In re Mercantile Arcade Realty Corp.

The Mercantile Arcade Realty Corporation owns a piece of rental business property in the downtown district of Los Angeles, appraised at $2,650,000, with outstanding first mortgage bonds to the amount of $3,639,200, held principally in New York by some 3,300 individual owners. Second mortgage bonds on the property amount to $942,000 and are held largely by the Chartered Investment Company of Philadelphia. Interest became delinquent on the first mortgage bonds on June 1, 1933, the corporation having previously defaulted on its second mortgage bonds. The 'entire corporate stock of the Mercantile Arcade Realty Corporation was owned by one Blumenthal, residing in New York. The first mortgage bonds had been marketed by three brokerage firms: Halsey, Stuart & Co., Inc.; S. W. Straus & Co.; and Stroud & Co.

Prior to the delinquency of the interest, these companies, through solicitude for the interests of their customers, the first mortgage bondholders, distrusting the management of the debtor corporation, and fearing for its solvency, interested themselves in the affairs of the company to the extent of securing from Blumenthal what is referred to as a “stand still” agreement, effective…