhorn Investment Company. The sums involved were $1,500 and $5,000 respectively. Stockholders of the latter company met in Midland and elected new officers. Reavley’s office announced that Commercial Credit Corp. of Houston ordered to stop dealing in stock last Decemberis being permitted to resume dealingsin previously issued stock which had been sold to stockholders. Meanwhile, District Attorney Les Procter of Travis County promised trial soon as possible of one or more of four people charged with perjury in connection with Texas Mutual and United Lloyds insurance companies both in receivership now. , In Austin, Paul Lowry, Leslie Lowry, and D. H. O’Fiel of Beaumont are charged with perjury in the Texas Mutual case, and Spencer Treharne of El Paso is charged with two counts of perjury when he swore United Lloyds had assets which he had actually borrowed and when he later swore that some borrowed money the company had was a free and unencumbered asset. Asst. Atty. Gen. Rudy Rice, called back from private practice, conferred with the district attorney in Houston about setting for trial indictments against Ralph Hammonds, president of Lloyds of North America and four other companies, all now in liquidation. Scheduled for trial this week in San Antonio on charges of false statements are W. C. Brickey, Jr., and Marianne Emerson, officers of ‘Pioneer Western Mutual Insurance, also defunct. The Texas Observer Page 5 Jan. 18, 1956 SUBSCRIBE Or RENEW to THE TEXAS OBSERVER For the Truth About Texas and a Glimpse at Its Future One Year-52 Issues-416 Pages 1,664 columnsOnly $4 1 Name and’ Address : . Name and Address: STRICTLY PLEASURE