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AN OLD PATTERN AUSTIN Almost submerged last week in the tailored-for-headlines testimony about senators’ payments to U.S. Trust was an illuminating account o f some causes ofTexas insurance failures . from a man who worked on the cases for the state 14 years. Reline Allred, Jr., attorney for the state’s liquidator until he was fired by the Insurance Commission last year, he says because he wanted to sue the commission’s chief examiner . on behalf of some creditors of a broke company, spun out a tale of kited checks, assets used twice, and what he called -official negligence and some bribery. Saunders said Allred was fired because his services were “not satisfactory.” He has not specified why. Allred replied last week that he has tried -perhaps a thousand law suits for the state’s liquidator, winning judgments of “many hundreds of thotisands of dollars,” and losing only two major cases and half a dozen smaller ones during his 14 years with the state. . All the companies he discussed have been closed by the state. He charged that preliminary examinations by the commission’s examiners should have turned up the evidence of fraud before the companies were. even licensed, Testifying before the Senate investigating committee, Allred told hoW promoters of the Lone Star Casualty Company used the same $45,000 twice, showing it as an asset at both banks by depositing it first in one, then AUSTIN House investigators this week are trying to find out what became of that $50,000 A. B. Shoemake spent charged to “cash”$30,000 of it “co-extensive” with the last Legislature. On the Senate side, probers will hear William Shirernan, the Senator from Corpus Christi, tell why he took that $3,000 retainer from Shoemake and never did any work for it. If last week’s pattern continues, the ‘House probers will drill in for detailed answers, and the senators will not question their colleague, Shireman, at the end of his testimony. The senators, however, gave J. Byron Saunders, Insurance Commission chairman, quite a hard time last week. They pressed him on why U.S. Trust was permitted to sell securities after the law requiring a license went into effect Sept. 6. \(He replied that they did so “at their own peril” and that he They also pressed him on why the commissioners didn’t close down U.S. Trust after their recorded “specific findings” that it was insolvent and its capital totally impaired. His reply raised important questions. Senator Secrest noted that in Saun’ders’s prepared statement about U.S. :Trust, he had stated that when the Commission asked the Attorney General to act against U.S. Trust, it was not because they considered the company insolvent, but to “prevent a run” on it because of the Dec. 12 denial of a securities license. Is no one yet positive that it is insolvent ? asked Secrest. “No, sir, I don’t say that it is not or is,” Saunders replied. “In every instance we alleged it was insolvent, we alleged any and everything we can, hoping to prove something and if you prove any fact of the allegation, the entire issue will lie substantiated.” Again he said : “We didn’t have the type of evidence the court would have required to find it insolvent.” They closed the company as fast as they could, he said. As every Texas insurance man now knows, the Insurance Commission has full power to kill or severely injure any company in Texas merely by alleging it is insolvent or its management unworthy of the public confidence. If the commission is prepared to allege “any and everything we can, hoping to prove something,” what security has a Texas company against show cause orders and the ruinous publicity attendant to them? ‘ Saunders, of course, told the Senators that the June order against U.S. Trust was public information and available to the press. Does this mean that the commissioners entered into ‘ the public record charges of insolvency they couldn’t prove and still can’tagainst a $7 million company ? Spokesmen for U.S. Trust always maintained that “the bankers,” jealous of Shoemake’s five percent interest rate, were out to “get” him. Perhaps the answer to the question depends on the eventual outcome of the U.S. Trust auditwhich is not available to newspapermen now. \(On the ‘other hand the board did not make the June findings available to the press, and on page 21 of the transcript of the hearing on the June order, Saunders said in Shoemake’s presence : “I haven’t told anyone about this show cause order and we were trying to keep it, I thought, very quietly as between Mr. Shoemake and this A A LSO last week, the “mystery period” of July 5-September 15, 1955, kept bobbing up in the questioning ; but no one pressed too hard on it. This was the period, as the Q,bserver reported earlier, when the commission at least acquiesced in a second private audit of the company, ostensibly paid for by Shoemake. Felix Einsohn,a Dallas accountant whose accounts include Loan Star Boat an affiliate of Insurance Company of Texas, granted to the Observer he had been paid $20,000 to $30,000 by Shoemake’s firm. Senator Fly asked Saunders last week if he knew anything about a report Fly had received that Shoemake had given up management of the company to the Einsohn group and had to buy it back when Einsohn’s audit indicated the company was in trouble. No, said Saunders ; if Einsohn managed it, he knew nothing about it. ‘\(Incidentally,,. Garland Smith, who was chairman in June, and Mark Wentz, the third commissioner, were not questioned by any senator or representative during’ last had understood that Shoemake lost control of U.S. Trust’s management during this period. “I have assigned my interest,” he said in the July hearing. Rep. Bert McDaniel told the Observer in Waco :that Shoemake had kept control at all times, and Einsohn said he never took over:management. The Observer was informed that BenJack Cage of Dallas, ptesident of rowed money from a bank` -rep id three months later and replaced by “inflated mortgages.” In this case, too, $70,000 was borrowed by the company in,December, 1952, used to show ‘a good financial condition in the end-ofyear _statement, and returned. to the lending bank early in. January, 1953. Another :company, United World, was organized in .May, 1953, with $37,500 -borrowed money, he said. State law prohibits organizing an insurance c omp any on borrowed money, of course. A different kind of collapse was illustrated by Allred in Lloyds of Great State, insolvent on April 30, 1953, by $127,poo according to a commission examiner, Washington Whitesides. ‘After thiS finding, Blanchard asked Great State to put up some more cash or securities ; they posted a $10,000 cashier’s check and some real estate valued at $170,000. In the spring of 1954 the board placed the company in receivership,. and, said Allred, the receiver was offered $1,000 for the “$170,000” land by the people who had so,i l d it to Great State. Allred said the board knew Century Lloyds was .insolvent before Qctober 22, 1953, but that Blanchard approved a plan to let Cornmercial Security reinsure. Century Lloyds’s insurance. LOT:, had been a part, of the con-. templated new management group, but the Observer has had no success in efforts to contact Cage. Einsohn saidCage was not associated with him in the July-September audit. O THER MAIN points in last week’s testimony \(exclusive of the drama of senatorial retainers, reported William Harrison, first assistant state auditdr, said Shoemake refused Dec. 30 to discuss cash withdrawals during the legislative session. Saunders said the insurance industry, the Legislature, and the Insurance Commission shared the blame for the present insurance situation. He said some past, Insurance Commission had been “derelict” in regulation enforcement. He urged repeal. of Chapter 7 of the Insurance Code, which permitted Shoemake’s banking insurance operation. Saunders denied examiners’ reports were “edited” in a central office except that sonietitnes worksheets were corrected. Secrest asked him if he didn’t think the industry should be regulated by someone “thoroughly trained in all phases of insurance and technically qualified.” He replied : .”Senator, be glad to quit if you want me to.” ‘151//580′ LEGAl. ADVERTISEMENTS TO WHOM IT MAY CONCERN: Notice is hereby given that -Marian H. Gurney, doing business,under the firm’ name of Carrousel Children’s Shop, in San Antonio, Bexar County, Texas, intends to incorporate such firm immediately under the name of Carrousel Children’s Shop,. Inc., at the same place of business, said corporation to acquire all the assets and assume all of the liabilities of said business. Such change is to be effective as soon as authorized by ‘law. SIGNED this 30th day of December, A. D., 1955. CARROUSEL CHILDREN’S SHOP By : MARIAN H. GURNEY, Owner. STATE OF TEXAS COUNTY OF NUECES TO WHOM IT MAY CONCERN: Notice is hereby given that Philip , Lieberman, doing business as Lieberman’s, intends to incorporate such firm, effective immediately, under the firm name of LIEBERMAN’S OF ROBSTOWN, INC. . ” PHILIP LIEBERMAN STATE OF TEXAS COUNTY OF NUECES TO WHOM IT MAY CONCERN: Notice is hereby given that Philip Lieberman, doing business as Lieberman’s, intends to incorporate such firm, effective immediately, under the firm name of LIEBERMAN’S OF TAFT, INC. e,i111 \( gUIT.414″ LIEBERMAN NOTICE OF DISSOLUTION OF FIRM AND INTENTION TO. INCORPORATE. Notice is hereby given that the undersigned Rudy J. Kunetka, sole owner of the business .firm of Rudy’s Voultry and Egg Company,. located at 6403 Bayway Drive, formerly known as 301 North Market St. Road, Baytown, Harris County, Texas, intends to dissolve such business firm of Rudy’S Poultry and Egg Company and incorporate the same ,without a change is the firm name Allred said he told Commissioner By. ron Saunders and casualty actuary Angus McDonald “I would bet them $100 to $10 that \(Commercial Securrowed money.” He was told to make an examination, confirmed that he Would have won the. bet, and the corn-. pany was closed. Century .Lloyds then went ‘under too, of course. In connection with the Commercial Security case, Allred offered an insight into a possible reason why the “qualifying examinations” o f t 11 e board did not turn up such fraud. He recalled : “I was in Dallas and saw Don Corland Hotel … got to talking With him and remarked that I didn’t see why an examiner when making a preliminary examination didn’t try to find out where the money organizing a company came from or where it went to. He said he wasn’t going to do that, when a banker made an affidavit it was there, that was as far as he-was going. I didn’t know at that time he had made the qualifying examination … on Commercial Security.” Allred also offered a simplified history of the massive General American ‘Casualty collapse. The company is now the object of a .$6 Million suit by creditors. Four commission examinees are joined as..defendants for conducting an audit the creditors allege was knowingly false in 1952. Two ot h e r companies, General Lloyds and Alamo Casualty, were already broke in 1949. General Lloyds borrowed $300,000 to buy Alamo’s stock. General American was organized May 19, 1952, with $250,000 sworn to as being cash, Allred said, although a part of the assets so listed Was a ‘cashier’s check . payable to the State Treasurer. In May and June, 1952, General American wholly re-insured the insurance of General Lloyds and Alamo. General American was examined as of June 30,. 1952, .and as is now ‘alleged, the apartment rent of the examiner, W. J. Noad, was paid. by the compa1iy. \(The creditors’ suit also says Blanchard and supervising examiner Robert ,Butler received “other General American solvent. For the first time, Allred revealed that General American had written $1,800 .and $200 checks tc, company of fkials for “eritertaitimenX .agents” in December, 1952-during the examination. The carbon copies of the checks in the company’s files were made out payable to “Blank.” Tints did Allred seek to substantiate his allegations’ of graft, fraud, negligence, and bribery in the tangled history of Texas insurance failures. The Texas Observer Page 7 Jan. 25, 1956 thereof, the corporate name to read Rudy’s Poultry and Egg Company, said business dissolution and incorporation to take place after the expiraof January, 1956. RUDY J. KUNETKA, sole owner. of Rudy’s Poultry and Egg Company NOTICE TO CREDITORS OF THE ESTATE OF DAPHNE FERN PETTY, DECEASED Notice is hereby given thatoriginal Letters of Administration upon the Estate of Daphne Fern Petty, Deceased; were granted to me, the undersigned, on the 28th day of December, 1955, by the County Court of Travis County, Texas. All persons having claims against said Estate am hereby required to present the same to me within the time prescribed by law. My residence and post office address is 9103 Georgian Drive, Austin, Travis County, Texas. CHARLES F. PETTY Administrator of the Estate of Daphne Fern Petty, Deceased THE STATE OF TEXAS COUNTY OF FARMER TO WHOM IT MAY CONCERN: Notice is hereby give; that Russell A. Massey and Edward Massey, partners, doing business under the firm name ‘of Massey Brothers Drilling Company, intend to corporate such firm without a change of firm name, and that the said corporation shall be known as Massey Brothers Drilling Company, Inc., that this notice shall be for four consecutive weeks at least once a week, in each week in a newspaper, published at the seat of the state government and in the county in which said firm has its principal , place of business. MASSEY, BROTHERS DRILLING COMPANY RUSSELL A. MASSEY EDWARD MASSEY Sworn to and scbscribed before me, this the 13 day. of January, A. D., 1956, by the said Russell A. Mitsey and Edward Massey; certified which witness my hand and seal of office. GLENN E. REESE Isf otary Public in and for ,,Parmer County, Texas the other, and getting an affidavit from each bank. Most of the company’s money was borrowed from other parties_ and returned ten days after Lone Star’s incorporation. -. Texas Mutual, which paid Sen. William T. Moore thousands of dollars for his services, was organized on July 11, 1949, on $20,000 borrowed money, and within a week, $19,500 of it was. repaid to lenders, Allred said. The commission’s now suspended. chief examiner, L. W. Blanchard, .ap’proved a high realty appraisal with a statement he had “personally examined” a deed that was non-existent ; other examiners were .entertained by the company ; and one of them, V. C. Thompson, was paid $300 while examining the company, Alfred stated. Of $150,000 capital and surplus Claimed by Texas Fire at its. outset, Allred –