Business & Finance: Retreat

In his chambers high in Manhattan's federal courthouse one morning last week, Judge Harold R. Medina paused for a minute before donning his robes and descending to a courtroom seven floors below. "Holy cats!" he said. "This is the damnedest case I've ever seen." The "damnedest case" is the Government's suit against 17 investment banking firms, charged with monopolizing the sale of $42.5 billion in security issues from 1935 to 1949 (TIME, Dec. n, 1950 et seq.).

Since the trial started under Judge Medina (and without a jury) 16 months ago, 1,200 exhibits have been introduced, more than 5,000,000 words of testimony put on the record. So far, the case has cost the defendants—and U.S. taxpayers—millions of dollars. The issues at stake are huge; if the Government wins, there will be what one expert called a "revolution" in the U.S. money market. Since the firms on trial handle the bulk of all negotiated underwritten security issues, a decision against them would permit the Government to lay down rules to change virtually all investment-banking procedures. Last week such possibilities seemed remote; it was plain that the Government's case had been shot full of holes.

Almost since the trial's start, Judge Medina has had a hard time finding out exactly what the trustbusters' case is. Red-faced and quizzical, he has upbraided the Justice Department's lawyers time & again for "shilly-shallying," "going backwards," confusing the issues and wasting the court's time. Alternately benign and snappish with both sides, he has described his job, which keeps him working twelve hours a day even on Weekends, as "heartbreaking." Once, when a defense lawyer referred to some testimony introduced on "March 17," Medina wearily asked: "Which year?"

The Government has been forced to drop seven of its original points, along with one defendant—the Investment Bankers Association. The core of the Government's case remains a "triple concept": 1) certain bankers traditionally underwrite negotiated securities for certain corporations, 2) these "traditional bankers" divide a constant proportion, of any subsequent deals with the people who were in on the first one, and 3) junior members of these banking groups, when they get a deal to handle themselves, repay the big boys by asking them to join. By this "syndicate system," said the Government, all the defendants had-conspired to restrain and monopolize trade.

As evidence of conspiracy, the U.S. first presented a list of 328 security issues dating back to 1935. The list showed that at least one of the defendants had participated in each issue named. In reply, the defendants spent $1,000,000 compiling a list of their own. The Government had left off its list hundreds of issues which none of the defendants had had anything to do with—and admitted it.