Sunday, November 02, 2008

James Valliant on "The Exploiters and the Exploited," Part 3

Financial Wrongdoing

Perhaps Rand’s most serious charge against Nathaniel Branden is her contention that he financially exploited her. The centerpiece of this claim concerns a loan for $22,500 (or $25,000, depending on whom you believe) that Branden authorized from The Objectivist to NBI.

By way of background, The Objectivist (which was co-owned by Rand and Branden) and NBI (which was owned by Nathaniel Branden) were separate corporations. They shared a common business manager, Wilfred Schwartz. In September 1967, NBI secured a fifteen-year lease at the Empire State Building. The Objectivist was a subtenant, paying $6,000 a year to NBI. NBI’s rent was due yearly. From time to time Branden had authorized loans from The Objectivist to NBI. The Objectivist was profitable and the loans had been paid back. This much is agreed upon, or at least not disputed.

In July 1967, Branden authorized a loan from The Objectivist to NBI for $22,500. (Rand claimed that it was $25,000.) In any event, the loan included the $6,000 payment for The Objectivist’s lease, making it in effect a $16,500 (or $19,000) loan. It appears that this loan was greater than previous loans. It was repaid shortly before the break, probably in August 1968. According to Rand, the loan was made without her knowledge, in violation of the articles of incorporation, constituted almost the entire cash reserves of The Objectivist, and was not repaid until she insisted.

Here is Branden’s version of events:

Contrary to Miss Rand's claim, I never told her that I wished to borrow money from The Objectivist for the rent "because NBI did not have quite enough." At the time of the conversation to which Miss Rand refers, I had no reason to doubt that she already had knowledge of the loan, since there was regular communication between Mr. Schwartz and Miss Rand concerning the move to the Empire State Building, since The Objectivist's own Circulation Manager had prepared the check, and since the loan was entered on the books of The Objectivist. My passing reference to the loan was entirely perfunctory; it was intended, in effect, as a reminder, since I knew of Miss Rand's disinterest in business matters. When I mentioned the loan, Miss Rand said nothing to indicate that she was hearing of it for the first time; she uttered some casual expression of assent, said "So long as you pay it back" (or words to that effect), and waved her hand in a characteristic gesture, dismissing the subject.

Miss Rand states that "the original amount of the loan had represented the entire cash reserve of this magazine." The magazine's own financial statements do not support her assertion. The loan was made on July 6, 1967. The audited statement of the magazine, immediately preceding the loan, that of March 31, 1967, shows total assets in excess of $44,000 and cash in the bank in the amount of $33,881; the audited statement of March 31, 1968, shows total assets in excess of $58,000 and cash in the bank in the amount of $17,438, in addition to the $16,500 loan receivable from NBI (for which NBI was paying a higher rate of interest than The Objectivist obtained from its investments elsewhere).

Valliant alleges that this constitutes an admission by Branden that the loan in question constituted “the depletion of most of the cash reserves of the Objectivist . . . .” This is his reasoning:

He [Branden] does not tell us what The Objectivist had in the bank at the time of the loan, but as of March 31, 1968, the amount was $17,434 he says. The amount of money transferred to NBI, he alleged, had only been $22,500, not the $25,000 Rand had claimed, and, of this only $16,500 was “borrowed.” . . . . [B]ut no matter how Mr. Branden slices it, the loan still required the depletion of most of the cash reserves. . . . (PARC, p. 108.)

I’m no accountant, but I am at a loss to see how Valliant reaches this conclusion. While we don’t know the cash in the bank at the time of the loan, approximately four months prior it was $33,881. Valliant doesn’t mention this amount. Approximately eight months after the loan was made (but before it was paid back) it was $17,438. (Valliant mentions only this later amount, and gets it slightly wrong.) What is the evidence that this loan depleted the cash reserves of The Objectivist? I can only assume that Valliant believes that $17,438 contains funds from the repaid loan ($17,438-$16,500= $938), but the loan wasn’t paid until months later.

Concerning whether the articles of incorporation required consent of both Rand and Branden for such transactions, I can’t comment since I have not seen the document. Valliant doesn’t say whether the Archives has a copy. Valliant alleges that Branden admits in his Judgment Day that at the time of incorporation there was an “oral agreement” that there would be “mutual agreement on all decisions.” (PARC, p. 109.) Actually, Branden says only that there was an oral agreement that The Objectivist would not publish something the other opposed and if there was a falling out The Objectivist would cease publication. (JD, p. 291.)