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Although its details are not nearly as eye-popping as the Donovan report, the Thacher report reached essentially the same conclusions. The report worried that the process was shot through with conflicts of interest – the kinds of concerns that prompted allegations of a bankruptcy ring. “If there is a receiver,” the report noted, “the attorney with the controlling claims [that is, the proxies of enough creditors to control the vote] will ordinarily vote for him as trustee with the assurance, in most cases, of being employed as his attorney…It is impossible to escape the conclusion that in most cases the paramount motive is to obtain employment as attorney for the trustee rather than to select a trustee on merit alone.”9 Even apart from the inappropriate behavior, the Thacher report concluded that payments to creditors were too small under the Bankruptcy Act of 1898, and debtors should not be give discharges so freely.
It is important not to simply take the findings of an investigative hearing at face value, of course. Would-be reformers often wish to make a name for themselves, and they may exaggerate the seriousness of the problems they discover. Held only a year or two after the Donovan and Thacher reports, the stock market hearings in Congress that inspired the securities law reforms of 1933 and 1934 have long been seen as having produced conclusive evidence of widespread stock manipulation, for instance, yet recent studies have raised doubts about nearly all of the evidence of fraudulent behavior.10 The question, then, is this: were the hushed tones and somber indictments of the Donovan and Thacher reports legitimate?
With respect to New York, the principal focus of the reports, the evidence suggests that the complaints of corruption were well founded. One searches in vain the pages of Credit Monthly, the principal publication for the National Association of Credit Men, or the Commercial Law League’s Bulletin, which spoke for the general bankruptcy bar, for any serious defense of bankruptcy practice in New York. When the district court responded to the New York problems by appointing a single bank, Irving Trust, as trustee for all New York cases, the New York bankruptcy bar bitterly complained about Irving Trust’s monopoly on trusteeships. But no one argued that the indictments handed down in New York as a result of the Donovan report were mistaken or trumped up.
The real question was whether the corruption was limited to New York, or whether it could be found in bankruptcy practice throughout the country. Many bankruptcy lawyers insisted that New York was a blight on an otherwise clean practice, and the American Bar Association issued a report to this effect.
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