LEASES UPON NAVAL OIL RESERVES. MONDAY, JANUARY 21, 1924. UNITED STATES SENATE, COMMITTEE ON PUBLIC LANDS AND SURVEYS, Washington, D. C. The committee met, pursuant to the call of the chairman at 2 o'clock p. m., in Room 210, Senate Office Building, Senator Irvine L. Lenroot presiding. Present: Senators Lenroot (chairman), Smoot, Ladd, Norbeck, Bursum, Cameron, Jones of New Mexico, Walsh of Montana, and Adams. The CHAIRMAN. The committee will come to order. Senator WALSH. You are ready to report with reference to the matter that you went to Palm Beach, Fla., upon, are you? Senator WALSH of Montana. Yes, sir. The CHAIRMAN. The committee will be glad to hear you. Senator WALSH of Montana. I am prepared to report to the committee the proceedings had and the testimony taken by me pursuant to authority from it in the State of Florida, but in order that the significance and importance of the evidence secured by me there may be more completely appreciated by those members of the committee who have not had an opportunity to follow the earlier testimony in detail, I submit a brief review of the disclosures leading up to the examination of Mr. McLean. It is in evidence that though all or nearly all those engaged as Senator Fall is in the cattle business in New Mexico are in straitened financial circumstances and that according to the testimony of witnesses he declared in 1920 that he was "broke" and it has appeared that he had not paid his local taxes for 10 years prior to 1922, yet in the fall or early winter of 1921, during which time Harry Sinclair visited Three Rivers, N. Mex., in his private car and negotiations were there carried on with Senator, then Secretary, Fall, for a lease of the Teapot Dome, he purchased a ranch adjacent to his, for which he paid, with the stock equipment appertaining to it, $91,500, the initial payment of $10,000 having been made in El Paso, Tex., in cash$100 bills which he took out of a tin box in which there remained other bills the subsequent payments, delayed until the cattle could be delivered and the title cleared, being made by check on a local bank. He subsequently, early in the year 1922, acquired additional lands for which he paid $33,000, paid all delinquent taxes due from him amounting to $8,000, bought four Hereford bulls for which he paid $3,000, having introduced no new blood into his herd since it was assembled more than 10 years ago, and installed in connection with his ranch a hydroelectric plant, primarily to supply power for pumping water for irrigation and secondarily for lighting and other domestic uses, at a cost of from $40,000 to $50,000. In a letter addressed to the committee under date of December 28, 1923, Senator Fall, asserting that ill health necessitated his communicating by letter rather than appearing in person, stated that of the money thus expended he secured $100,000 in cash from Edward B. McLean of Washington, D. C., loaned to him upon his unsecured note, and that he secured further sums applicable to the expenditures of which mention has been made by Toan from certain banking interests in Pueblo, Colo. Apparently apprehending that he might be called before the committee in consequence of the information given it by the letter of Senator Fall, Mr. McLean, then in Palm Beach, Fla., communicated with Hon. A. Mitchell Palmer, as his attorney, his desire to be excused from attending its sessions in Washington because of ill health, saying in that connection that he had in the latter part of 1921 loaned $100,000 to Senator Fall, and offering to make a full statement under oath in writing of the transaction. Representing Mr. McLean, Mr. Palmer addressed a letter to the committee asking that his client be not required to attend and giving to the committee the information transmitted to him, as stated. Subsequently Mr. Wilton J. Lambert, representing Mr. McLean, appeared before the committee in support of his appeal substantiating the representations concerning his physical condition with a telegram from his physician. Upon the showing thus made the committee authorized and directed me to take the testimony of Mr. McLean and any other witnesses whom I might care to examine at Palm Beach. The proceedings had and testimony taken are shown by the return of the reporter as follows: In the matter of the investigation of the leasing of the naval oil reserves before the Committee on Public Lands and Surveys of the United States Senate. Proceeding, before the Hon. Thomas J. Walsh as a subcommittee of the said committee at Palm Beach, Fla., January 11, 1924, Edward B. McLean being present and represented by his counsel, Wilton J. Lambert, and being duly sworn said: "I am now to testify under oath, am I not?" Senator WALSH. You are. That I may be understood, I incorporate in the report the following order made by the Committee on Public Lands and Surveys of the United States Senate: "That Senator Thomas J. Walsh be, and he is hereby, appointed a subcommittee to take the testimony of Edward B. McLean, at Palm Beach, State of Florida, or elsewhere, and any other witnesses as the said subcommittee may require to attend before him by subpoena; and authority is hereby given to said subcommittee to issue subpoenas in the name of the committee that require the attendance before him of said Edward B. McLean or any other witnesses; that if said Edward B. McLean so desires he may be represented by counsel and he may participate in the proceedings. "I. L. LENROOT, "Chairman Committee on Lands and Surveys." Now, Mr. McLean, in a letter dated December 26, 1923, addressed by Senator Albert B. Fall to the chairman and members of the Committee on Public Lands and Surveys of the United States Senate, after setting forth some negotiations he had had for the purchase of a ranch in New Mexico during the latter part of the year 1921, he stated as follows: "I came to Washington and approached a friend of mine here who had spoken to me about acquiring a ranch in New Mexico and particularly about the raising of thoroughbred horses in that State. I placed before him the BrownfieldHarris proposition at the prices which they had given me, that is to say, immediate purchase of real estate and cattle of the Harris estate would require $91,500. I stated to him also that other lands should be acquired in connection with these and that ultimately the total amount would approximate $125,000. I suggested to him that he should make this purchase outright in his own name and own the ranch and stock it as he pleased or that the cattle might be sold and the real estate retained for horse ranch purposes. I also proposed that in the event he preferred to do so if he would advance the money and make the purchase, take title in his own name I would agree with him upon an equal amount in value of my own adjoining properties and form a copartnership on a 50-50 basis. The matter was considered for several days and this gentleman decided that at the time he was not ready to make this investment outright. He stated, however, he would advance me the money or advance me $100,000 in event Í needed it, simply upon my own note without security or indorsement. I told him that I had the other two sources from which I could obtain the money or from which I could obtain the money to repay him in event I accepted his loan. It was finally agreed that he would loan me $100,000-and I gave him my note for that amount due on demand with a memorandum which I think he attached to the note, to the effect that if at any time within three years he desired to call the loan, I would pay it immediately or if he, after further consideration desired to acquire the title to the Harris property he should do so at the actual cost, or if he desired to go in partnership with me I would agree to put in an equal amount and we would jointly own the combined property. The arrangement was made on this basis. The gentlemen from whom I obtained it, that is, the money, and who furnished me the cash was the Hon. Edward B. McLean of Washington, D. C." Senator WALSH. Mr. McLean, did you loan $100,000 to Mr. Fall? Mr. McLEAN. I did, yes, sir, in checks. Senator WALSH of Montana. Whose checks? Mr. MCLEAN. My own checks. Senator WALSH of Montana. Drawn on what bank? Mr. MCLEAN. Drawn, to the best of my recollection, on the Federal, the Commercial-and there might have been a smaller one drawn on one other third bank which was very small amount. Senator WALSH of Montana. Have you got the checks? What became of them? Mr. McLEAN. In the last part of December 1921, sir-the last week-I am not positive as to date. Senator WALSH of Montana. They never did go through the bank? Mr. MCLEAN. No, sir. Senator WALSH of Montana. So that so far as you are concerned you did not give him any cash? Mr. McLEAN. Cash? No, sir. Senator WALSH of Montana. Now, Mr. McLean, I wish you would just tell me about the transaction. Mr. MCLEAN. I will tell you, sir, to the best of my recollection. Sometime in November, 1920, I was a member of a party invited by exPresident Harding to go on a fishing trip, or a trip of general recreation. We went from Brownsville to a town called Point Isabel, Tex. I came back to Brownsville in the morning, and the rest of the party coming back in the afternoon, and I met the Honorable Albert B. Fall in a hotel-the main hotel in Brownsville-I don't remember the name of it-and during that day, to the best of my recollection, and especially going back on the trip, he touched on the subject of his ranch and the possibilities of a profitable venture if anyone cared to put up the amount of money which it would entail to go into the business of raising thoroughbred horses. He explained to me about the ranch being 100 miles from Juarez, where there is a big race track, it would be a profitable venture, in his opinion. I told him at that time that I had a farm in Virginia which was getting overstocked and asked him in an off-hand way what, without serious intentions, the Harris ranch was worth. My recollection is that either he did not tell me the price or his answer was so vague it made no impression on my mind. That was the first mention that Senator Fall had ever made to me. In the early part of November, 1921, I received a letter from him describing the Harris ranch-a rather bulky letter-I should think about 14 pages, approximately that anyhow, asking me if I would care to buy it or go into partnership with him. I replied that it was impossible at that time. There was then a lapse of possibly two weeks. He then came to my house one day and asked me if I could loan him $100,000 on his personal note, as the Harris ranch was to be sold and there were seven or eight heirs, the exact number of whom I am not sure, and that the purchase had to be arranged at once. After a long conversation, I do not know how long it was, but I told him I could do it. I gave him two or three checks, made out on different banks. I am positive that it was two, but it may have been three. In two or three days from then Senator Fall dropped in and gave me a note with a memorandum attached for $100,000. Within two or three days after that he came to see me at my house in Washington in the evening and returned me the checks in the same condition I had given them to him. In other words, they had not gone through the paying tellers at the banks. Senator WALSH of Montana. What became of the note? Mr. McLEAN. He took the note. Senator WALSH of Montana. Do you still retain the memorandum? Mr. McLEAN. I don't believe so. Though there is a possibility that I may. As far as I was concerned, I believed the transaction concluded and, I believe I destroyed the memorandum. Senator WALSH of Montana. You haven't the note? Mr. MCLEAN. No. Senator WALSH of Montana. You have not got it as far as you know? Senator WALSH of Montana. What explanation did he make at that time? Mr. MCLEAN. That he had made arrangements through other sources. He did not say through what other sources. Senator WALSH of Montana. There was no further talk about the matter at that time, nor at the time the checks were given or at the time he applied to you for loan of $100,000? Mr. MCLEAN. Yes, sir. Senator WALSH of Montana. What representation did he make concerning the payment of note? Mr. MCLEAN. He would either give me option on the Harris ranch or he would put an equal part in of his own ranch. There was never any mention whether the Harris ranch was worth $100,000. And I didn't know the value of his ranch. I have never been to his ranch-I do not know anything about it; I am as ignorant as you are about it. Senator WALSH of Montana. Did you at that time know anything about Mr. Fall's financial condition? Mr. MCLEAN. No, sir; except I knew he had a lot of land and a lot of cattle. Senator WALSH of Montana. In detail, you did not know anything about it? Mr. MCLEAN. No, sir. Senator WALSH of Montana. When did you see Senator Fall last? Mr. McLEAN. Fifteen minutes ago. Senator WALSH of Montana. Is he here in the city? Mr. MCLEAN. To the best of my knowledge he is, sir. Senator WALSH of Montana. How long has he been here, as far as you know? Mr. MCLEAN. I think about a week or 10 days-I am not trying to evade the question, but that is as far as I know. Senator WALSH of Montana. Have you and he conferred about this matter during that period? Mr. McLEAN. This morning, sir. Senator WALSH of Montana. Is that the first time you talked about it? Mr. McLEAN. I have talked to him two or three times. Senator WALSH of Montana. You do not know whether the note is in existence still or not? Mr. MCLEAN. I could not answer that question. Senator WALSH of Montana. Have you a confidential secretary? Mr. McLEAN. Yes; Mr. Major. Senator WALSH of Montana. Then you do not know where the note is? Mr. McLEAN. The note must have been torn up, as the transaction was finished, in my opinion. The way I look at it, Senator, is this: I loaned him the money, but it had not been made use of. Senator WALSH of Montana. Do you remember if there was any notation made on the stubs of the checks showing the checks had never been used? Mr. McLEAN. No, sir; I handled that transaction myself. Senator WALSH of Montana. You would have, of course, the stubs in your check book. Mr. McLEAN. I think that is very doubtful. I burn all my checks every two years. Senator WALSH of Montana. But don't you keep your stubs for reference? Mr. MCLEAN. No, sir. Senator WALSH of Montana. If the stubs are still in existence, where would they be? In Washington? Mr. MCLEAN. They might be in my office in Washington. I could find out by telegraph. Senator WALSH of Montana. I would like you to do so, Mr. McLean. Mr. MCLEAN. May I put something in that I would like to say? I conferred this morning with the Hon. A. B. Fall and my attorney, Wilton J. Lambert. Mr. Fall suggested that I make the statement which I have made before Senator Walsh to-day. Senator WALSH of Montana. Is there anything further? Mr. MCLEAN. No, sir. Senator WALSH of Montana. That is all. TESTIMONY OF MR. JOHN F. MAJOR. (The witness was duly sworn.) Senator WALSH of Montana. Your name? Mr. MAJOR. John F. Major. Senator WALSH of Montana. What relation, if any, do you bear to Mr. McLean? Mr. MAJOR. For the past 14 years, I have been connected with Mr. McLean in a confidential way. Senator WALSH of Montana. What, if anything, Mr. Major, do you know about the transaction just mentioned by Mr. McLean? Mr. MAJOR. Absolutely nothing. Senator WALSH of Montana. Did the check books from which the checks were taken come into your possession? Mr. MAJOR. They did not. Senator WALSH of Montana. At that time, at what banks did Mr. McLean have deposits? Mr. MAJOR. American Security and Trust, Federal-American-that was the Federal National then, they had not consolidated at that time-the Commercial National Bank of Washington, and I believe that he had other accounts in smaller banks around town that I knew nothing of. Senator WALSH of Montana. Well was it a part of your duties to draw checks signature? Mr. MAJOR. Yes, sir. Senator WALSH of Montana. And you made deposits for him, I suppose? Senator WALSH of Montana. So that the check books were all in your immediate custody? Mr. MAJOR. No; not exactly. At that particular time Mr. McLean had also as his secretaries persons by the name of L. Leckie, William O. Duckstien, George B. Fraser and, I might add, Senator, that in many instances in drawing checks, for instance at Mr. McLean's home, his valet would draw a check, probably Mrs. McLean, and probably his father's former valet. I think that covers that. Senator WALSH of Montana. Well, how did you keep track of the bank balances under that system? Mr. MAJOR. All of the banks rendered a statement at the end of each month. Senator WALSH of Montana. Well, did you not try to keep check of the amount in bank? Mr. MAJOR. Yes, sir. Senator WALSH of Montana. Well, that is what I mean, unless there were hands into which those checks passed, how would you keep track whether there were any funds in bank against which checks could be drawn? Mr. MAJOR. I do not quite get that question, Senator. Senator WALSH of Montana. Mr. Major, to illustrate: I carry my bank balance in my check book and the balance remaining in the bank is always shown on the last stub. Mr. MAJOR. On the stub? Senator WALSH of Montana. In connection with the stub, so I always know if I have a balance in the bank against which I can draw. Mr. MAJOR. We did not follow that procedure for this reason: That there were numerous persons at all times-probably 10 or 15 of Mr. McLean's employees who had access to his check books, and Mr. McLean naturally did not wish them to know about his financial affairs. |