Disclosures of Bankruptcy


    On April 1, 1914, Horace Bemis died suddenly.  The board of the Ozark Diamond Mines Corporation approved a resolution of bankruptcy April 24th.  As D. B. Russell testified later, Thomas C. McRae, who was both Horace Bemis’ father-in-law and the Bemis family’s attorney, assumed leadership at that point:


    There was a meeting in Mr. Duncan’s office, in which Judge McRae and Mr. W. M. Bemis and myself and Mr. Duncan were present . . ..  I knew nothing about the trouble of the concern and hadn’t paid any attention to it until the time of that meeting.  Judge McRae had a memorandum of a resolution, declaring the concern a bankruptcy, and wanted it passed at once.  I demurred and Mr. Duncan and Mr. Bemis demurred, to a certain extent.  Judge McRae said it was the only way out of it, and, after discussing it, we all, more or less, acquiesced that it would have to be done.[1]


    Bankruptcy proceedings began July 24th in Federal District Court, Texarkana, Arkansas.  In this case, a deputy court clerk delegated virtually full powers to a Referee in Bankruptcy, Gustavus G. Pope of Texarkana.  Three weeks later Pope presided over the initial meeting of a small group of creditors, and officially confirmed their unanimous election of J. C. Pinnix, of Murfreesboro, as Trustee for the disposal of corporate assets.[2]  Further assuring a streamlined process, the prestigious law firm of Horace Bemis’ father-in-law—McRae and Tompkins, of nearby Prescott—handled virtually all legal work.  Thomas C. McRae, himself, was administrator of Horace Bemis’ estate.[3]

    Generally, the proceedings supported the Democrat’s description of those heading the Ozark venture, for the Corporation proved to have been reasonably responsible in meeting its general obligations along the way.  Most notable, the collapse of the costly testing operation in early 1914 produced no parade of merchants, laborers, and craftsmen seeking money due or petitioning to repossess equipment.  Only two recent debts of that type appeared among claims, and those were approved for a total of $118.85.[4]

    Similarly, the Ozark’s handling of properties over the years left no significant problems for bankruptcy officials to deal with before disposing of assets.   The thirty-acre Mauney tract, bought for cash in 1908, remained lien-free; and in Pinnix and Pope’s most interesting transaction, that choice property eventually went to Austin and Howard Millar for $10,000.[5]  Payments on the 160-acre Riley place had occurred on schedule until Horace Bemis’ death, erasing all except $6,000 of the original $20,000 purchase price.  Although a default occurred technically before the bankruptcy, the Rileys did not press for return of the property.  When it was sold as a corporate asset, Pinnix and Pope swiftly accepted Marion W. Riley’s bid of $6,210.  In the end Riley and his wife, Mandie, recovered their property and netted almost $8,000 from previous payments, plus almost $500 interest.[6] 


    The proceedings produced no information about the test results and virtually nothing about the disposal of the reported 700-900 diamonds.  Duncan’s listing of assets completely omitted diamonds, and reported no cash on hand.  The Trustee’s reports had one reference to seven “small diamonds” that drew a bid of $5, after being appraised at $18.75.[7]

    Nor was the income from stock sales clarified.  Questioning during depositions of Russell and Duncan elicited general statements about the use of such funds to buy the Mauney property in 1908. Yet, the lawyers and bankruptcy officials were not inclined to pursue the subject further, and evidently none of the Corporation’s many shareholders saw any reason to force the issue by filing a petition or lodging a complaint.[8] 


    Whatever the details about stock subscriptions, those funds had only a minor role in the Ozark Corporation’s operational financing after early 1909, and no evident role after the decision in 1912 to proceed with testing.  Almost all of those expenditures were covered by a series of unsecured loans depending heavily upon the State National Bank in Little Rock—run by R. D. Duncan and associates.[9]  The accumulated weight of those loans forced the bank to liquidate after Ozark officials voted for bankruptcy.  McRae and Tompkins handled the liquidation and represented the bank’s interests before the court in Texarkana.[10]

    The routine bankruptcy proceedings clarified the extent of Ozark debts by April 1914, and provided limited insight into previous financial maneuvering.  After investigating claims related to outstanding loans, the Referee approved almost $65,000 of repayments due (eventually, each claimant received only 15% compensation from sales of corporate assets).  The breakdown shown by basic documents, including original claims and approved amounts:[11]


    State National Bank, Little Rock (represented by McRae & Tompkins); claim for promissory notes, $10,000, and Overdraft, $3,342.43; approved for $13,362.13.  The claim was for “money advanced [to the Ozark Corporation] upon notes endorsed by private parties” (as explained in the initial Petition for enforcement of bankruptcy).

    H. E. Bemis Estate, W. N. Bemis, R. D. Duncan (McRae & Tompkins); money advanced June 14, 1913, $40,000; approved for that amount.  This included W. N. Bemis’ claim for $12,500, “for money advanced by him and paid as a security upon notes given by the corporation” (Petition for bankruptcy).  A sheet attached to the schedule of claims gave more details:  the $40,000 represented a note the parties made, “payable to their own order, and . . . negotiated to the State National Bank,” which still held the note.  The money “was placed to the credit of the bankrupt, and used by it.”  W. N. Bemis paid $12,500 on that note and another, “and with that exception, none of the parties have paid anything on the notes.”  The attached sheet cited an agreement the parties had executed, stating they were individually liable for the obligation if the Corporation failed to pay the loan.  The signers included Horace E. Bemis Jr., as well as the other three.

    R. D. Duncan, Charles McKee, and R. D. Duncan (McRae & Tompkins); money advanced November 9, 1908, $2,183.67; finally approved as McKee, Russell, and Duncan for State National Bank, $2,932.77.  The sheet attached to the schedule of claims made it clear the bank had taken this note.

    Ozan Lumber Company (McRae & Tompkins), March 21, 1911, $3,122.14; approved for $4,245.45.  Claim for “goods, wares and merchandise and cash advanced” (Petition for bankruptcy).

    McRae & Tompkins; attorneys’ services before bankruptcy, $982.40; approved for $1,002.70.

    R. D. Duncan; commissions and money advanced, no dates given, $72.50; not approved.


    The $40,000 claim, largely for money spent on the Ozark’s new plant and testing, drew a strong objection from the Corporation’s secretary-treasurer and co-vice president, D. B. Russell and Charles McKee, who insisted the project was undertaken without the board of directors’ approval and the debt was solely the claimants’ responsibility.  The plant and other “permanent fixtures,” however, had become part of the corporate real estate and should be sold to pay off “the legitimate debts.”  After depositions and a required hearing, bankruptcy officials dismissed the objection; yet,the depositions of Russell, Duncan, and McKee remained to further enlighten those interested in the finer details of deficit financing.[12]

    To a great extent, the Ozark Corporation’s problems sprang from faulty management.  All three depositions agreed that Robert D. Duncan, as President, ran the venture almost single handedly after early 1909, rarely if ever holding a board meeting and seldom involving Russell and McKee in decision-making.  He, alone, kept the records—which were never audited, and in any case consisted basically of occasional memoranda.  At the same time, he managed the Little Rock branch of the State National Bank.  The testimony, however, also underscored Vice-President Horace Bemis’ participation in important decisions.

    Moreover, the Ozark’s use of bank loans, a practice which began in 1908, could hardly be described as acceptable procedure.  In addition to using unsecured notes to obtain money for current expenses, the Ozark had gotten loans to cover previous loans as well.[13]  Understandably, Thomas C. McRae insisted on bankruptcy after Horace Bemis’ death caused a reexamination of corporate affairs.


    Later, some argued the Ozark plant shut down because of mechanical problems and suggested the company might have continued if Horace Bemis had lived.  But although Horace and William N. Bemis were primarily responsible for keeping the Ozark afloat, it went bankrupt for the same reason Sam Reyburn’s group finally abandoned the field:  poor test results and accumulated debt left reasonable men no alternative.    




[1] Resolution of the Ozark Board, April 24, 1914, Exhibit A, attached to initial Petition for bankruptcy (by major creditors), July 24, 1914, and Deposition of D. B. Russell, filed October 20, 1914, pp. 3-4, in Ozark Diamond Mines, a Corporation, bankruptcy case no. 364, 1914, District Court of the US for the Western District of Arkansas, Texarkana Division, case file in National Archives, Southwest Region, Ft. Worth, Texas (NARA, Ft. Worth).

    The bulky case file has several basic sections, beginning in July 1914 with preliminaries such as court appointments, filing of Schedules A, “Debts,” and B, “Property” (filed August 18), and Petitions to the court—most notably, the initial joint petition for declaration of bankruptcy, by the State National Bank of Little Rock (then being liquidated), the Ozan Lumber Company, William N. Bemis, and the law firm of McRae and Tompkins, Prescott, Arkansas (filed July 24, 1914).

    The most informative component, however, is the Referee’s “Orders,” which summarize the proceedings from July 1914 until the closing in February 1916.  See the Orders to determine what claims were finally allowed (especially the concluding orders and lists relating to dividends paid, beginning in July 1915):  Schedules A and B were initial forms submitted by R. D. Duncan, as President of the Corporation, and were subject to modification.

    The Trustee’s “Reports” are also basic (the initial report was on October 6, 1914; the “Trustee’s Final Account,” February 11, 1916).  Although the Referee’s Orders provide a concise summary, the Reports include the original sealed bids and other important details.

    Three Ozark officials gave depositions:  D. B. Russell (September 17, 1914), R. D. Duncan (October 8, 1914), and Charles McKee (October 26, 1914).  Depositions were taken only because McKee and Russell challenged a major joint claim by Duncan, W. N. Bemis, and the H. E. Bemis Estate.  Duncan’s account was firm and substantial; Russell’s, long and more helpful overall; McKee’s, brief but clear.  The most valuable information was the documentary evidence introduced during interrogations—details the attorney drew from company records.  Although several pages were referred to, only page 11 from the Ledger was copied and attached to Duncan’s deposition.  Bankruptcy forms indicated that only the Ledger had been provided for the proceedings (Schedule B.[6], Books, papers, deeds, and writings relating to bankrupt’s business and estate; also “Summary of Schedule A and B”).  Notice that during cross examination of Duncan, the attorney seemed to doubt the integrity of corporate records (Deposition, 8-9).

    Much of the testimony during depositions was considered in the Referee’s “Order Allowing Claim of W. E. Bemis, H. E. Bemis Estate and R. D. Duncan for $43,360,” November 2, 1914, four pages.  This document provides a concise overview of the Ozark group’s administrative faults and basic financial maneuvering, from the point of view of the Referee and Trustee.  The Order seems a bit too dismissive toward Russell and McKee.

    Among remaining items is the official appraisal of assets.  The summary report for real estate and personal property, September 12, 1914, is at the bottom of the Referee’s Order appointing the team, August 25, 1914 (Owen B. Owens, a major Pike County real-estate dealer; Quincy H. Lewis, and William E. Bryant).   Brief worksheets are attached:  “Personal Property” totaled $6, 188.63 after a 25% depreciation from original total of $8,251.50 (“Diamond washing plant complete,” $6,675; about 3,500 feet of piping, $875; diamonds, $25 [seven small ones]; house furnishings, $246.75 [watchman’s quarters]; “Diamond washer bought in 1909,” $404.71 [original cost]; and cordwood, $25; minus $2,062.87 depreciation for all);  “Diamond Lands,” $40,000 (Mauney tract, $30,000; Riley, $10,000);  “Real Estate,” options on land of Ozan Lumber Co. and Caddo River Lumber Co., total $6,666.66 (Ozan, $5,000); “Ozark Mines,” summation and grand total of appraisal, $52,855.30.   


Bibliographic Note.  In 1954 the bankruptcy case file was transferred from Texarkana to the Fort Worth Federal Records Center (case no. 364, FRC Accession-transfer No. SS-A-843, Record Group 118, Container No. 72717).   Later, the Records Center shifted the file to its permanent location in the National Archives division, at the same Ft. Worth facility (new location numbers:  Ozark Diamond Corporation, case 364, Accession 021-55A-843, FRC Location G1809041, Box No. 21).  When ordering the file or scheduling a visit to the facility, it is best to contact the archive division directly; the Records Center will have only more-recent files.


[2] Order referring the case to G. G. Pope, July 24, 1914; First Meeting of Creditors–order confirming the unanimous election of J. C. Pinnix as Trustee, August 18, 1914.  Thomas C. McRae and law partner William V. Tompkins, Prescott, Arkansas, signed as sureties for Pinnex’ bond (Bond of Trustee, August 18, 1914).



[3] The Prescott law firm’s involvement is evident throughout the case file, beginning with the initial petition to the court (Petition for bankruptcy, by major creditors, filed July 24, 1914).  The firm comprised Thomas C. McRae, William V. Tompkins, and Duncan L. McRae.

    Thomas Chipman McRae was a lawyer, banker (owner and president of the Bank of Prescott, 1904-; president of the Arkansas Bankers Association, 1909), civic leader, former state legislator, former U.S. Representative from Arkansas’ 3d District (1885-1903), future president of the Arkansas Bar Association (1917), and future Governor of Arkansas (1921-1925).  He was born at Mount Holly, Union County, Arkansas, December 21, 1851, and died June 2, 1929. 

    Thomas C. McRae opened his first law office in Rosston, Arkansas, in 1874, and moved it to Prescott when the county seat moved there in 1877.  After retiring from Congress, he joined with W. V. Tompkins in establishing the law firm of McRae and Tompkins. 

    Ample detail about Mr. McRae’s life is available on the internet, as well as in libraries.  An excellent introduction:  http://www.bankofprescott.com/mcrae_middle_school.htm


[4] The original claims:  H. L. (Lou) Alexander, watchman at mill, $90, priority claim; Prescott Hardware Co., $5.85 (Schedule A [1]–Statement of priority creditors; Schedule A [3], unsecured claims).  For claims approved and paid, see the Referee’s Orders:  First Meeting of Creditors, August 18, 1914 (lists all approved claims, which were paid in full, upfront), and First Dividend of 5%, July 13, 1915 (unsecured claims, which eventually received only 12½% of money due).  Those Orders awarded Alexander an additional $23 unsecured claim.

    The available one-page copy of the company Ledger indicates that payments for machinery, building supplies, payroll, etc., were made when due (“Machinery & Equipment,” Ozark Diamond Mines Corporation, 11, attached to the deposition of R. D. Duncan).  Aside from purchasing and leasing property, the Ozark had limited debt and expenditures until preparation for the main test began in June 1912 (page 11 covered payments from that date through November 1913).  Other than items in 1912-1913, the sheet had only one entry, a payment of $404.75 in September 1909 for a “Diamond Washer.”  Expenses relating to the test totaled $29,348.90, according to the ledger R. D. Duncan turned over to the court.

    Claims included the State of Arkansas’ petition for the franchise tax due for 1914:  $667.32.  Approved as a priority claim, this was satisfied in full from the sales of assets (Intervention of State of Arkansas for Preferred Claim, filed August 2, 1914; Referee’s Order Allowing Claim of Arkansas, August 22, 1914).

    The case file also includes a cryptic summary sheet listing thirteen unsecured creditors in Texarkana, Little Rock, St. Louis, New York City, Chicago, and Nashville, Tennessee, with a total of $1,428.86 due (Summary of Schedule A–Creditors unsecured, a voluntary form submitted by R. D. Duncan).  This is the only mention of these debts in the file; they do not appear in the regular Schedule A forms, the Trustee’s reports, or the Referee’s orders.  Most of the longhand entries on the summary sheet are difficult to read; none is dated, and only one clarifies the reason for credit—the SW Gas & Elec. Co., Texarkana.  Most likely these were recent services and were dealt with outside of bankruptcy proceedings.


[5] Infra, “Millars–Ozark Purchase.”


[6] Schedule B.(1), Statement of all Property of Bankrupt–Real Estate, with note attached; Report of Trustee, October 9, 1914; Referee’s Order, October 9, 1914; Deed Book 29, 492, Trustee’s Deed, J. C. Pinnix to M. W. Riley, October 28, 1914.  The typed note said “The purchase money and interest was [sic] kept paid until the payment maturing April 1st, 1914, since which time nothing has been paid, and a balance of $6,000 is due.”  Schedule B added that “the failure to pay the balance has forfeited the option if Riley demands it.”  Of course the original deed contract with Horace Bemis (supra) included a provision for forfeiture, but it also allowed deferment of payments at 6% interest.

    The Ozark’s lease-options with the Bemis’ Ozan Lumber Company and Caddo River Lumber Company were the remaining properties.  The Corporation had exchanged stock for those long-term contracts.  Treated as assets in bankruptcy, they were recovered by the Bemis family for $200 each (Report of Trustee, November 3, 1914; Referee’s Order, November 4, 1914; Deed 31, pp. 10, 13, Pinnix to Ozan and Caddo River companies, February 17, 1915).


[7] Report of Trustee, October 9, 1914, with attached bid of Ike Kempner and Roscoe Brewer ($5 for seven diamonds and $3,001 for the Ozark property and the “washing pan now at the [railroad] depot in Murfreesboro”); “Personal Property” worksheet attached to estimate-appraisal dated September 12, 1914 (the summary of appraisal located at the bottom of the Referee’s Order of appointment, August 25, 1914).

    At one point in Russell’s deposition, the interrogator asked, “Did you ever see any of the diamonds that had washed?”  Russell said he had seen none from the Ozark plant and, furthermore, had not seen a diamond “for several years” (7).  Russell gave the first deposition; no one else was questioned about the subject.


[8] Deposition, D. B. Russell, 7-8, 10-11.  During depositions, attorneys questioned Ozark officials about payments for the Mauney and Riley properties (Russell, 8, 10-11; Duncan, 5).  Russell was uncertain about the amount of stock sold ($40,000 or $20,000), and mentioned only the sales in 1908 by Duncan’s Ozark Company, which applied primarily to the Mauney tract and perhaps to initial payments on the Riley place.  Duncan mentioned $40,000, but was vague about its use.  Interrogators made no effort to clarify the Corporation’s reported capital “actually paid in.”

    Shareholders evidently accepted losses as a normal consequence of high-risk investment:  there had been no promotional excess in the stock sales of November 1908—and scarcely any promotion after the Bemises got involved the previous month.  Duncan’s exuberant statements after Woodford’s report on the Riley property no doubt encouraged some investors, but the comments could hardly be interpreted as manipulative or intentionally deceiving.  Much as Sam Reyburn’s operation (except immediately after Fuller’s appearance in late 1908), the new Ozark Diamond Mines Corporation remained relatively quiet and methodical, publicized only by normal news media coverage and John Fuller’s published reports.  The Democrat’s enthusiastic feature article in October 1912 was unusual, and evidently had insignificant impact on stockholders.


[9] The basic sources:  Initial Petition for enforcement of bankruptcy, filed July 24, 1914, by McRae & Tompkins for Ozan Lumber Co., McRae & Tompkins, W. N. Bemis, and State National Bank; Schedule A (3), Creditors whose claims are unsecured, with explanatory note attached, signed by R. D. Duncan; First Meeting of Creditors, August 18, 1914 (lists all approved claims; document in Referee’s file); Referee’s Order, First Dividend of 5%, July 13, 1915 (lists the unsecured claims and amounts of first dividend; two more orders followed on August 17, 1915 [5% dividend], and February 8, 1916 [2½%]); Depositions, Russell and Duncan.


[10] Thomas C. McRae, notarized sworn statement, July 15, 1914, attached to initial Petition for bankruptcy, July 24, 1914.  As McRae stated, he was “one of the Liquidating Agents of State National Bank” and was authorized to make the affidavit.  Later, McRae represented The State National Bank, Texarkana, Arkansas, directly when submitting a bid of $6,000 for the Ozark properties, signing it for The Liquidating Board (bid on letterhead stationery, SNB of Texarkana, December 8, 1914, attached to Trustee’s Report of Sale, filed December 15, 1914).  E. A. Frost was President, SNB, Texarkana; B. H. Kuhl, Vice President.


[11] See “basic sources,” supra.


[12] “Objection to Allowance of Claim of R. D. Duncan, et al.,” filed September 3, 1914, in Referee’s file; Depositions of D. B. Russell (September 17, 1914), R. D. Duncan (October 8, 1914), and Charles McKee (October 26, 1914); Referee’s “Order Allowing Claim of W. N. Bemis, H. E. Bemis Estate and R. D. Duncan for $43.360,” November 2, 1914.  The depositions included especially informative cross examinations.  Thomas C. McRae, representing H. E. Bemis’ estate, also testified at the hearing, along with O. H. Helbig; but their participation was simply noted in the Referee’s Order. 


[13] For the clearest instance, see Duncan’s straightforward answer to questions about the $40,000 loan in 1913 (p. 2) and a $10,000 loan in 1911 (3).


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