10, 1922 



HARDWOOD RECORD 



21 



News from the National Capital 



Lumberman Arrested in Great War Contract 

 Fraud Scandal 



John Lewis Phillips, reputed millionaire lumber dealer of Atlanta, 

 6a., president of the Phillips & Stephens Lumber Company, 

 charged with defrauding the Government out of nearly $2,000,000 

 by selling surplus hardwoods at soft wood prices and making 

 secret agreements, surrendered on June 6 to the Department of 

 Justice, 48 hours after the warrant for his arrest was issued. 



Phillips denied the charges when brought before Federal Com- 

 missioner Hitt for a hearing, waived preliminary examination and 

 was released on $25,000 bond to await the action of the special 

 United States grand jury which returned the secret indictment 

 against him. 



"My arrest came as a bolt from a clear sky," declared the 

 accused lumberman. "I know absolutely nothing about the trans- 

 action charged against me. My relations with the Government are 

 an open book and I am quite sure it will develop that I have been 

 unjustly accused." 



According to the warrant on which the lumber magnate was 

 arrested, Phillips is charged with disposing of Government lumber 

 aggregating millions of feet, sold, it is alleged in the warrant, to 

 dummy lumber concerns, which in turn sold it at a big profit. 



The firm of Phillips & Stephens was selected by the Government 

 to sell approximately 100,000,000 feet of surplus lumber, on which 

 they were to secure a 12 per cent commission. 



"Phillips & Stephens," the warrant states, "instead of dis- 

 posing of the lumber through the usual channels of the lumber 

 trade and for the best interest of the United States Government, 

 entered into fraudulent agreements with persons not in the lumber 

 business and sold the lumber, including mahogany, walnut and 

 other valuable hardwoods, at much less than the market price, 

 receiving rebates and commissions from these persons for the per- 

 sonal benefit and advantage of said Phillips & Stephens." The 

 warrant further alleges that the practices of the firm "were to 

 bribe certain Government officials who had duties to perform in the 

 premises, and said Phillips & Stephens were thereupon to make 

 returns to the United States in which their said fraudulent conduct 

 would be concealed and wer.e to induce said officials to do like- 

 wise." 



The warrant then quoted a letter purporting to be from the 

 Metropolitan Lumber Company, declared to be a fake Washington 

 concern, signed by A. A. Henry, president, agreeing to give Phillips 

 $2 per 1,000 feet upon all lumber "sold and purchased by us in 

 consideration of services in aiding us purchase from Phillips & 

 Stephens approximately 4,000,000 feet of lumber at Neenah, Wis." 



The alleged war frauds of Phillips were first aired in the House 

 by Congressman Woodruff of Michigan, in his camiJaign for an 

 investigation of the Department of Justice. The substance of 

 Woodruff's charges is that Phillips was guilty of "gross irregu- 

 larities" in his war contracts with the Government, and that 

 $1,8.54,076.04 was "wrongfully withheld from the United States 

 government. ' ' 



Four other warrants, it is declared, are also in the hands of 

 United States deputies for the arrest of associates of Phillips in 

 connection with his war contract activities. 



According to the data collected by Woodruff, transactions under 

 the Phillips & Stephens contract were audited by the contract 

 section of the office of the chief of finance and the final report was 

 submitted September 8, 1921. Woodruff charged that the present 

 administration sought to hush up the case and "pigeon-holed it" 

 because of the fact that Phillips was a Republican leader in 

 Georgia, and that the administration had sought to prevent embar- 

 rassment by prosecuting the case. 



According to a memorandum prepared by Ernest C. Stewart, 

 in charge of the contract audit section, March 11, 1922, and who 

 made the investigation of the Phillips & Stephens lumber con- 

 tracts, four kinds of lumber were to be disposed of by the original 

 contract, the memorandum said. "Notwithstanding this, thirty 

 kinds of lumber were sold by questionable agreement between the 

 director of sales and the contractor, and there was also included 

 many millions of feet of mahogany, cherry, walnut and other valu- 

 able hardwoods." 



Facts developed by the army's audit, Stewart asserted, warranted 

 the assumption of "gross fraud and collusion." The value of the 

 lumber sold, the audit disclosed, he reported, was $4,697,171, of 

 which the Government received $2,843,095, leaving a balance due 

 the Government by Phillips of $1,854,076, which, he said, has never 

 been paid. 



Although 15,000 contracts were investigated by the army's audit, 

 up to the beginning of the investigation, Stewart asserted, "it can 

 be stated beyond argument that the contracts of the Phillips & 

 Stephens Lumber Company are ones which for ingenuity are sur- 

 passed by none." 



Phillips has . extensive lumber connections in South Georgia, 

 where he maintains his legal residence at Thomasville. He also 

 has a home and extensive business interests in Philadelphia. For 

 the past few years he has spent much of his time in Washington, 

 residing at the Raleigh Hotel. 



Trade Commission Continues Fight to Get Con- 

 trol of Commerce and Industry 



The legal battle which the Federal Trade Cominissiou is conduct- 

 ing to secure power to compel corporations to surrender trade data 

 is of interest to the lumber industry, not only because the litigation 

 will test the scope of Federal authority to control production and 

 commerce, but also because the lumber industry is one of those from 

 which the Federal Trade Commission was seeking certain trade 

 information when it was forbidden by the Supreme Court of the 

 District of Columbia to proceed with these efforts. 



This injunction, however, was the result not of a suit brought by 

 a member of the lumber industry, but by steel and coal companies. 



The Federal Trade Commission is now appealing from this injunc- 

 tion to the Court of Appeals of the District of Columbia and has 

 announced its intention of carrying the case to the Supreme Court 

 of the United States, if this becomes necessary. 



A comprehensive analysis of the litigation, which clearly indicates 

 the lumber industry's interest in the case, has been prepared by 

 Dr. Wilson Compton, secretary-manager of the National Lumber 

 Manufacturers' Association, and has been circulated among the 

 members of the association and the lumber trade press. This 

 analysis follows: 



During 1920 the Federal Trade Commis.sion attempted to secure 

 from the steel industry, coal industry and lumber industry certain 

 information concerning the business of corporations engaged therein, 

 including production, sales, costs, prices and profits. 



The Commission was enjoined by various steel corporations by 

 decree of the Supreme Court of the District of Columbia. The Com- 

 mission was similarly enjoined from requiring the information from 

 the coal industry iij the so-called Maynard Coal case. It. therefore, 

 discontinued, in the latter part of 1920, its negotiations with the lumber 

 industry touching the formulation of a suitable schedule of questions 

 to be submitted to lumber manufacturers. 



The discontinuances of this action by the Commission was due to the 

 injunctions granted against its assumed authority, pending the Com- 

 mission's appeal. Since that time the injunction granted by the 

 Supreme Court of the District of Columbia lias been made final. The 

 Commission has now appealed to tlie Court of Appeals of the District 

 of Columbia, and announces its intention to carrj' the appeal, if 

 necessary, to the Supreme Court of the United States. 



