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Frost Bank indicted Austin Texas politicians were astounded when a federal grand jury in San Antonio indicated that city’s Frost National Bank for making a $7,500 loan to a campaign committee for Gov.. Preston Smith. U.S. Atty. Gen. John Mitchell announced the indictment from Washington. Federal Dist. Atty. Seagal Wheatley of San Antonio said at least one more indictment is in the offing as soon as a new grand jury is empaneled. In Houston, Dist. Atty. Anthony J. P. Farris said he would look into campaign loans made to Sen. Lloyd Bentsen and former Sen. Ralph Yarborough. The 1925 law under which the Frost Bank was indicted apparently prohibits labor organizations and business corporations from contributing or expending funds for political candidates. The bank itself can be fined up to $5,000 for making an illegal loan. Although no individuals were indicted, the law provides that every officer or director of a bank who consents to an illegal expenditure and any person who accepts or receives money for a candidate is punishable by a fine of not more than $1,000 or imprisonment of not more than one year, or both. If the violation is willful, individuals may be fined as much as $10,000 and imprisoned for up to two years, or both. THE DEFINITIONS make the law confusing. A “candidate” is defined as someone running for federal office, but the text of the law prohibits contributions any public office.” While the definition section of the law says it does not apply to primaries, the text says it does. Governor Smith issued the following statement concerning the loan: Toward the end of the campaign last year, I was informed by the Preston Smith Campaign Committee in Bexar County that they were running short of cash and would have to borrow some funds pending raising of contributions. This type of transaction is not uncommon. They did not tell me where they were going to borrow the money. I never did know where the note was located. My campaign people in San Anotnio tell me now that the loan was indeed made but that it was guaranteed by the personal signature of one of the committee members. It was also labeled on the note as being “for the Preston Smith campaign.” This was done so that his [the borrower’s] personal auditors would not confuse this note with other business dealings he had with the bank. The note was clearly signed by one of my committee members as a personal note. That’s all I know about the entire transaction except that the note has been paid. Frost Bank President Tom C. Frost, Jr., refused to name the borrower. “The sole objective and the only intent was to grant the request of a credit worthy customer,” Frost said. The loan was not listed among Smith’s campaign expenses recorded with the secretary of state. Bob Bullock, the governor’s chief administrative assistant, said state law did not require the listing of the loan because it was granted to a campaign committee rather than to Smith or one of his aides. The investigation of such loans in Texas and in other states was sparked by a letter to Attorney General Mitchell from Congressman Wright Patman of Texarkana. Patman wrote to Mitchell Oct. 26, 1970, that he had learned of “massive political fund raising by a large section of the commercial banking industry, fund raising obviously aimed at influencing general elections.” Patman said, “From the evidence presented to me there appears to be a most serious question concerning whether these political acts are within the spirit of the letter of various laws governing campaign contributions.” The Texas congressman gave three pages of examples of fund raising throughout the country. “In my own state of Texas,” he wrote, “a number of bankers have formed a statewide political fund with contributions based on dollar resources of each bank. It would appear that this fund would have a potential money-raising ability of at least $250,000.” MITCHELL APPARENTLY acted on Patman’s information. Indictments were returned last month against four national banks in Ohio on similar charges in connection with loans totaling $85,603. The Observer last May broke the story of a Texas bankers’ campaign kitty \(Obs., May that trustees of the fund were A. C. Verner of the First National Bank of Lubbock, Darrell Henry of Odessa, former president of the Texas Banking Association, and Tom C. Frost, Jr., president of the Frost National Bank and current president of the Banking Association. Verner had mailed a letter to his colleagues throughout the state, explaining, “Bankers of Texas have become aware of the need to support political candidates in statewide races.” The letter included a schedule of recommended contributions, ranging from $50 for small banks to $2,000 for large banks. The contributions were to be made by individuals, Verner warned, because of prohibitions against banks making contributions to political funds. The money would be used, he said. “primarily in statewide races,” with no candidate getting more than 15% of .the fund. Verner told the Observer last May that he was “not free to talk” about the war chest. Asked why the banking industry was supporting political candidates, he answered tersely, “If you know enough to make this phone call, you know why it’s needed.” Jake Lewis of Patman’s House Banks and Banking Committee, says he does not know if the banking group ever collected its $250,000. The Observer was unable to find any contributions from such a group listed in the campaign records of Smith, Lloyd Bentsen, Ralph Yarborough, George Bush or Ben Barnes. Smith, however, did list a $2,000 contribution during the general election from T. Frost, Jr., Trustee, San Antonio. Borrowing campaign money from banks is common practice in Texas. Last spring Ralph Yarborough borrowed $50,000 from the League City State Bank, and Lloyd Bentsen borrowed $90,000 and then another $50,000 from the Texas Bank of Commerce. \(Bentsen’s political ally, John Connally, was then on the board of the The Dallas Morning News pointed out that State Sen. Don Kennard borrowed $50,000 from the Continental National Bank of Fort Worth between April 2 and June 1, 1970. The News reporter added, “Bankers here say they have been interested primarily in whether a candidate would repay a loan he received. In addition to providing a quick source of cash, a bank loan gives a candidate a convenient method to avoid listing campaign contributions from lobbyists. Lobbyists or others interested in legislation may quietly pay off a bank note for an official instead of giving him a cash contribution. Since the payment takes place after an election, the official is not required to list it on his campaign rep ort .” Banker Frost said Smith’s loan was repaid Jan. 28, 1971. He refused to say who paid it off. The governor’s aide, Mr. Bullock, said of the indictment, “I think it’s a purge of. the Democratic Party not only in this state but in other states by the Republican Administration. It is part of a scheme by the Securities and Exchange Commission case that was rushed to court on inauguration day.” K.N. March 26, 1971 5