Trial

History. Onetime (Harding Cabinet) Attorney General Harry Micajah Daugherty and onetime (Harding Cabinet) Alien Property Custodian Thomas Woodnutt Miller are under indictment and undergoing trial in Manhattan before Federal Judge Julian W. Mack. Their alleged offense is defrauding the Government of their "unbiased and unprejudiced services" through sharing* (TIME, Sept. 13) in a $441,000 lubricant by which $7,000,000 was within 72 hours transferred from the Alien Property Custodian's custody to the Societe Suisse pour Valeurs de Metaux, This $7,000,000 constituted the German-owned stock (49%) of the American Metal Co. which was held, after seizure, by Alien Property Custodian A. Mitchell Palmer as "trustee." The stock was seized under the Trading with the Enemy Act passed in 1917, which provided that the President should appoint an Alien Property Custodian to hold property in this country owned by citizens of enemy countries. Likewise the Custodian was empowered to sell any of this property at public auction, and the proceeds from sale of the metal stock reached some $7,000,000.

The $7,000,000 was recovered by one Richard Merton, chairman of the board of the Metallbank and president of the Metallgesellschaft, two German Corporations, both allegedly/- (TIME, Sept. 13) the original stockholders of the original 49% of seized American Metal Co. stock. He was in addition a stockholder of the Societe Suisse pour Valeurs de Metaux. Hence the Government alleges that the Societe Suisse at the time of the claim was but a holding company for the Merton family interests, that that family retained majority control in it, and that through its recovery of the Merton equity in the U.S.-located American Metal Co. the seized 49% found its way circuitously back to the original Merton stockholders.

The Issues, as set forth last week by the Government, were:

1) Whether or not former custodian Thomas W. Miller (who succeeded Mr. Palmer as Alien Property Custodian) and former Attorney General Daugherty conspired to receive a portion of the $441,000 as a bribe, not simply as a fee. "Conspiracy" must be proved.

2) Whether or not the 49% stock had been transferred from the German Companies to the Societe Suisse prior to U. S. entrance into the War on April 6, 1917. The prosecution proceeded upon the hypothesis (later overruled) that if the transfer was made after April 6, 1917, the subsequent return of $7,000,000 was illegal.

The Trial. U.S. District Attorney Emory P. Buckner, in presenting a summary of what the Government would endeavor to prove, first took up the second point. Said he:

"In December, 1920, a representative of the Swiss company wrote an attorney in New York that it had acquired the control of the Metallbank and the Metallgesellschaft in the fall of 1919 and therefore it was entitled to the $7,000,000 held by the Alien Property Custodian.

"The attorney answered this letter by stating that the transfer of control after the War did not legalize a claim. That the Swiss company would have to prove ownership prior to April 6, 1917, our entrance into the war. . . .

"That was what brought Merton over here. When that letter was received, he came personally. . . .

1 "Two public officials confronted Merton, however. One was the defendant Miller, Alien Property Custodian, and the other was the defendant Daugherty, Attorney General of the United States.

"Colonel Miller had in his own files a letter from officials of the American Metal Company, dated 1919, which sought permission to negotiate with the German owners for the purchase of the 49% of interned assets; this to make the company 100% American-owned. The permission was granted, the negotiations progressed, a contract was signed, pending approval by both Governments, but the American Government finally withheld its sanction and sold the assets itself elsewhere."

Shifting to point one, Mr. Buck ner, vivid, pungent, continued : "You will frequently hear the name of Jesse Smith in this trial. He was a close friend of the Daugherty family, living just outside Washington Court House, 0. He was a small storekeeper, dealing in safety pins, thread, small wares of that kind, but you will find out how prominent he really was, how close to Attorney General Daugherty.

"Jesse Smith was never appointed to office in the Department of Justice but he had an office there a few doors away from that of Harry Daugherty. We will show he was never an employe of that department, but that he received $4 a day for his support and his expenses whenever he traveled, and this on the certification by Daugherty that he was 'an employe of the department. We will show you that when Jesse Smith spoke it was Harry Daugherty speaking, and Daugherty's telephone calls went through Jesse Smith."

During the address Mr. Daugherty sat forward on the edge of his chair, elbows askew on the counsel table, hand cupped on his ear so as not to miss a word. Colonel William Rand, chief counsel too Colonel Miller, took frantic, copious notes. The only apparently idle person at the table was Mr. Daugherty's lawyer, Max D. Steuer, who watched Mr. Buckner seemingly uninterested, rubbed his swart cheek languidly.

So, Mr. Buckner continued, one John T. King got Jesse Smith for Mr. Merton. Jesse Smith had "political pull," as Mr. Merton phrased it. It would be shown by evidence, added Mr. Buckner, that Jesse Smith got Mr. Merton in contact with Defendant Miller, who put through the return of the $7,000,000 in 72 hours: "They passed that claim in record time, at a speed that could not have been reached without a powerful hypodermic injection of graft."

Mr. Merton, ostensibly a Government witness, took the stand. Poised, suave, well-informed, he spoke with scarcely a trace of German* accent.

He had made several trips to this country. He had fortunately met "the proper people"--not lawyers -- through Jesse Smith in Washington. "I didn't want, under any circumstances to be tied up to a lawyer who might handle the claim or not--I beg pardon if I am criticizing lawyers--I am sure they are high class lawyers. ..."

Then came a dinner. Mr. Merton, no ingrate, gathered about him in a private room of the Ritz-Carlton, Colonel Miller, Jesse Smith, John T. King. There was champagne. Colonel Miller had journeyed from 'Washington that afternoon with checks for $6,500,000 in his pocket. Mr. Merton presented his guests with gold cigaret case "mementos"; he had previously given John T. King a $50,000 "retainer." The merry little coterie toasted, joshed--and Colonel Miller gave Mr. Merton $6,500,000. Later Messrs. King, Smith and Miller left Mr. Merton, who "did not go out because with $7,000,000 in his pocket he somehow did not feel like it."

The next morning Mr. King and Mr. Merton met in Goldman, Sachs & Co. (Manhattan brokers). Mr. Merton handed Mr. King a bulky bundle containing $391,000. "I gave those bonds to Mr. King," said Mr. Merton, ". . . we separated in front of the building, King taking a taxicab, or walking to the subway--I don't know what he did. . . ."

Mr. Merton's testimony had been vivid, compelling, but at no time had definitely proved the necessary point--"conspiracy" by Messrs. Miller and Daugherty. Shrewd cross-examination by defense counsel resulted in temporary setbacks to the Government. It finally resulted in a ruling by Judge Julian Mack that the U. S. Supreme Court had decided that neutral corporations whose property was seized during the war were entitled to have their holdings returned by the Alien Property Custodian even though a majority of the stock of such companies was held by persons classed as enemies during the War --a ruling which virtually eliminated point two of the prosecution.

* With the late John T. King, who last year died within a week after being indicted, and with the late Jesse Smith, who killed himself in the Wardman Park Hotel, Washington, when news of the scandal began to reach the public. The Governnment intended to prove, by tracing bonds, that Thomas W. Miller and Harry Daugherty received a part of this money. /-Officers of the American Metals Company swore under oath that they were registered owners of the stock for the Metallgesellschaft and the Mctallbank. *Although born in Germany, he waa not naturalized there until he was 16. He was a captain during the War.