Baum's Bonds

When their new Governor Lloyd Crow Stark promised them a "businesslike administration" last November, Missourians felt that a good place to begin businesslike reforms was in the marketing of State bonds. In 1934 Missouri voters authorized a $10,000,000 issue of building bonds for the rehabilitation of prisons and charitable institutions. Few months later the first $2,000,000 worth were sold to the highest bidder among six syndicates, including most of the top-flight bond houses in the U. S. The next $2,000,000 lot, however, was not opened to public bidding but sold privately in March 1936 to Baum, Bernheimer Co. of Kansas City. Other bond houses were not slow to point out that the State lost about $20,000 in premiums on this deal. But last September the State Board of Fund Commissioners again sold $2,000,000 worth of bonds privately, again to Baum, Bernheimer and again at a lower premium than the bonds would have brought in public sale.

There is no law in Missouri specifically prohibiting private transactions for State building bonds, though it is the sense of Missouri court decisions that they are permissible only in an emergency. Greatly perturbed by Baum, Bernheimer's strange successes, the Investment Bankers' Association sponsored a bill at the last session of the State Legislature to enforce public offering of all bonds sold in lots of more than $20,000. The bill expired in committee. St. Louis bankers thereupon asked and received from sedate Governor Stark written assurance that the next time Missouri bonds were put on the market they would be opened to competitive bidding. Lulled by the Governor's words, they woke up shocked and angry last fortnight when the State Board of Fund Commissioners blandly announced the sale to Baum, Bernheimer Co. of the last $3,000,000 worth of building bonds at a premium of $100,000. Governor Stark was vacationing in Alaska.

By last week that tireless journalistic tribune of the people, the St. Louis Post Dispatch, had gone far enough into the background of the sale to start a first class Missouri scandal. The Board of Fund Commissioners' official explanation of Baum, Bernheimer's third big bond purchase was that the State Bi-Partisan Advisory Board had recommended "immediate" sale of the bonds to pay for July and August construction work at State prisons, that a public sale would have taken at least 30 days. Advisory Board Chairman Sam E. Trimble, however, declared that the board had been aware of this "immediacy" since last November. Since then, said he, the Commissioners had "kept putting off and putting off" the bond offering, while the bond market, incidentally, grew weaker & weaker.' Finally the Advisory Board last month suggested that the offering be announced in the press and by letter to interested bond houses. No announcement was made, no letters sent. What happened was that six days later soft-spoken George Baum of Baum, Bernheimer arranged a meeting with the Commissioners, went home to Kansas City next day with the deal in his pocket.

So keen was Mr. Baum's foresight, that he not only had a premonition of the impending bond offering before any other investment house, but he had already arranged to resell the bonds to a syndicate headed by Chicago's Halsey, Stuart & Co. Last week, Halsey, Stuart was offering interim certificates to the public at a profit of $11.70 on each $1,000 bond. According to the Chicago firm the gross profit on the bonds: over the price paid to the State was $29.10 each, which made Baum, Bernheimer's profit $17.40 on each $1,000 bond. Bond dealers in St. Louis were loud and unanimous in declaring that Baum, Bernheimer had made too much and the State too little by at least $50,000, since there would apparently have been no obstacle to leaving Middleman Baum out of the picture and dealing with a firm like Halsey, Stuart direct.

Said George Baum: "Maybe we didn't pay enough, but like everybody else in business we buy as cheaply as we can. . . . I just took a gamble, like I did twice before. I walked in there unsolicited and made a proper and legal bid. . . ."

Wired Governor Stark from Colorado Springs, where he had stopped off on the way home: "I do not approve of this action, and will not permit it to be done again. Do not know the details of recent sale. It may have been a good deal."

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