The committee then called upon the Attorney General for a written opinion on the subject, and on January 17, 1922, by his assistant, Mr. Guy B. Goff, he sent a letter to Congressman Gilbert H. Haugen, chairman Committee on Agriculture, House of Representatives, Washington, D. C. In this letter is found the following:

"The Attorney General expressed the view before the committee that there was an undeniable moral obligation and, in his opionin, a legal obligation upon the Government. The committee has also been fully informed of all the facts from competent sources, as appears from the statements before it and the reports of the several committees which have considered the subject, including its own majority and minority report, No. 1275, dated February 1, 1921. The facts shown therein indicate the ground of legal liability. They are not, as far as can be ascertained, seriously questioned. They plead powerfully in behalf of the companies and show that it was in pursuance of authority to deal with the then existing high prices that the Attorney General became connected with the matter and used these companies to ameliorate that condition.

"The Attorney General, in the exercise of authority derived from the Lever Act and conferred on him by the President, was authorized to use means which were necessary and appropriate to provide the country with an adequate supply of sugar. That the arrangement between the department and Howell Co. and the trading company were proper means is, of course, beyond doubt, because it brought to pass the relief for which it was used and brought it to pass in a much greater measure than was expected. Indeed, its very efficacy is among the important facts causing the loss. "As a matter of law, however, the question is rather whether these companies were such agencies as were intended in the Lever Act and the instrument conferring authority upon the Attorney General. The agencies there referred to were, of coursebecause of the peculiar situation then existing-not limited to such only as previously had been recognized or used; and, consequently, it is not necessary to establish here a strictly legal relationship of agency in which the agent is entirely subject to the control of the principal. Apart from the arrangement entered into with the department, these companies were independent importing and distributing agencies; but with respect to that arrangement, while retaining much of their independence, which, indeed, was necessary for the purpose, they were in a very large measure controlled by the department.

"In the view of the department there is no uncertain authority in law under which the Attorney General acted, nor is it possible to consider this subject as a legal matter apart from its equitable nature. The view that there is no legal liability is at best doubtful, and it must be kept in mind that as a legal and especially as a practical matter the equities which so strongly color the facts will distinctly tend to resolve doubtful legal questions in favor of the companies. These claims may, indeed, be termed debts of the United States, debts of that peculiar character which dictate relief at the hands of the Congress, as intimated by the Supreme Court in the following passage from United States v. Realty Company:

"What are the debts of the United States within the meaning of the constitutional provision (art. 1, sec. 8)? It is conceded, and, indeed, it can not be questioned, that the debts are not limited to those which are evidenced by some written obligation or to those which are otherwise of a strictly legal character. The term "debts" includes those debts or claims which rest upon a merely equitable or honorary obligation, and which would not be recoverable in a court of law if existing against an individual. The Nation, speaking broadly, owes a "debt" to an individual when his claim grows out of general principles of right and justice; when, in other words, it is based upon considerations of a moral or merely honorary nature, such as are binding on the conscience or the honor of an individual, although the debt could obtain no recognition in a court of law.'

"As stated in another letter to you upon the subject, in view of the peculiar obligation upon the Government in this case, in which there appears to be general acquiescence, it seems to the department, after a review of all the evidence, that the legislation should be passed.

'Respectfully,

Lamborn & Co. made every effort to resell this sugar under the rules of the Department of Justice, but because of the rapid decline in the market they were unable to do so. They suffered a loss of approximately $570,000, as above stated. The complete itemized statement showing this loss, which statement has been sworn to by an official of Lamborn & Co., is hereto attached and made part of this statement. If

the Sugar Equalization Board, which was the Government's sugar corporation, had sustained this loss, the loss would be paid out of the profits made by that corporation from its handling of sugar for the Government. Here is a partnership which acted under the United States Department of Justice in the same manner as the sugar Equalization Board would have acted had it purchased the sugar herein referred to to relieve the shortage then existing. Lamborn & Co. were acting as agents for the Government in exactly the same manner as the Sugar Equalization Board would have acted had it been functioning at the time. The losses, therefore, which were sustained by Lamborn & Co. should be paid from the profits which have been made from the sugar dealings of the Sugar Equalization Board.

We respectfully submit this statement to the Senate and House of Representatives of the United States with the earnest hope and belief that they will pass the resolution herein referred to, authorizing the President to direct the Sugar Equalization Board to take over this transaction and adjust the losses to Lamborn & Co.

LAMBORN & Co.

COMMITTEE ON AGRICULTURE,
HOUSE OF REPRESENTATIVES,
Tuesday, April 18, 1922.

The committee this day met, Hon. Gilbert N. Haugen (chairman) presiding. There were present Mr. Haugen, Mr. McLaughlin of Michigan, Mr. Ward, Mr. Purnell, Mr. Voigt. Mr. McLaughlin of Nebraska, Mr. Tincher, Mr. Sinclair, Mr. Thompson, Mr. Gernerd, Mr. Clague, Mr. Clarke, Mr. Jacoway, Mr. Aswell, Mr. Kincheloe, Mr. Jones, and Mr. Ten Eyck.

Mr. HUNT. Mr. Chairman, Mr. Riley, the former Assistant Attorney General in charge of sugar matters is here. I asked him if he would come without subpoena and he said that it was perfectly all right with him.

The CHAIRMAN. We will hear Mr. Riley now.

STATEMENT OF MR. ARMAN W. RILEY, GARDEN CITY, LONG ISLAND, N. Y.

Mr. ASWELL. Mr. Riley, may I suggest in the interest of economy of time that the crux of this whole case is very definite, and that is to establish their connection with the Government. That is the main thing we want to find out.

Mr. RILEY. The connection of whom?

Mr. ASWELL. The connection of this company with the Department of Justice. That is the fundamental matter I think we want to hear you upon or, rather, that is my understanding of it.

Mr. RILEY. Would you want me just to corroborate that part of Mr. Lamborn's statement?

Mr. TINCHER. I think you had better make a statement of what you know about this case.

Mr. RILEY. The Lamborn case. Well, I was working in the Department of Justice as special assistant to the Attorney General, and my function was to investigate and prosecute violators of the Lever Act. That was the profiteering act. I received the reports of investigators of the Department of Justice from all parts of the United States, and then suggested their procedure; that is, whether it seemed to me the case warranted further investigation, and if so, to obtain certain facts and submit those facts to the local United States district attorney for presentation to the grand juries in their particular districts. I was engaged in this work for a long time, not solely in connection with sugar, but all the commodities which came under the Lever Act, which consisted of food and fuel and various other things of that sort. After I had been with the Government some time the sugar situation became acute, as you all know, and I had a very definite theory as to the way to handle it. It had become a very popular game to go into sugar speculation. Anybody who had sugar seemed to be able to sell it at any price he might demand. We had made various efforts through fair-price committees to cooperate with various industries and communities. In my opinion we had not obtained results as satisfactory as we should have obtained or had been led to expect. My theory was that there was a law on the statute books and that the only way to take the speculation out of sugar was to enforce that law stricely and emphatically throughout the United States. My attitude in the department finally was adopted-I persuaded, in other words, the Attorney General that that was the way for us to proceed, and in view of the fact that that was the way I had been proceeding, it was determined by him that I attempt to carry out that procedure and no

longer attempt to negotiate. This I proceeded to do, and presented many cases to the grand juries in different parts of the country, in New York State, Texas, St. Louis, and all over the country.

Mr. MCLAUGHLIN of Michigan. The particular feature of the law you were investigating and proposed to enforce was the law against profiteering in sugar.

Mr. RILEY. Profiteering in any commodity that came up.

Mr. MCLAUGHLIN of Michigan. Well, we are speaking of sugar now, particularly. Mr. RILEY. Yes. You see the law provided for a reasonable profit. Now, there was never any price set, because in different communities the prices varied. If a man had bought sugar at this point for 10 cents, he could sell it at a reasonable profit. If another man had bought it over there at 15 cents, he could sell it at a reasonable profit. We could not say 16 cents was a reasonable price; we could only say what the margin of profit, in our opinion, should be. You can see why that would be the case. After consideration and consultation with various sugar interests, we came to the conclusion that 1 cent was quite sufficient to take care of the profits; and, in fact, more than people operating in sugar had ever obtained prior to that time in normal business. That is one point I would like to bring out, that the price was not set for these different people, but merely the margin of profit. You might ask, How could we enforce the margin of profit, and I always told the people with whom I came in contact, the various sugar interests, that if they stayed within that we would not proceed against them for violation of the Lever Act, but if they exceeded that then I would feel it was my duty to present the evidence to the grand jury or have it presented to the grand jury, and show the grand jury what we considered a reasonable profit, and if they thought what these people had made was unreasonable, an indictment would be returned against them and they would be prosecuted. That was the policy under which we proceeded. Now, that in itself, I think, was effective, but I do not think that in itself would remedy the situation which was confronting us. If you take the unusual profit out of sugar speculation, that would deter a great many people who are not ordinarily in the business from entering it. If, secondly, you would increase the supply of sugar in this country, that would give enough sugar to everyone and at the same time bring down the price, and that was the objective of the Department of Justice, namely, to increase the sugar supply and keep the price reasonable. Now, I do not know exactly where to proceed from that point; I mean, along what lines.

Mr. TINCHER. Do you not know that the committee wants you to tell us what you know about this sugar claim that is pending here.?

Mr. RILEY. Yes.

Mr. TINCHER. That would be easy, I should think, for a lawyer.

Mr. RILEY. I was directed by the Attorney General

Mr. ASWELL. Did you request this firm to import sugar?

Mr. RILEY. I think I can hardly answer that yes or no, but I can tell you the cir

cumstances.

Mr. CLARKE. Tell us the circumstances surrounding the whole transaction.

Mr. RILEY. The Attorney General invited, through one of his assistants, the sugar interests to attend a conference in Washington. I mean he invited the importers. You see we divided the sugar interests into two classes, those who were refiners and those who were importers and sugar merchants.

Mr. ASWELL. About how many importers came to that conference?

Mr. RILEY. My guess would be almost as many people were present as are present in this room.

Mr. KINCHELOE. Suppose you begin right there and continue on with this transaction.

Mr. RILEY. The Attorney General brought them together, I presume, with the idea of getting light and relief for the acute situation.

Mr. PURNELL. Do you know how they were solicited to get together?

Mr. RILEY. By a telegram or a letter inviting them to attend a conference in the Department of Justice here in Washington. They attended and the Attorney General told them of the predicament the country found itself in and asked them to give every aid to relieve that predicament; that is, to bring down the price and increase the supply. The number of people who were present made it unwieldly to act with ease, and he suggested that they appoint representatives.

Mr. KINCHELOE. Were you present at that conference?

Mr. RILEY. Yes, sir. Of course, the Attorney General was not familiar in detail with the different sugar phases and as I had been, I was there more or less to give him information.

Mr. KINCHELOE. I was just wondering whether you were there or not.

Mr. RILEY. Then the men who were there, the sugar importers represented, determined, as my recollection goes, on a committee of three, Mr. Lamborn, Minford,

Lueder & Co.-that is the firm name-I do not know whether it was Mr. Minford or Mr. Lueder, and the firm of Czarikow Rionda, and Mr. Rionda himself was there.

Mr. ASWELL. Did the Attorney General appoint these gentlemen or did the importers appoint them?

Mr. RILEY. My recollection was that they among themselves nominated these men and the Attorney General said, "That committee is quite satisfactory to me." Mr. JACOWAY. Was that Mr. Palmer?

Mr. RILEY. Yes; the then Attorney General. After a general discussion of the situation, he said that he thanked them and would be glad to have their suggestions, and would meet with them or have some one meet with them again or have meetings with them again.

Mr. ASWELL. This firm is the only one in that assemblage of importers that acted. No other firm imported any sugar except this one among the importers who were present at that time?

Mr. RILEY. I do not know. I did not know at the time that they had purchased

this sugar.

Mr. ASWELL. Was that conference prior to the request made by the Attorney General for these other gentlemen to import sugar or was it after he made this request.

Mr. RILEY. You refer to the American Trading Co.?

Mr. ASWELL. Yes.

Mr. RILEY. I did not know anything about that American Trading Co. matter. Mr. ASWELL. All right, then.

Mr. RILEY. It was being conducted by Mr. Figg.

Mr. ASWELL. All right; go ahead.

Mr. RILEY. I asked Mr. Franklin at one time to give me the information and he refused to do so; I do not know why.

Mr. KINCHELOE. Now, what was said at this conference when these gentlemen assembled about what commission they were to get or what profit they were to get out of it, or was anything said about a loss or anything of that kind.

Mr. RILEY. No; the Attorney General, I believe, informed them that the department took the position that 1 cent would be considered a reasonable profit on sugar transactions.

Mr. KINCHELOE. Was that satisfactory to all of them and was it agreed upon there? Mr. RILEY. No; they did not agree upon it; some disputed about it in view of the amount of money involved, etc., that that was not reasonable. Of course, they naturally would not accept it if they thought they could get more.

Mr. KINCHELOE. Well, was any margin of profit fixed?

Mr. RILEY. He made the flat statement that 1 cent would be considered proper by the department.

Mr. KINCHELOE. Did they all finally agree to that, notwithstanding they protested for a while?

Mr. RILEY. They did not dispute it. I mean it was a thing by which they would have to determine their future conduct.

Mr. SINCLAIR. It was not a question of their agreeing to it, anyway, because the department might prosecute them or reserve the right to prosecute them under the Lever Act if they took more.

Mr. RILEY. That was it.

Mr. THOMPSON. And that was your position?

Mr. RILEY. That is the position we took, and we just stated that to them.

Mr. KINCHELOE. The Lever Act did not specifically provide for 1 cent a pound profit on sugar.

Mr. RILEY. No.

Mr. KINCHELOE. That was left to the discretion of the Department of Justice. Mr. RILEY. And we just said, "If you make in excess of that we will proceed against you."

Mr. KINCHELOE. In excess of what?

Mr. RILEY. One cent a pound.

Mr. KINCHELOE. The point I am making is that it was agreed to, at the suggestion of the Attorney General, that 1 cent was to be the profit.

Mr. RILEY. They conformed to it in most cases and while they discussed it with me in future and more intimate conferences, they agreed to do it. Mr. Lamborn and others agreed to 1 cent a pound

Mr. PURNELL (interposing). The question of the margin of profit is not nearly so vital to the matter before this committee as what happened between the Attorney General and these men. Did these men act for and on behalf of the Government?

Mr. RILEY. You mean the men who brought in this particular sugar?

Mr. PURNELL. Yes.

Mr. RILEY. I think you have got to draw your own inference.

Mr. PURNELL. We can only draw it by having you tell us about it. You are a lawyer, are you not?

Mr. RILEY. Yes, sir.

Mr. PURNELL. Well, there are several lawyers around this table and you perhaps know what we want to know.

Mr. RILEY. I think I do.

Mr. PURNELL. These are extraneous matters.

Mr. RILEY. I did not know just what you wanted. I was asked about this question of profit.

Mr. PURNELL. I did not refer to the last question but these other matters you have related are matters of detail. What we want to know is what happened at that meeting. Was there any suggestion that if if this sugare was broguth in, the Government would reimburse them in case of loss.

Mr. RILEY. Now, you heard what happened at that meeting.

Mr. PURNELL. Part of it.

Mr. RILEY. That is all I think did happen.

Mr. TINCHER. After the meeting

Mr. RILEY (interposing). After the meeting I met these importers and urged them to increase the supply of sugar. I did not care where they brought it from.

Mr. ASWELL. When did you first learn that Lamborn & Co. had imported 2,000 tons of sugar?

Mr. RILEY. Comparatively recently. You mean from the Argentine?

Mr. ASWELL. Yes.

Mr. RILEY. I think comparatively recently.

Mr. MCLAUGHLIN of Michigan. What do you mean by that?

Mr. RILEY. I did not know at the time they had bought this sugar or that they had contracted for this sugar.

Mr. MCLAUGHLIN of Michigan. You have not given us the date of these meetings. Mr. RILEY. It was sometime in May. Now, you see, it was two years ago and my recollection is somewhat hazy.

Mr. MCLAUGHLIN of Michigan. You mean May of this past year?

Mr. RILEY. No; I think it was two years ago.

Mr. THOMPSON. May of 1920?

Mr. RILEY. May of 1920.

Mr. ASWELL. How did you learn about this matter? How was it brought to your attention then, long after the transaction?

Mr. RILEY. Í heard of this claim.

Mr. ASWELL. Who brought it to your attention?

Mr. RILEY. Mr. Lamborn or somebody from his office told me they had brought in this sugar.

Mr. ASWELL. How long after the transaction was it that you first heard of it? Mr. RILEY. I should say a year or a year and a half, maybe longer.

Mr. ASWELL. Did you have entire control of this importation of sugar? Had the Department of Justice given you full authority to act?

Mr. RILEY. Yes, sir.

Mr. KINCHELOE. How many subsequent conferences did you have with this firm from the time of your first meeting in Washington until this time?

Mr. RILEY. I was in constant touch with them during, we will say, May and June, not only in relation to their own particular business but with relation to the whole situation. I went over their books and accounts.

Mr. KINCHELOE. When did you learn that this sugar had been brought in and that a loss had accrued? Did they ever discuss this loss with you after it was over? Mr. RILEY. Not until comparatively recently.

Mr. KINCHELOE. You mean recently from this date?

Mr. RILEY. A year or so after they had imported the sugar.

Mr. KINCHELOE. They did not discuss the loss with you until a year or two after it had occurred?

Mr. RILEY. Yes; and then they did not discuss it with me. They merely told me. They knew I had no funds and I had no relief to give.

Mr. THOMPSON. Can you tell me about when they imported this sugar?

Mr. RILEY. I think it was in May or June of 1920 that they contracted for it, and I believe it came in in July. I have no knowledge of this of my own.