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Exhibit - "Scandinavian American Bank": Ruling & Fallout

The State Banking Board, the political battle between the Nonpartisan League (NPL) and the Independent Voters Association (IVA), the Bank of North Dakota, NPL enterprises, the "bank wreckers," and the scandals surrounding the Scandinavian American Bank.

Scandinavian American Bank - The Story - Ruling & Fallout

Lofthus Reviews the Bank

After returning from Florida, O. E. Lofthus (State Examiner) issued a statement to reassure Scandinavian American Bank (SAB) depositors. He also conducted his own review of the SAB, ignoring the report from P. E. Halldorson (Deputy State Examiner) and Albert E. Sheets, Jr. (Assistant Attorney General). Lofthus was assisted by Myron W. Thatcher of the Equitable Audit Company in Minneapolis, the NPL's auditing firm of choice.

Lofthus and Thatcher arrived at opposite conclusions from the Halldorson-Sheets report. Lofthus consented that the bank did have some excessive loans, which would need to be resolved immediately, but he confidently stated the SAB was financially stable and should never have been closed.

Affidavits declaring the bank to be solvent were submitted to the North Dakota Supreme Court, which was reviewing the solvency issue and would soon make a ruling.


Supreme Court's Ruling

On October 24, 1919, the North Dakota Supreme Court issued its ruling on the SAB of Fargo. In a win for the Nonpartisan League (NPL), the Supreme Court gave the bank a clean bill of health, finding the insolvency "not justified and unreasonably so determined."

The State Banking Board (meaning Langer and Hall) and their assistants were again restrained "from further continuance of their wrongful acts." Lofthus was placed in permanent charge of the bank. Also, postdated checks were deemed to be a suitable form of collateral. The opinion was written by Justice Harrison A. Bronson, with Justices Richard A. Grace and James Robinson concurring. Chief Justice Adolph M. Christianson and Justice Luther E. Birdzell dissented.

The SAB was able to reopen its doors.


Embarrassment

Although the SAB was declared solvent and reopened only a few weeks after it closed, the incident was an embarrassment for the NPL and the SAB itself.

It was also an embarrassment for the Bank of North Dakota (BND) because the SAB had received a significant amount of redeposits. Opponents of the BND, particularly the Independent Voters Association (IVA), made accusations of mismanagement because the BND had been depositing money in a financially unstable bank, and there were also accusations of political favoritism because the SAB was an NPL bank.

The Red Flame, a vicious anti-NPL periodical, dedicated many articles and/or cartoons to the banking controversies surrounding the NPL (especially the SAB and the BND). The lurid periodical was co-founded by Carl R. Kositzky (State Auditor).


Deputy Examiner Battle

Around the same time the SAB reopened, O. E. Lofthus (State Examiner) fired P. E. Halldorson (Deputy State Examiner) for his involvement in the closing of the bank. In his termination letter, Lofthus wrote:

"The part you took in the attempt of wrecking the [SAB] convinces me that you are not worthy to hold any position of public trust or honor. You have been altogether too willing a tool of those who criminally attempted to wreck this bank, if not an active participant therein."

Halldorson, a veteran examiner, had served under the last three governors.

On October 29, 1919, William Langer (Attorney General) published a letter addressed to Halldorson. In the letter, Langer defended Halldorson and praised his actions. Langer wrote: "It is men like you who are the backbone of honest law enforcement and honest government." He ended the letter with: "The State of North Dakota owes you a debt which it will sometime pay!"

At the end of October 1919, at a meeting of the State Banking Board, Lofthus appointed H. O. Paulson of Drake, North Dakota, to succeed Halldorson as Deputy State Examiner. Hall and Langer, again the majority on the State Banking Board, blocked the appointment and demanded Lofthus explain his reasoning for dismissing Halldorson. Thomas Hall (Secretary of State) said Halldorson's removal "was a dirty piece of political jobbery," and he would not vote on his replacement "until I know what motives actuated the State Examiner in dispensing" Halldorson. Langer concurred and the appointment of Paulson was postponed.

At the end of December 1919, Langer began legal proceedings over the Deputy State Examiner issue. Reportedly, Paulson began his new job without the State Banking Board's approval and submitted vouchers for his salary and expenses. The State Auditing Board (consisting of NPL defectors Langer, Hall, and Carl R. Kositzky) refused to approve the vouchers.

The case to decide if the State Examiner needed the approval of the State Banking Board to appoint deputies eventually made its way to the North Dakota Supreme Court. In another loss for Langer, the Supreme Court, in early May 1920, sided with Lofthus and declared the State Examiner had the authority to hire and fire deputies.


Sisal Trust Given Approval

The issue of the United States Sisal Trust, an enterprise of the NPL in Florida headed by James R. Waters, was again brought up at a meeting of the State Banking Board in late October 1919. This time, Thomas Hall (Secretary of State) sided with Gov. Frazier and the two voted to approve the company's request to sell its stock in North Dakota. Langer voted against the motion.

At the time, the United States Sisal Trust was experiencing financial difficulties. The company was already low on funds, and its connection with the controversial Scandinavian American Bank had hurt its reputation.

O. E. Lofthus, N.D. State Examiner, circa 1919

O. E. Lofthus, State Examiner, circa 1919


North Dakota Supreme Court, 1919

North Dakota Supreme Court, 1919


In For It

A pro-NPL cartoon about the Supreme Court's ruling to reopen the Scandinavian American Bank. The cartoon's caption says Langer and Hall (the "twin bank wrecks of Bismarck" and the "traitor officials") were "soundly rebuked by the [Supreme Court]..."


P. E. Halldorson, N.D. Deputy State Examiner, circa 1919

P. E. Halldorson, Deputy State Examiner, circa 1919


Thomas Hall, N.D. Secretary of State, circa 1913

Thomas Hall, Secretary of State, circa 1913. Hall had a long career in public service, serving as N.D. Secretary of State (1913-1924 and 1943-1954) and U.S. Representative from North Dakota (1924-1933).

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