t.” state bank. Baum joined the board Sept. 16, 1969. It is a little unclear as to exactly when Smith and Baum’s stock was sold and when they paid off their Sharpstown note. Baum told Sharpstown to sell all 20,000 shares of their NBL stock, but only 14,000 shares were immediately sold. On Sept. 29, 1969, Smith vetoed Sharp’s bill. At about the same time, Baum was in communication with Joe Novotny, president of Sharpstown State Bank, concerning the fact that 6,000 shares of their stock had not been sold. On Oct 2, Novotny wrote a letter to Baum apologizing for the delay in the sale of the stock. Novotny told the SEC he did not know why there was a delay, but Frank Sharp said that Novotny had told him that some of the stock had been withheld “for personal reasons . . . I think he made the remark he held up some of it because Preston Smith had vetoed the bill,” Sharp said. The 6,000 shares was sold Oct. 6 and on the same day Baum, acting alone, bought 2,000 more shares of NBL, which he sold Oct. 31 for a profit of $6,000. The SEC asked Baum in his first deposition if anyone had accused Smith of a “doublecross” concerning the bill and Baum said there had been no such charge. Novotny denied he had withheld any money while awaiting the governor’s signature on the banking bill. PRESTON SMITH’S veto of HB 72-73 is one of the more confusing elements in the stock fraud scandal. Smith still insists that he did not know that Sharp, Osorio, et. al. controlled NBL. He says that until the scandal broke early this year, he thought the insurance company was still owned by former Gov. Allan Shivers. In his second deposition, Smith told . the SEC he said he learned of Frank Sharp’s interest in the banking bill more than a year after the veto. He said he called Sharp for a campaign donation and Sharp turned him down. Bob Bullock, who worked for the governor in 1969 and 1970, testified a week after Smith and he said the conversation with Sharp was not a year after the veto but rather a month or two after the veto. As Bullock remembers the conversation: “Gov. Smith said, ‘Frank, I am phoning a few of you fellows that I know are interested in politics to tell you that I am going to be a candidate for re-election, and I hope that you are going to support me or can support me during the campaign.’ And then I heard the governor say something to the effect, ‘Well, you didn’t tell me.’ Then I heard him make a statement something to the effect, ‘Well, he didn’t tell me.’ And then I thought he said, ‘Well, I am sorry’ or something to that effect. Maybe a few other remarks. Then he hung up. And he turned around to me and he had a real funny expression on his face, and he sat there for a minute, and he says, ‘You know, I don’t believe he’s going to support me.’ ” Smith’s and Bullock’s testimony is contradicted by the testimony of both Osorio and Sharp. Osorio said he assumed Baum had told Smith of Sharp’s interest in the bill. The only piece of evidence the SEC presented linking Smith to actual knowledge of the origin of the bill was ruled inadmissible by Judge Hughes on the basis that the evidence is hearsay. The SEC attempted to introduce a telephone memorandum from Sharp’s secretary, Sharon Gilleon, to Sharp. The memorandum refers to calls Ms. Gilleon took for Sharp on Sept. 19, 1969. One of the messages is from John Osorio. It says: Austin Now that the indictments have started rolling in, Observer readers may want a quick refresher on the basics of the stock fraud scandal. The Observer’s Feb. 12 issue summarizes the financial machinations of Frank Sharp, explains the supporting roles played by Gus Mutscher, Tommy Shannon, Elmer Baum, Preston Smith. and others, excerpts some of the juciest questions and answers from the first round of depositions and even provides a diagram showing how the various implicated corporations were linked through ownership, loans and stock transfers. Copies of the issue are available for fifty cents plus three cents tax. Write the Observer, 600 West 7th, Austin, Texas. 78701. “Dr. Baum said that the governor will not veto the bill before he talks to him. Mr. Osorio will be there tomorrow. Relayed all the information you gave him to Dr. Baum and will not try to see governor before talking to Wright Patman and he thinks it’s a good bill.” Sharp. testified that he received a call from Osorio in Austin while Osorio was dining with Smith, Baum and some other people. According to Sharp, Osorio “just kind of laughed and said, ‘I wish I had that bill out here tonight. I believe we could get the governor to sign it.’ ” Needless to say, Sharp was furious when Smith vetoed the bill. He told the SEC he tried to call Smith as soon as he heard about the veto on a newscast but he didn’t reach the governor until the next day. “I told him I was very unhappy that he vetoed the bill,” Sharp remembers. “And he said, ‘Well, I didn’t know you had any interest in the bill.’ And my answer to him was, ‘Yes, you did.’ ” WHY, THEN, did the governor veto the bill? Because all the major banking interests, with the exceptions of Frank Sharp and Jesse James, were strongly opposed to the legislation. And, as Sharp maintains, the big banks have the power. Smith at first insisted that there was little pressure on him either to approve or veto the bill. He said that J. M. Falkner, the banking commissioner, convinced him that it was a bad bill. The Finance Commission had voted 8-0 to ask Smith to veto the legislation. In his second deposition, Smith said he also discussed the bill with Derrell Henry and Sam Kimberlin of the Texas Bankers Association. Smith said he and Henry talked by telephone while Henry was in Honolulu at a bankers meeting. On Sept. 18, Henry sent a letter to Smith from Hawaii asking him on behalf of the Texas Bankers Association to veto the bill because it was hastily passed. In his first deposition, Smith denied that Shivers had contacted him about the bill. Shivers, however, said they talked two, three or four times during the 20 days between the bill’s passage and its veto. Later Smith said he remembered talking with Shivers. The discussions should have been memorable. Shivers was the man who sold National Bankers Life to Frank Sharp. John Osorio had worked for him when he was governor and he later became president of NBL at Shivers’ request. He is definitely one of the “big bankers” Sharp had reference to. At the beginning of this year, Shivers was chairman of the board of the Austin National Bank and he held stock in the Austin National Bank, the Capital National Bank of Austin, the Capital National Bank of Houston, Galleria Bank of Houston, the Texas Commerce Bank of Houston, the Chemical Bank and ‘Trust Company of Houston, the People’s National Bank of Spring Branch and the Bank of Texas. Shivers told the SEC he couldn’t figure out from the wording of HB 72-73 whether it would provide insurance in addition to or in lieu of FDIC protection. Smith said in his second deposition that he probably had two telephone conversations with Shivers about the bill. He also said that he and Dr. Baum dropped by for a visit with Shivers, probably, as he remembers, the night the bill was vetoed. Q: Was there . . . you say you had . been at some social occasion with — Smith: No. We just went by to see Governor Shivers for a moment. Q: I see. Was there any discussion between you and Governor Shivers and Dr. Baum on that occasion concerning anything to do with these bills? Smith: Not that I remember. Q: You weren’t visiting Governor Shivers on that evening for the purpose of discussing these bills or your veto proclamation? Smith: No, the legislation wasn’t important. Q: You mean it wasn’t important to you? Smith: No. It sure wasn’t. K.N. October 8, 1971 5
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