Halldorson & Sheets
Toward the end of September 1919, the United States Sisal Trust applied for permission to sell its stock in North Dakota. The State Banking Board met and granted the company a temporary permit. The State Banking Board also agreed to send O. E. Lofthus (State Examiner) to Florida to review the company.
At a meeting in September 1919, the Hall-Langer majority on the State Banking Board passed a resolution warning farmers about the banking practices of the Nonpartisan League (NPL). As usual, this resolution passed over the objections of Governor Lynn J. Frazier. William Langer, as Attorney General, published his letter/ warning to farmers on October 1, 1919. Following the Valley City bank ordeal, Langer and Hall had remained highly suspicious of the NPL and its banks.
A few days after Lofthus went to Florida, P. E. Halldorson (Deputy State Examiner) and Albert E. Sheets, Jr. (Assistant Attorney General) arrived at the Scandinavian American Bank (SAB) in Fargo to make an investigation. This examination would become known as the "Langer Raid."
Halldorson and Sheets concluded the SAB was unsatisfactory, not financially stable, and had excessive loans of over $700,000 (equivalent to about $12,000,000 today). Several excessive loans were given to NPL members and NPL subsidiaries. Large loans were given to:
One suspicious loan involved Halvor J. Hagen (President of the SAB). He had used the bank to loan himself money as an agent of the Bering Sea Fisheries Company. Hagen was at least financially involved with the outfit, which fished off the coast of Washington and Alaska. Allegedly, the only collateral used for the dubious loan was uncaught salmon in the Bering Sea.
State Banking Board Closes the Bank
After receiving the Halldorson-Sheets report on the SAB, the State Banking Board hurriedly met on October 2, 1919. The decision to declare the bank insolvent was put to a vote. Thomas Hall (Secretary of State) and Langer (Attorney General) voted yes, and Frazier (Governor) voted no. The Hall-Langer majority won out, and the State Banking Board shut down the NPL bank, declaring it had violated state banking laws.
With Lofthus in Florida, the State Banking Board named Halldorson as the temporary receiver of the bank.
The next day Hall and Langer doubled down on their attacks against the NPL and its subsidiaries. Again, using their majority in the State Banking Board, they ordered all state banks to immediately remove any postdated checks being held as collateral and to replace them with cash or other acceptable assets. Holding postdated checks as collateral was something all banks did, but it was particularly common with NPL banks.
Langer and Hall continued to take advantage of their majority on the State Banking Board. Their next step revoked the permit of the United States Sisal Trust to sell stock in the state because the company was a heavy borrower from the SAB. Langer and Hall went further and adopted a resolution formally censuring Waters and accusing him of warning the SAB of impending examinations from the state when he was State Examiner.
James R. Waters (President of the United States Sisal Trust and Manager of the Bank of North Dakota) blamed the loans on his predecessors at the company (John J. Hastings and Thomas A. Box).
On October 4, 1919, warrants were issued for the arrest of two officials from the SAB: Halvor J. Hagen (President) and P. R. Sherman (Cashier). They were charged with making false statements to a state bank examiner and for attempting to conceal the bank's insolvency. The two were arrested without incident, and their cases would go to court.
NPL Responds
The Nonpartisan League (NPL), through Oliver S. Morris (editor of the Nonpartisan Leader), responded by issuing a statement on the closing of the Scandinavian American Bank (SAB). The statement denounced the bank's closure and labeled it as a political attack. It said the SAB "has been meeting all its obligations in the course of regular business." In a condemnation of Hall and Langer, the statement added the two are "enemies" of the NPL, and went on to accuse them of forming "the plot to close the [bank] some weeks ago."
On October 5, 1919, statements from Governor Lynn J. Frazier were published in the Courier-News, an NPL newspaper in Fargo. Frazier said Thomas Hall (Secretary of State) and William Langer (Attorney General) "overstepped the bounds of their authority" and the bank "is not insolvent, and that it can take care of all its obligations." Frazier also assured the depositors of the bank, and other banks in the state, that "there is no cause for alarm," and he will do everything in his power "to see that justice is done, and to see that the credit of our state is not needlessly or unnecessarily embarrassed."
Halvor J. Hagen also spoke out against the incident and the arrests, claiming he and P. R. Sherman were innocent.
In response to Gov. Frazier's statements in the Courier-News, Langer and Hall, at a meeting of the State Banking Board, voted to censure the governor. The resolution stated that Frazier, "by his passive, inert and irresponsive demeanor has become the apologist and defender of as unscrupulous and as unconscionable an organization as ever abused power, abused confidence, defied law and looted the people of a great state." Frazier did not attend the meeting.
Around this same time, Gov. Frazier issued a proclamation addressed to the state banks and bankers of North Dakota. He called upon them to resist "raids" on their records and to only allow examinations from O. E. Lofthus (State Examiner) or those authorized by his office.
Meanwhile, the NPL and the SAB took legal steps. With Lofthus still en route from Florida, William Lemke (lawyer and a leader of the NPL) stepped in to help. He applied to the North Dakota Supreme Court asking for a restraining order that would prohibit Langer and Hall, as members of the State Banking Board, from further interfering with the affairs of the SAB. Lemke said only the State Examiner has the authority to close banks and to install a receiver.
The North Dakota Supreme Court granted Lemke's petition regarding the SAB and issued a temporary ruling on October 7, 1919. P. E. Halldorson (Deputy State Examiner and temporary receiver of the SAB) and Albert E. Sheets, Jr. (Assistant Attorney General) were ousted and ordered to surrender control of the SAB. Halldorson, Sheets, Langer, and Hall were also restrained from any further interference with the bank.
Lofthus, having finally returned to North Dakota from Florida, assumed control of the SAB as its new receiver on the morning of October 8, 1919.
BND Gets Pulled In
During the Scandinavian American Bank (SAB) investigation (or the "Langer Raid"), documents were reportedly found linking it to the Bank of North Dakota (BND), and the BND was quickly pulled into the banking scandal. In particular, a carbon copy of a letter from P. R. Sherman (Cashier of the SAB) to the BND was used as political ammunition. In the letter, Sherman allegedly says he was shipping a large amount of collateral to the BND (presumably postdated checks or something similar) upon which he wished a loan.
On October 6, 1919, citing documents linking the SAB to the BND, William Langer (Attorney General) ordered Carl R. Kositzky (State Auditor) to immediately audit the BND "for the protection of [taxpayers] of the state."
Within hours, Kositzky, a Langer ally and NPL defector, arrived with a contingent of auditors, examiners, and accountants. F. W. Cathro and James R. Waters (heads of the BND) were both absent, and the audit began without issue. However, when Waters arrived later and discovered Kositzky in charge of the BND's records, the two reportedly got into a verbal altercation.
Kositzky and his team spent a couple of hours at the BND, and then he said that they would return the following day to finish the audit. However, the next day, when members of Kositzky's auditing team returned to the BND, they were denied entry. Cathro refused to allow the audit to continue. In a letter, Cathro declared he halted the examination for the protection of the BND's clients and because the State Auditor did not have the legal authority to examine it.
The issue over the legal authority to audit the BND went to court. The state, represented by Langer and the Attorney General's office, argued that the State Auditor had every right to audit the BND. The BND, represented by William A. Anderson (lawyer and Secretary of the Industrial Commission), argued that the State Auditor did not have the authority and such an audit would violate the privacy of the BND's clients.
The case began in District Court, and Judge William L. Nuessle sided with the BND. The case was then appealed to the North Dakota Supreme Court, which reviewed the matter and issued a ruling on February 18, 1920. The Supreme Court, in a 4-1 decision, also sided with the BND and stated it was a semi-private bank; therefore, the State Auditor did not have the proper authority to audit the BND because that office was limited to public departments.
Although the BND was in the right when it refused the audit to continue, opponents used this to their advantage and claimed it must be hiding something, and the BND lost some support.
P. E. Halldorson, Deputy State Examiner, circa 1919
Scandinavian American Bank advertisement, Fargo, N.D., 1917
An anti-NPL cartoon depicting the State Banking Board voting to close the Scandinavian American Bank in October 1919.
O. E. Lofthus, State Examiner, circa 1919
Portrait of Carl R. Kositzky, State Auditor, 1919
An anti-NPL cartoon depicting F. W. Cathro (Director General of the Bank of North Dakota) refusing to allow Carl R. Kositzky (State Auditor) and his team entry into the bank to finish conducting the audit ordered by William Langer (Attorney General).
An anti-NPL cartoon depicting farmers chasing James R. Waters and F. W. Cathro (and their high salaries) out of the Bank of North Dakota, as A. C. Townley looks on from atop the building.
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