ustxtxb_obs_1957_02_26_50_00003-00000_000.pdf

Jacco—Going, Going, Vamoosed dealt with in this transaction was Commercial and General of Tangiers. According to Mullinax’s understanding, the company is ownedat any given momentby “the man that rides down the street on a camel with the stock in his hand.” Holleman said that before Stewart Hopps moved in on La Commercial in Havana, it was worth about $1.2 million, but that Hopps in 1946 bought enough of the company to control it and replaced its assets with the stock of Commercial and General of Tangiers, after which it, La Commercial, was worth. about $50,000. Hopps then passed La Commercial to BenJack Cage’s Jacco in part settlement in the reinsurance treaty with ICT. When they found this out, Holleman and Jim Cage agreed, “we got rid of it \(La now gaining again, Holleman said. It is of more than passing interest that Jacco’s 1951-52 debits included a “15 percent override to Jacco re: Narrag.” which came to $80,000 dollars between January and March, 1952, alone. AUSTIN ICT Insurance Co. was chartered as Insurance Company of Texas May 24, 1956, with BenJack Cage president, John G. Vaughan secretary and treasurer, and Jack V. Cage the third incorporator. BenJack Cage put up $199,980 and the other two $10 each. The name was changed to ICT Insurance Co. May 29, 1954. Nov. 10, 1951, the directors doubled the capital stock, “providing that the new shares be offered to the present stockholders first, and providing further that not more than one-third of the new shares be sold to non-labor groups.” Thereafter it was a labor company. Signing this change were Nile Ball, Paul Sparks, William J. Harris, and others. Jan. 26, 1952, capital was increased to $600.000, and April 19 that year, to $1 million, both times with the labor proviso; but Nov. 10 of the same year, stock went to $1.4 million, with no proviso about limiting non-labor sales. Aug. 15, 1953, 560,000 shares of nopar common stock were issued, half of them going to old stockholders two for one. The shares increased to 821,051 Jan. 23, 1954, and were split two for one Jan. 22, 1955, at which time there were 1,642,102 shares, 1,125,536 fully paid for \(“actual concompany was growing like topsy and was writing insurance in some 25 states. The firm reinsured Continental Fire and Casualty Insurance Corp. June 30, 1952, Insurors’ Corp. of Dallas and Mid-Continent Insurance Co. of Amarillo Nov. 25, 1952, and Fidelity Lloyds June 25, 1954. The firm also ceded reinsurance to Continental Union that year. The firm’s 1955 annual statement specified it could write fire and casualty insurance of various kinds. BenJack Cage was with E. A. McSpadden treasurer, and with seven executive vicepresidentsJames G. Cage, C. 0. Blackburn, William J. Harris, Jerry Holleman, Stanley E. Prichard, Paul C. Sparks, and John G. Vaughan. The complete list of directors shown as of Dec. 31, 1955: Doris Baker, William A. Cullen, W. S. East, Eddie Gross, Charlie Jones, P. C. Klien, Leroy Williams, Fred Lucas, W. C. McMasters, W. L. Pickens, C. R. Saunders, L. A. Townsend, J. M. West, One of Cage’s most ballyhooed promotions was “inch of Texas” ranches for out-of-staters. He went out and chopped up some of his Lazy C ranch and sold it in one-inch lots. “He wrote off a $69,000 bad debt on that deal, said Mullinax. Jacco also suffered losses on Cage’s “sentries” and “escorts,” devices that would go off like sirens and could be carried in a woman’s purse; “8 Plus,” a preparation that was supposed to keep flies away from cows; a device as Jerry Holleman describes it “that was supposed to determine how pregnant a woman wasa pregnancy tester. If she were only ten percent pregnant, it would show one color … Well, I have one if you want to see it.” The women’s alarms were made originally by Jack Cage distributors, Inc., a wholly owned subsidiary of Jacco. This firm was dissolved in Dec., 1954, with a capital deficit of $21,000. Jacco acquired its net assets carried at $172,000. But within the next five months, Jacco’s books show further loss on the alarms of $128, 000, including a $99,000 inventory write-down. Total loss to Jacco thousand. By 1952-53 Cage,. Ball, and Vaughan were each drawing $25,000 salary. In 1953-54 total salaries of Jacco had climbed to $1,170,813, including, said the auditor, amounts drawn “by the stockholder-o..cers and other principal executives.”. There was no breakdown in the audit for this year, however. “The necessary basic records have not been made available to us,” Auditor Skiles said. In 1954-’55 ‘Jacco’s bad debts charged off increased to $265,000 \(from $35,000 for the previous pensesexpenses of maintaining the various tangential enterprises increased from $230,000 in 19531954 to $343,000 in 1954-55. Jacco lost $19,000 from the sale of stock in Alamo Motor Freight Lines, though there was much more behind this transaction than its face reveals. The same year Jacco lost $32,000 upon the dissolution of Currency Services and another exceeding in market or book value $60,000 per holding. The firm bought Chapman College ‘bonds from ICT Corporation for $66,000 and bought another $355,200 worth of the same college bonds from Continental Union Insurance Company Dec. 31, 1955. In September it sold the $66,000 worth to National Bankers Life. Extensive stock sales and purchases are recorded, especially including City of West Buechel, Kentucky, bonds, and involving in various capacities ICT Corporation, Jack Cage and Co., National Bankers Life, ICT Life Insurance Co., and Continental Union Insurance Co. Total stock transfers that year alone: acquired, $5.5 million; dist posed of, $5.1 million. James G. Cage became executive vice-president in charge of insurance June 1, 1955; on Feb. 1, 1956, the management contract with BenJack Cage was finally terminated, and the founder of the company left for other states and foreign. places. The. new president James Cagewrote stockholders Feb. 24, 1956, that “substantial changes” had been made. He admitted “the operating results have been disappointing to the stockholders” but asserted that “effective steps to establish sound operating procedure and attendant profitable results” had been taken. ICT Insurance Co. had withdrawn from “unprofitable states,” he said, total premiums were reduced, “unnecessary expense” was eliminated, the reinsurance program was rearranged, and underwriting and investment policies had been modified. As of Feb. 24 last year the company had reinsured its business in three states, let much of its business in other states “run off” \(exvirtually stopped writing in all states other than Texas and Tennessee.” It had reduced its writings from $14.5 million in 1954 to $9 million in 1955, eliminated all general agencies, and, said Cage, “reversed’ underwriting experience to a profitable trend in the last six months of 1955.” Alread he t d 1 million $11,000 when Excess and General Agency, Inc., went out of business. On May 31, 1955, Jacco had a capital deficit of $1,1 million but had more than that invested in affiliated companies. “No thought was given to making money,” Mullinax charges. “BenJack Cage’s solution to any problem was to go sell more stock at any one time in its history than it had assets to pay off.” Incidentally, in a letter to James Cage Feb. 1, 1956, as he took up BenJack Cage’s former job, ICT’s directors wrote acknowledging that some assets of ICT Insurance were frozen, non-liquid, non-admissible, or of questionable value, and James Cage was held “harmless of any responsibility for these investments.” Mullinax summed up before a stockholders’ meeting October 21, 1956. “BenJaCk Cage either did not know insurance, or he knew it so well that he knew exactly how to milk it of every dime it had . I doubt if the Insull empire at the height of its extensive operations did business with so many of its associates and af Commissioners Mark Wentz, Byron Saunders, and Morris Brownlee.. Now on Sept. 4, 1956, the cornpany submitted to the commission a statement of assets and liabilities. This statement listed “Bonds … $1,684,179.02,” “Stocks … $5,298,089.69,” “Agents’ balances and reinsurance balance … $1,052,804.93,” “Notes receivable, $286,589.26,” and other items in its sheet claiming $9,888,153.09. Chief examiner Tom Robinson noted on the face of a memo about this statement as of 9-4-56: “Incompleteno showing of particular assets. Requiring company to provide schedules by 9-20-56. If not will examine at once. TR.” The next day, Sept. 5, 1956, Robinson wrote James G. Cage, asking for the classifications of the bonds, “a listing of all stocks,” a separation of agents’ balances to designate the amount due over 90 days \(which are nonadmitted “notes receivable.” “Please give these matters your prompt attention,” the letter closed. It was signed by Saunders and Robinson. But 15 days passed, and there was no reply. The commission thereupon ordered a “convention examination” by all the states where the firm had written policies. The onset of the examination was public knowledge, although the circumstances just recited were not. Tuesday two weeks ago, examiner Charles Ramsey turned in his report. Wednesday planes were grounded, but Thursday James Cage appeared at the insurance commission and told the commissioners, according to Chairman Osbrio, that funds were not forthcoming to make up the filiates or subsidiary corpora tions.” The auditor’s report remarks on Jacco’s “widespread operations in the form of financing and advance to numerous subsidiaries, affiliates, and other related or controlled venture s.” “Many transactions would originate in one company and subsequently be be consumated in another or transferred to another.” The question of how much Jaco lost cannot be answered, not only because of these complications, but because of an amazing transfer of what had been a million-dollar liability to ICT as income. In the auditor’s terms, Jacco “closed_ out to income an amount .of $977,635.52 previously considered a liability.” This came about in this way:. as per Mullinax: The day before an ICT.Insurance Co. directors’ meeting at the Lazy C Ranch near Sugarland July 15,. 1955, Jacco’s books showed it owed ICT Insurance Co. the sum in a resolution was adopted which in credited the sum to Jacco income and wiped it off Jacco’s books as debt. The key terms of this resolution say that Jacco had been serving “not as agent in the sale of such securities, but as an underwriting principal.” In other words, Jacco was maintaining it was not agent but a principal in the stock sales. The document says further the price to be paid to ICT by Jacco for the stock it sold hadn’t:. been set, and allowance shouldk be made for “expenses.” How did this get by the directors? “I have taxed the recollection of the board of directors, and. they have no recollection of this resolution being presented to them, although they acknowledge their signatures at the bottom of it,” said Mullinax. He suggested the signatures are on “a separate sheet of paper attached to the resolution.” Holleman \(who did not sign the resolution but was at the sented at the meeting. Various resolutions were presented, but $965,000 and wanted to charge it off,” Jacco had lost $33,000 in fiscal 1952, gained $6,000 in 1953 and $43,000 in 1954, and lost $1,012,000 in fiscal 1955. The Sugarland transaction enabled it to show a profit for fiscal 1956 of $834,000 for a net loss for the entire period of $163,000. Its gross income over the period was $12 million.. Mullinax was demanding $1.8 million from Cage, Ball, and Jacco when the temporary receivership was instituted last Tuesday. Presumably the receiver will pick up the claims. The ‘amount is made up of the money Jacco transferred to income at Sugarland plus further sums for policies not serviced because of the termination of the management contract Feb. 1, 1956, and for alleged commission overcharges after July 15, 1955. Under n e w management in 1956, ICT Insurance Co. absorbed an apparent loss of $937,000 worth of bonds \(face value, Chapman linquished to get out from under a hidden surety involving Continental Union of Alabama and Chapman College; an apparent loss of $1 million in the sale of National Bankers Life stock for $800,000 that had cost $1.8 million; and a loss of $1.3 million when it had to cancel its reinsurance with Continental Union because the latter Cage founded compahy could not sustain its obligations thereunder. The crystallization Of these losses growing out of BenJack Cage’s earlier transactions finally forced the company under. THE TEXAS OBSERVER Page 3 Feb. 26, 1957 Walter Wideman, Frank Yeager, Willard Barr, Vernon Evans, E. C. Gones, Jerry Holleman, Ray Johnson, Walton N. Newman, Frank Owens, Claude Ritchie, Bill Sams, Carl Knight, Ed Wiemar, Tom Wheeler, C. L. Wisseman, Nile Ball, BenJack Cage, Freeman Everett, William J. Harris, Marcus Loftis, Kenneth Mabry, M. M. McKnight, J. A. McMahon, Jr., Pau’ C. Sparks, and John G. Vaughan. Assets, including $1.2 million in bonds and $4.1 million in stocks, were shown at $9,331,872.62. Liabilities, including “management commissions payable” of $211,201.51, were shown at $5,695,342.13, but no surety obligation was ob-1 vious to a layman reader. The net was a surplus as regards policyholders holders shown at $3,436,530.49, of I which $1.5 million was capital paid up and the rest “unassigned Premiums in force at the end of the year were $14.7 million less reinsurance, or a net of $7 million. Ratio of losses incurred to premiums earned was 67.76 percent. In the year $4 million in claims had been paid and $1.6 million were “unpaid current year.” The firm sold the ICT Building at Ervay and Commerce in Dallas to National Bankers Life June 17, 1955. Cost to ICT had been $2.3 million, and it got $1.6 million for it, but it claimed a “profit on sale” of $460,000 because it had listed the building at a book value less encumbrances at date of sale of $1.1 million. The firm owned school, road, water, water and sewer, and museum bonds in various TeXas cities, plus “Chapman College first mortgage bonds,” with no date of ‘