A. G. & E.-- Round III

In the post-Insull afterglow of U. S. high-financeering, No. 1 utility scandal was tubby Howard C. Hopson's rancid Associated Gas & Electric. Today Hopson is self-allegedly feebleminded; his goons are dead, broke and scattered; his insolvent empire has become the largest reorganization in the history of U. S. business (TIME, March 4). A. G. & E. is simultaneously a ward of the Federal courts, a debtor of the U. S. Treasury (for at least $5,000,000 of unpaid taxes), and a regulatee of SEC, which Hopson's 1935 utility lobby tried to keep out of the utility business by methods so crude that the rest of the industry disowned him.

When Hop & crew walked the plank last winter into reorganization, A. G. & E. Corporation (which controls the $1,000,000,000 system's operating properties) and A. G. & E. Company (which used to control CORP.) became charges of New York Federal Judge Vincent Leibell, with SEC looking on. To insure impartiality, Judge Leibell appointed a separate trustee for Co., because its future (apart from its minority interest in some of CORP.'S junior bonds) depends on what it can get out of suing CORP. Objective of the suit: back in 1933, Hoppy had tried to escape the day of reckoning by inventing a so-called "Recap Plan" which stripped Co. of most of its assets, hid them in CORP. Now it is up to Co.'s trustee to void the Recap Plan, recover any assets that may be left after CORP.'S water has been squeezed out.

To the trusteeship of CORP. Judge Leibell appointed Economist Willard Thorp and Pennsylvania Utility Commissioner Denis Driscoll (TIME, March 11), charged them with administering the system. To the trusteeship of Co. he appointed Trial Lawyer Walter Pollak, competent to sue and retrieve assets. Since SEC had veto power over these appointments, many a utility fan naturally assumed that they were an SEC slate.

Fortnight ago, they learned better. A loud second-class row developed between SEC and Co. Trustee Pollak. Co. is in reality just a set of books, hadn't had an employe for eight years until the Hopson crowd made Washington Lawyer Roger Whiteford its president during the system's last 100 days of freedom--and even he could not collect his salary from an empty till. Biggest joke about the reorganization has been that the trustees have talked and acted like big businessmen, while for months they too were unable to collect their salaries.

The row started when Co. Trustee Pollak, down to his last corporate cup of coffee, attempted to sell securities to raise some money, and at the same time SEC got tired of muttering to itself: "When will he start to sue CORP.?" When lawyers for SEC, a party to the reorganization under the Bankruptcy Law, demanded that he use the money he proposed to raise to get on with his lawsuit, Pollak made headlines by echoing the cry of many a businessman: "SEC persecution."

Before SEC last week was an application by Pollak to raise $200,000 for penniless Co. by selling trustee certificates to Lazard Freres & Co. Pollak had cleared the issue with Judge Leibell, went to SEC for approval under protest. SEC ought to approve the issue, said Pollak, because Lazard's "are willing to take their chances," and Co. needs the money. Any way, he added, SEC had better lay off or he would get the courts to show its interference was unconstitutional.

Against him appeared SEC's Associated Gas specialist, a young Texas cowpuncher named Lewis Dabney. Said he: "If I was able to conduct litigation and hearings with respect to Associated Gas & Electric Company for two years and a half without ever losing my temper at Mr. Hopson, I do not think that anything that Mr. Pollak can do will bring that about." He conceded that Co. needs $200,000, but only in order to sue CORP., not to engage in legal boondoggling. His example of the latter: Pollak hired a lawyer named Stanley Clark, put him to work on CORP. matters. This created difficulties until Clark was transferred to CORP.'S payroll. In his new budget, Pollak proposed to put two full-time and two part-time men on the Co. payroll to work with his friend Clark at CORP. If Creditor Pollak wants to know what is going on in CORP., argued Dabney, "he can have lunch with Mr. Clark once in a while to find out."

Last week SEC put out a unanimous opinion telling Trustee Pollak he could have his money, but warning him to spend it strictly on business--i.e., suing (not studying) CORP. The opinion rapped Lawyer Pollak for not knowing that Congress put all interstate public-utility holding companies, in and out of reorganizations, under SEC jurisdiction. On Pollak's relations with Lazard's, the Commission recommended that Co.'s first $200,000 of recoveries ought to go to repay the bankers lest they build up a claim on the more profitable financing the system will soon doing. Finally, the Commission reminded Trustee Pollak that it is a party to the reorganization (under the Bankruptcy Law), that it proposes to see the $200,000 efficiently spent. It looked as if, reformed or unreformed, Associated would retain the color and thunder Hopson put into it.

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