Texmass Mess?

For months, Arkansas Democrat William J. Fulbright has been gathering evidence for a full-scale investigation of RFC by his Senate banking subcommittee. Last week, as his committee began hearings, it looked as though he had struck pay dirt at the first swing of his pick. The case was that of the Texmass Petroleum Co., an oil outfit which got authorization for a $10,100,000 loan from RFC in 1949. The money has not yet been paid out and Senator Fulbright hoped he could prevent its ever being drawn.

Among the first witnesses was Comptroller General Lindsay Warren. He said: the loan to Texmass was "probably illegal [and] . . . without the authority of law." He based his opinion on subcommittee evidence showing that: 1) RFC examiners had turned down the loan as "not justified" because the company lacked the ability to pay it back in ten years, and 2) RFC's own review committee had bluntly reported that the loan would be "largely a bail-out of investors and certain creditors." Furthermore, out of RFC's five directors, the loan had been approved by a mere two-to-one vote (a fourth director was absent, while RFChairman Harley Hise abstained from voting because a distant cousin is married to a Texmass official).

Gushing Out. What is Texmass and why did it want RFC money? The subcommittee learned that in 1945 a group headed by Dallas Oil Promoter Homer W. Snowden persuaded 350 wealthy Bostonians to invest more than $8,000,000 in separate oil projects, managed by Snowden and his associates. Later they formed the Texmass Petroleum Co. to take over the oil & gas properties in Texas. In the spring of 1947 Texmass borrowed $4,000,000 from Massachusetts Mutual Life Insurance Co. and $3,500,000 from John Hancock Mutual Life Insurance Co. Later, the 350 Bostonians put up another $1,000,000 to protect their original investments.

Though a little oil dribbled in from scattered leases, the company's cash gushed out much faster. By last August, according to subcommittee records, Texmass had on hand properties valued at only $3,890,000. (RFC disagreed; it said they were worth $44.5 million.)

To get its collateral all in one package for the RFC loan, Texmass had to get it from the investors by exchanging stock, a transaction that required it to file a prospectus with SEC. Texmass admitted in the prospectus that its securities "have no present value and that any future value thereof is very remote and is dependent upon future development of substantial oil and gas reserves which cannot be counted upon." Its SEC prospectus also admitted that earnings would be "insufficient" to repay the RFC loan in ten years.

Rushing In. Under the circumstances, why had RFC approved the loan? Senator Fulbright put RFChairman Hise on the stand to find out, but got little satisfaction. "I don't think I want to attempt to justify this particular loan," said Hise, slouching in his chair. "I have heard nothing to indicate it was a bad loan." Besides, he added, there was "no reason to hold up the disbursement." In fact, his staff lawyers thought it might be illegal for RFC not to go through with its loan commitment. RFC was firmly of the opinion that with more capital Texmass would eventually get on its feet. At week's end, RFC was still prepared to make the "illegal" loan--unless Senator Fulbright raised an alarm loud enough to scare RFC into backing down.

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