ing to serve as one of its officers or directors, any individual known to be an officer, director, or agent of any other organization engaged in the processing or marketing of cranberries in competition with the association.43 Consent decrees that prohibit interlocking relations that involve employees, officers, agents, or directors have been entered to terminate antitrust cases against the following companies: (a) Pittsburgh Crushed Steel Co. (abrasives); (b) Food Machinery and Chemical Corp.; (c) True Temper Corp. (golf club shafts); (d) New York Linen Supply Institute (linen suppliers); (e) American MonoRail Co. (overhead handling and cleaning equipment); (f) U.S. Rubber Co.; and (g) New Wrinkle, Inc. (wrinkle paint finishes).** The consent decree in the General Outdoor Advertising Co. case reaches vertical interlocks. Section V (B) enjoins the defendant from permitting more than one person to serve as its officer, director, or employee of the defendant, and simultaneously as an officer, director, or employee of Outdoor Advertising, Inc., a sales representative. Section (C) enjoins the defendant from permitting any officer or employee of Outdoor Advertising, Inc., to serve at the same time as an officer, director, servant, or employee of the defendant.45 An example of the prohibition of interlocks in noncompeting but complementary fields is found in the consent decree in the Liberty National Life Insurance Co. case. Section IV (C) of the consent decree enjoins the defendant insurance company from causing or permitting any of its officers, directors, or employees to serve as officer, director, or employee in Alabama or any person engaged, in Alabama, in the manufacture, distribution, or sale of funeral merchandise, or the writing, issuing, or sale of burial insurance.46 47 The consent decree in a case against the Greyhound Corp. exempts interlocks with wholly owned subsidiaries. Section V(B) enjoins the defendant from having as an officer, director, or employee, or permitting any person so to continue who also is an officer, director, or employee of any domestic manufacturer of buses that is not a wholly owned subsidiary of the defendant. Similarly, section V(A) of the consent decree in the case against City Directory Publishers enjoins the corporate defendants from permitting any of their officers, agents, servants, or employees to serve at the same time as an officer, agent, servant, or employee of any other publisher except a wholly owned or controlled subsidiary.48 A subsidiary in the Department of Justice consent decree normally is defined as a corporation in which the parent owns or controls a majority of the voting capital stock. Interlocking management provisions are a significant feature in the decree entered after extensive litigation in the Du Pont case.49 Article IV of the decree runs against General Motors as well as Du Pont and Christiana Securities, and applies to officers, directors, or employees 43 U.S. v. National Cranberry Association et al. (D.C. Mass. 1957); 1957 CCH Trade Cases, par. 68850. 44 Cited in CCH Trade Regulation Reporter, par. 5620.20. 45 U.S. v. General Outdoor Advertising, Incorporated (D.C. Ill. 1955); 1955 CCH Trade Cases, par. 68169. 46 U.S. V. Liberty National Life Insurance Co. (D.C. Ala. 1954); 1954 CCH Trade Cases, par. 67801. Other examples are cited in CCH Trade Cases, par. 5620.30. 47 U.S. v. Greyhound Corp. (D.C. Ill. 1957); 1957 CCH Trade Cases, par. 68756. 48 U.S. v. R. L. Polk & Co. et al. (D.C. Mich. 1955); 1955 CCH Trade Cases, par. 67993. Consent decrees involving injunctions under sec. 8 of the Clayton Act are cited in CCH Trade Regulation Reporter, par. 5610.30. 49 United States v. E. I. du Pont de Nemours & Co., General Motors Corp., et al., N.D. Ill., E. D. Civil No. 49C1071, final judgment amended April 26, 1962, 1962 CCH Trade Cases par. 70245. in an executive capacity. The qualification limiting employees to those in an executive capacity had been requested to aid in policing the decree and to limit its prohibitions to management personnel. 2. INVESTMENT BANKERS CASE The most comprehensive judicial examination since enactment of the Clayton Act into the operations and effects of management interlocks employed in the securities business, and the most significant judicial statement on the effect of legislative and business changes on the use of this device in the investment banking business, is contained in a conspiracy case that arose under sections 1, 2, and 4 of the Sherman Act.50 This case, the Investment Bankers case, had its roots in the TNEC investigation. It charged leading investment banking houses with a conspiracy, combination, and agreement to monopolize the securities business of the United States. One element of the conspiracy consisted of the alleged control by the banking firms of the business and financial affairs of securities issuers through the device of having banker representatives on the issuers' boards of directors. This case is a dismal episode in the history of the Antitrust Division. The court, in an extended and critical opinion that examined the history of practices in the industry and analyzed and ruled on the Government's evidence in detail, found against the Government in all particulars, concluded that no such combination, conspiracy, and agreement as alleged had ever existed, and dismissed the complaint as to each defendant, on the merits and with prejudice.51 The case was long, complex, and the voluminous record burdensome. The 56-page complaint was filed on October 30, 1947; trial commenced on November 28, 1950, consumed 309 courtroom days, and ended May 19, 1953. The opinion, dated October 14, 1953, which itself is unusually prolix, occupies 211 pages of volume 118 of the Federal Supplement, and recites that approximately 100,000 pages of documentary material was printed in connection with the litigation. The opinion of the court, Circuit Judge Harold R. Medina, is severely critical of the Government's handling of its case. The opinion frequently observes that Government counsel neither knew their facts as to the elements of the alleged conspiracy, nor understood the operations of the investment banking business in which it supposedly occurred. The court was of the opinion that, if the Government, before suit, had compiled the data and examination that were developed and stipulated in the trial, the action would not have been filed.53 52 The complaint alleged an integrated conspiracy, formed about 1915 and in continuous operation thereafter, in which the 17 defendants as a group developed a system to eliminate competition and monopolize the cream of the investment banking business. The central theme of the conspiracy, the opinion states, is defined as the "triple concept" of "traditional banker," "historical position," and "reciprocity." Under the "traditional banker" concept the banker who first manages an underwriting for a particular issuer is recognized by other bankers as being entitled to manage all of that issuer's future security issues. 50 U.S. v. Morgan et al., 118 F. Supp. 621 (1953). 51 Id., 118 F. Supp. 621, 829. 52 Id. at 790; see also pp. 632, 693, 704, 736, 738. 53 Id. at 649. "Historical position" is a concept by which the extent of the initial participation by a banker in a buying group for the purchase of a particular issuer's securities is recognized in subsequent issues of that issuer. Under the concept of "reciprocity," the banking firms recognized a mutual obligation to exchange participations among the conspirators in the buying groups they respectively managed. The conspiracy was alleged to extend to control of the issuers by infiltration of their boards of directors. The presence of a banker representative on the board of an issuer, moreover, was equivalent to "raising a red flag" to warn the other conspirators to keep away. To implement the alleged conspiracy, the syndicate method of security distribution was invented and jointly manipulated to control prices, terms, and conditions of purchase, sale, and resale of securities. In operation, the conspiracy allegedly was adapted so as to encompass changes in the commercial and political milieu resulting from the regulatory legislation of the 1930's.5 54 In summary, the Court found, the Government's complaint alleged an ingenious system of restraints, devised to create a controlled rather than a free market at every level, that had been successfully operating from the time the Clayton Act had been enacted. The Government had no direct documentary or testimonial proof of the conspiracy. It rested its case entirely on circumstantial evidence gleaned from business documents. On this aspect of the case, the Court said: And all this is said to have gone on for almost forty years, in the midst of a plethora of congressional investigations, through two wars of great magnitude, and under the very noses of the Securities and Exchange Commission and the Interstate Commerce Commission, without leaving any direct documentary or testimonial proof of the formation or continuance of the combination and conspiracy. The Government case depends entirely upon circumstantial evidence." Certain aspects of the case, which were important to the establishment of the overall conspiracy, were abandoned, withdrawn, or (the Court said) disproved, during the course of the trial. Among the features abandoned were: (1) the charge that the bankers cleared with issuers before making facilities available to competitors; 56 (2) the charge that the bankers agreed to use their controls to promote mergers among the issuers; 57 (3) an agreement to concentrate the business of purchasing and distributing security issues in a single market; 58 (4) the claim that the syndicate system had been invented by the defendants to further their scheme; 59 (5) the charge that the Investment Bankers Association was a conspirator; 60 (6) reciprocity; 61 (7) the charge that the bankers secured control of proxy-gathering machinery of the issuers for the purpose of perpetuating a friendly management or ousting an unfriendly management.62 In addition to the elements of the conspiracy that were abandoned or withdrawn, the Court in its opinion devoted much attention to the shifts in the Government position on the elements that remained in the 54 This outline of the conspiracy charged is taken from the Court's opinion, pp. 629-632. 55 Id. at 632. 50 Id. at 631, withdrawn. 57 Id. at 631, withdrawn. 58 Id. at 631, withdrawn. 59 Id. at 632, "conclusively disproved" and "virtually abandonded." O Id. at 633, withdrawn. 61 Id. at 633. "Here again, however, there was not merely a failure of proof but an affirmative demonstration that the allegations are without foundation in fact." See also p. 733. 2 Id. at 704, collapsed entirely and abandoned. case until the end. The most important shift in the Government's claims, the Court indicates, was in its position on the syndicate system. The Court refused to permit an amendment to the complaint that would have changed this element of the case from a charge that the 17 defendants had conspired to misuse the syndicate system against the remainder of the investment banking industry to a charge that attacked the syndicate system itself as a violation of the Sherman Act.63 The Court was particularly exercised by the shift in the Government's theory on the concept of the "traditional banker." Originally the Government claimed that the "traditional banker" was the firm that first managed an issue of securities for a particular company, and that the other defendants would recognize his "right" to be entitled to act exclusively for the issuer in merchandising its future security issues. The Court said that this concept was "*** thoroughly demolished during the trial"; that the Government abandoned it and tried to substitute "*** a new and quite different theory." This new concept had the "traditional banker" as the one "*** who had brought out the last issue, provided his relationship with the issuer was still 'satisfactory.' ".64 With respect to all of these charges, the Court remarked: * These twists and turns are very confusing and they led to much argument which need not be summarized. That they indicate some fundamental weakness in the central theme of the Government's case seems probable. The court made specific findings on each element of the alleged conspiracy in support of the overall conclusion that no conspiracy as charged had ever existed, and dismissed the Government's complaint with prejudice.66 The Government did not appeal the trial court's decision. Although the factors that entered into the decision not to appeal cannot be precisely delineated at this time, the failure to appeal, itself, gives additional weight to the trial court's opinion and findings. From the trial court's opinion, it is apparent that the Government's position as originally advanced in the complaint was poorly conceived and incompletely prepared. An unfortunate lack of continuity in the staff apparently resulted in inept handling. That part of the Investment Bankers case directly pertinent to this study is the disposition of the charges that involve an alleged use of interlocking managements to control the business of securities issuers. Attention has been devoted to the disposition of other phases of the case against the investment bankers in order to place in perspective the statements and findings of the trial court on the interlock issues. Further, in view of the circumstance that the interlock provisions of the Clayton Act had their genesis in the abuses of the "Money Trust," a major trial of the Money Trust's descendants, in the light of a generation of legislative and social reforms, must be taken into account in the ultimate conclusions of this study. 66 Id., at 736; see also "flash" theory, p. 693. Id., at 689, "* * no conspiracy, integrated, overall or otherwise" in the development and use of the syndicate system; p. 691, dictum that fixed price type of public oflering at new securities, on the basis then in use, did not violate the Sherman Act: p. 690, syndicate is an ad hoc common enterprise that is a reasonable business combination for promoting trade; pp. 733-738, "Reciprocity," ""Triple Concept," "historical position," "traditional banker," all were "demolished," "invalidated," "or taisunderstood." Part IV of the opinion contains the analysis of the Government's evidence, and the court's conclusions on its validity, with reference to the question: Did the seventeen defendant investment banking firms combine for the purpose of dominating and controlling and did they in fact dominate and control the financial affairs of issuers by directorships and solicitation of proxies? 67 Paragraph 44E of the complaint charged that the conspiracy consisted of a continuing agreement among the 17 defendants to influence and control the management of issuers: (1) By severally securing the appointment or election of directors, officers and members of protective committees, of issuers who, in addition to the performance of their duties, as such, would promote the interests of securing further underwriting business for each of the several defendant banking firms. (2) By causing the voting power of large blocks of stock held by investment trusts and others in security issuing companies to be exercised in the interests of securing further underwriting business for the defendant banking firms. (3) By inducing and utilizing friendly or allied stockholders of issuers, commercial banks, and other financial institutions serving the financial needs of issuers to influence such issuers to favor defendant banking firms in the sale of security issues. 68 Paragraph 45 sets forth the means and methods by which the foregoing agreement was accomplished. The following restrictive customs and practices were said to be in operation : (10) Defendant banking firms maintain and preserve their relationships with issuers by achieving and continuously exercising an effective degree of influence and control over the financial and business affairs of issuers. In many instances, they have severally caused one or more of their partners, officers, or other nominees to be appointed or elected to the board of directors or as an officer of issuers for whom they severally act as financial adviser or from whom they severally purchase security issues. Such appointees thereafter develop, and are in a position to exert, within the issuers' organization, strategic influence against the employment of other investment bankers and against the disposal of security issues by methods or under circumstances not favored by defendant banking firms. ***60 The court noted that this phase of the Government's case underwent such extended shrinkage during the course of the trial that at the end virtually only the "red flag" charge remained, plus fragmentary materials related to a relatively few questionable incidents. The charge about "members of protective committees" in subdivision (1) of paragraph 44E, for example, was eliminated; subdivision (2) was withdrawn in its entirety; and the charge in subdivision (3) was withdrawn, except as to J. P. Morgan & Co. and the Guaranty Trust Co. of New York, and no substantial evidence was offered in support of the charge thus limited." Whether paragraph 45 (10) was intended by the Government to be an element of the conspiracy, or whether it was simply a parallel practice of the defendants was a difference not clearly resolved."1 The opinion discusses the Government's evidence on interlocks in two categories: (1) directorship charts on each of the 17 banking firms, and (2) documentary materials. The Government contended that the directorship charts showed that, when a security issue was made and a bank representative was on the issuer's board, the defendant who had a man on the board acted as either manager or comanager 67 Id., at 701. |