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Sharp dealings Dallas The politicians’ depositions filed during the SEC hearing in Dallas combined with the testimony given during the two-and-a-half-week session in Judge Hughes court brought Frank Sharp’s grand legislative scheme into sharper focus. From reading the questions in the depositions, one can conclude that the SEC investigators believed that Governor Smith’s buddy Elmer Baum and State Treasurer Jesse James were to play key roles in the plot once Sharp got the banking bill passed. The depositions also make it clear that Preston Smith was under tremendous pressure from the banking industry to veto the bill. Since the stock scandal became public knowledge last January, there has been confusion over whether the banking bill would have supplemented federal bank deposit insurance pr whether it would have replaced it. The SEC maintains that the private deposit insurance would have been in lieu of FDIC insurance. And Sharp told Judge Hughes in no uncertain terms that the purpose of the legislation was to remove Texas banks from FDIC scrutiny. Sharp said, “I wanted to get the FDIC off my back. That is very definitely what I wanted to do. They weren’t being fair to me. They had never been fair to me.” Sharp had Eugene Palmer of Carr’s and Osorio’s law firm file with the secretary of state the articles of incorporation for a Texas Depository Protection Corporation. Palmer also got dibbies on the name, Texas Depository Corporation, via a certificate of reservation from the secretary of state. The original version of the banking measure was introduced by Representative Shannon, the speaker pro tern now under indictment, during the first called session of the 61st Legislature. It died in the House Banking Committee. Meanwhile, Sharp decided he wanted to make two changes in the bill. One was to make the deposit insurance corporation “a separate entity that was not under the supervision of the FDIC,” Sharp said. The second change was to put the deposit corporation under the control of the State Banking Board rather than the State Finance Commission. In the original bill, Eugene Palmer had stipulated that the nine-member Finance Commission would regulate the private insurance corporation. Sharp told the SEC that he nixed the Finance Commission because it “is really controlled by the large [i.e., the national] banks of Texas.” Both changes were made before the bill was reintroduced during the second called session. Sharp said he was crushed when Smith vetoed the bill because it “would have eliminated the big bank monopoly. Second it would take away from the FDIC the 4 The Texas Observer complete control of all the banks in the State of Texas. And . . . it would have blocked forever the chain banks coming into the State of Texas, which is, in my opinion, the real reason why all of this conversation and all of the publicity we have been getting, because it’s really a fight of chain banks in the State of Texas, branch banking.” SHARP HAD two very good reasons to believe that the Banking Board would be sympathetic in the regulation of the Texas Depository Protection Corporation. Those reasons were Elmer Baum and Jesse James. The Banking Board, which approves charters for state banks, is composed of three members the banking commissioner \(appointed by the Finance elected person appointed by the governor. Frank Sharp and State Treasurer Jesse James are old friends. In 1968, Sharpstown State bank financed the purchase of Lake Travis Lodges from James. James, who supervises the distribution of about $300 million in state deposits each year, had more than $4 million in non-interest-bearing deposits in SSB at the end of 1969. During 1970, one out of every seven dollars on deposit at the Sharpstown State Bank belonged to the State of Texas. Sharp told the House General Investigating Committee that when he made his first visit to the Texas Capitol to visit Gus Mutscher in 1969, he didn’t know where the speaker’s apartment was. He did know, however, where the treasurer’s office was. So he went there and James personally escorted him to Mutscher’s. office. Mutscher later wrote Sharp to tell him how much he had enjoyed the little visit with S _harp and James. Sharp’s telephone memos, now in the possession of the SEC, indicate that during the period when the banking bill was making its way through the Legislature, Sharp often called or received calls from Jesse James and Gus Mutscher on the same day. On Sept. 18, 1969, after the bill was passed but before the veto, Sharp talked to Jesse James twice while he was in Honolulu, talked to Gus Mutscher once and to Eugene Palmer once. SEC lawyers asked lots of questions about James’ role in the passage of the bill, but they never learned anything very specific. Q: Do you recall, generally, having had any discussion with Mr. Jesse James, either prior to or subsequent to the passage of the legislation concerning generally this, bank insurance legislation in which you had an interest? Sharp: Yes. We had one conversation that I remember. And I can’t remember whether I placed the call or he placed the call. He said, he told me, “I have been giving some thought to this bill we just talked about.” And he said, “You know, this will bring many, many millions of dollars to the State of Texas if it’s passed because it’s conductive to putting bigger accounts into all banks of the State of Texas and this will be a great thing for the banks of Texas.” The SEC asked Elmer Baum if he ever discussed the bill with James. Baum: If I did, there wasn’t any significance to it. I don’t recall it. Q: He would have also been a member of the Banking Board at that time, would he not? Bium: This is correct. This is correct. Q. You don’t recall him stating any opinion as to the merits of the bill. Baum: No, no. I think he was out of the country at that time. SHARP NEEDED only two votes to control the Banking Board and who should Preston Smith appoint to the board about the time the banking bill passed the Legislature but his business partner, Elmer Baum, the chairman of the State Democratic Executive Committee. Baum, by fortuituous coincidence, lived near John Osorio, one of Sharp’s lieutenants, president of National Bankers Life Insurance Co. Baum was a member of the board of dirtctors of RIC, one of the corporations whose stock was being manipulated by Sharp, Osorio and friends. In 1967, Osorio had turned Baum and Smith onto a lucrative deal involving some property on South Padre Island. The SEC asked Governor Smith why he took Baum, an osteopath, off the State Board of Health and moved him to the Banking Board. “Of course,” Smith said, “I have known Dr. Baum since 1956 .or 57, I believe, when I first came to the Senate. I had lots of confidence, lots of faith in him, in his ability and his integrity, and thought he would make a good board member.” Smith pointed out that Baum had some banking experience because his family owns a bank. On July 25, 1969, less than a month before Baum was appointed to the Banking Board, Smith and Baum each purchased 10,000 shares of National Bankers Life stock. The purchase was financed with a . $275,000 loan from Sharpstown Bank. Up until that time the biggest loan the Smith/Baum financial team had gotten for a stock purchase was $65,000. Baum said he and the governor decided to sell their stock on Sept. 12, 1969, three days after the banking bill cleared the Legislature, because he felt that as a prospective member of the Banking Board he should not owe so much money to a