CORRUPTING FIVE COMMONWEALTHS
Corrupting Five Commonwealths The Loot of the New Haven and the Exploitation of New England by the Morgan Wall Street Crew of "High Financiers" Through Criminal Methods WHAT THE INTERSTATE...
...A suit should be maintainable by the New Haven against Billard and all who have participated in this fraud upon the stockholders...
...there were directors who were also directors of the Standard Oil Company, the United States Steel Corporation, the Pullman company...
...All the money sunk in its operations belonged to the New Haven Railroad...
...As pointing to violations of state laws, we have turned over the evidence concerning local occurrences in New York city to the District Attorney for the proper district, and the testimony relating to irregularities in Massachusetts and Rhode Island have been laid before the proper authorities of those states...
...The depreciation of the Boston and Maine stock after coming into the control ot these men was, indeed, rapid...
...When the New Haven stock was not immediately at hand he issued to the messenger who brought Westchester stock a due bill, which was, in terms, an order on himself to pay on demand to bearer the specified number of shares of New Haven stock, or its equivalent in cash, at $150 per share, with accrued dividends...
...Mellen and the directors who authorized it...
...When the details of this acquisition were exposed in this investigation, it was urged in explanation that, by reason of the heavy terminal charge exacted from the New Haven on passengers delivered at the Grand Central Station, it was very desirable that the New Haven have another entrance into New York city, and that the Westchester provided such an entry...
...It has acquired a monopoly of competing steamship lines and trolley systems in the section which it serves...
...Its greatest losses and most costly blunders were made in attempting to circumvent governmental regulation and to extend its domination beyond the limits fixed by law...
...He never sold a share of the Boston and Maine stock except as the New Haven dictated...
...During the time the due bills were outstanding Mr...
...An onerous contract then existing between the Boston and Maine and the American Express Company with six years to run was extended for a period of twenty years...
...It began in illegality and in a lust for extended monopoly, and has resulted in great depreciation and serious impairment of credit...
...The difference in these amounts was, as Mr...
...This stock was, during all these migrations, financed, owned and controlled by the New Haven...
...Its troubles have not arisen because of regulations by governmental authority...
...The first information the board had concerning the extravagant acquisition of Westchester and Port Chester securities was on November 8, 1907, when this committee made its only report...
...In a similar manner, the control of other great corporations is maintained by means of interlocking directorates...
...What could have been the motive of unloading the Westchester upon the Sew Haven at the expense of the stockholders of the latter, must he left largely to conjecture...
...The Billard Company bought other Boston and Maine stock in addition to the 109,948 shares...
...Mellen would then pay with his personal checks, so drawn that the identity of the persons cashing them could not be ascertained...
...But because of the methods employed to conceal these expenditures by increases of capital stock and otherwise, it has been impossible to give any total amount of these payments...
...L. Billard purposely burned his books and papers so as to get them out of the way...
...this transaction did not come through magic, but were brought info existence at the expense of the stockholders of the New Haven, upon whom and the public the yoke of giving value to these securities ultimately vested, and the New Haven stock was diluted to the extent of the water thus added...
...Why men of respectability and standing as these appear to be should lend their names as dummies passes comprehension...
...The financial operations necessary for these acquisitions and the losses which they have entailed have been skilfully concealed by the juggling of money and securities from one subsidiary corporation to another...
...The minutes of the board of directors of the New Haven show that Billard was to receive no profit out of this transaction other than a reasonable compensation...
...The total sum expended as the result of the action of this committee aggregates $14,090,008.18...
...The enormous sum of $36,434,173.25 was expended for a road only 18.03 miles in extent, which is being operated at an annual loss of approximately $1,-250,000, and which will have to increase its earnings four and one-half fold before it can pay its operating expenses and fixed charges...
...The road was not necessary as a part of the New Haven system...
...Mellen, after some six months, revived the matter...
...After Mr...
...Those who at first were merely employed as fiscal agents of the railroads to negotiate their securities used that knowledge in the effort to become the masters in supreme control of the transportation interests of the country...
...These steamship lines were not acquired by the New Haven openly, but covertly and by devious methods...
...The Billard Company paid out of its treasury $375,000 to enable John L. Billard to repossess himself of the $2,000,000 capital stock of that company after the same had been pledged by Mr...
...The management of the Boston and Maine by the New Haven was unwise...
...After all the large expenditures which this committee had made in acquiring the stocks of these companies there was still outstanding 34,053% Shades of the stock of the New York, Westchester and Boston Railroad Company, which proved to be the instrument of delivery...
...All securities nominally held by the Billard Company were kept in a subdivision of the vaults of the New Haven...
...These pier leases in the city of New Vork are controlled by public officials, as the municipality owns the piers, and arrangements for the leases had to be made through these officials...
...With the American Express Company stock other stock of the Boston and Maine was gathered in by the New England Navigation Company, acting on behalf of the New Haven, until the latter road had a controlling interest in the Boston and Maine...
...Not content to abide by this action of his board, Mr...
...Dummy companies and dummy officers and directors were used in financial maneuvering that resulted in the New Haven controlling these steamships...
...In explaining how these negotiations were conducted, Mr...
...Thus, throughout the entire story of deception, the New Haven management vainly endeavored to bide the true facts behind these dummy individuals and dummy corporations...
...Its credit was high and its stock was, in the year 1900, officially valued by the railroad commission of Massachusetts at $190 per share...
...New Haven's Interlocking Board 61 \ SYSTEM of interlocking direcJ\ torates has grown up and flourished in the last few years which has brought about combinations and intercorporate relationships not conducive to the public, welfare...
...He never bought a share of Boston and Maine stock where the New Haven did not furnish him the money...
...It was then that he proposed and urged that they be disposed of, but in this he was overridden by his board...
...This was exclusive of stock premiums, making an increase of $324,000,000...
...This money was used for corrupt purposes and the improper expenditures covered up by the transfer to the New Haven of these worthless securities...
...This transaction seems such an extravagant purchase, as to make it a matter of interest just who owned the securities of the Rhode Island Securities Company...
...Tiie millions that were made from Continued ion page li THROUGHOUT the entire story of deception, the New Haven management vainly endeavored to hide the true facts behind dummy individuals and dummy corporations...
...The practice of one man serving on many boards of directors cannot be too strongly condemned...
...Corrupting Five Commonwealths The Loot of the New Haven and the Exploitation of New England by the Morgan Wall Street Crew of "High Financiers" Through Criminal Methods WHAT THE INTERSTATE COMMERCE COMMISSION FOUND (Last week on this page the review of Morgan's transportation "joy riding" by the Interstate Commerce Commission was printed in part...
...Some are guilty for acts committed...
...The whole capital slock of the Billard Company was used as his own by Charles S. Mellen as collateral security for his own personal borrowing of $375,000...
...Of this increase," says the Commission, "approximately $120,000,000 was devoted to its railroad property, and was expended for betterments and equipment...
...And by virtue of this ownership and control of this stock during all this time, it placed its own officials in charge of the Boston and Maine and selected the directors thereof...
...Always Hid Behind Dummies <<»"p HE frequency with which dum-Jl my corporations and dummy directors appear in this record leads to the conclusion that some one high in the counsels of the New Haven had an obsession upon the subject of the utility of such sham methods...
...As the result of these negotiations, the American Express Company sold its stock to the New England Navigation Company, a subsidiary of the New Haven...
...While stock in the New Haven road was listed on the New York Stock Exchange, a large portion of its funds were invested in *'blue sky" corporations...
...According to the testimony of Mr...
...Mellen testified that it was intended that one share of New Haven stock should be exchanged for three shares of Westchester stock...
...This move, disastrous as it was to prove to both roads, was illegal under the Massachusetts laws and, with* out serious doubt, under the federal anti-trust law...
...In connection with these steam...
...others, the greater number, for their failure to act...
...These and other evils as the result of interlocking directorates are now well recognized and known, and they have been emphasized by the disclosures of this investigation...
...in fact, every other interest seemed better represented on the New Haven board than the average stockholder's interest...
...The Billard Company was used to take over some of the questionable assets of the New Haven and assets which it was desirable to conceal...
...It was then learned that $11,155,000 had been expended in obtaining control of these two insolvent promotion schemes, and that this expenditure carried with it an obligation to construct two railroads under franchises of doubtful validity paralleling the existing line of the New Haven...
...No condemnation can be too severe to apply to the frequent use of these companies by the New Haven...
...The Commission has also furnished the Department of Justice with a complete record of the testimony...
...The testimony is somewhat occult, but the character of the transaction is no less certain...
...While stock in the New Haven road was listed on the New York Stock Exchange, a large portion of its funds were invested in 'blue sky' corporations, the officers of which knew nothing of the purposes or assets of the companies of which' they were managers or officers...
...No condemnation can be too severe to ap-ply to the frequent use of these companies by the New Haven...
...It is quite evident that it was not the understanding of the board that Billard should receive a profit of $2,-748,700 out of these transactions, but that at most he was to receive only a reasonable compensation for the service he performed for the New Haven, which was estimated at different amounts, varying from $100,000 to $500,000...
...McKay left for Europe after this investigation was commenced, and his evidence could not be secured...
...The record shows money payments in connection with pier leases which were unmistakably improper, and these, payments were covered up by being charged on the books of other companies to the New Haven under such headings as 'repairs of steamers.' "There were payments to one John Hall McKay of many thousands of dollars, for which no itemized vouchers were given...
...Mellen had obtained control of every boat line of any importance in New England, he suddenly changed his attitude when the public discovered the real ownership...
...Through the expenditure of this sum this railroad system has virtually monopolized the freight and passenger business in five of the states of the Union...
...All the assets of the Billard Company belong to the stockholders of the New Haven Railroad...
...The Rhode Island and Connecticut trolley ventures are further evidences of the prodigality in the expenditure of the money of the New Haven stockholders in carrying out an unlawful policy of transportation monopoly...
...In two other transactions shown in this case Billard and his company were admittedly used to accomplish New Haven purposes, and in one of them, which resulted in a loss, the New Haven made up the deficit to the Billard Company...
...With all this conflicting litigation pending, matters were necessarily in a most unsatisfactory state and at a tangled standstill," it says...
...Mellen and former Senator Nelson W. Aldrich, who was largely interested in the United Traction and Electric Company, the largest lessor company...
...there was a representative of the New York Central, which owned 35,000 shares...
...ship purchases it was necessary to have piers...
...Steamship Purchase Covered Up As TO the steamship lines which were acquired at an approximate cost of $24,000,000, the report has this to say: "The testimony shows that the physical valuation of the properties acquired as a result of these outlays approximates something like $10,000,000...
...A committee of the board of directors of the New Haven had been appointed for the purpose of looking into the Providence trolley situation, with a view of purchasing that property, and this committee, after considering the proposition, reported adversely...
...This information could be fur-ished from the stock books of that company, but during the progress of this "investigation it was learned that these books had also been burned...
...Mellen collected the dividends on the New Haven stock which they represented, and at each dividend period unknown messengers would appear in his office, at the Grand Central Station in New York city, and demand these dividends, which Mr...
...The United Gas Improvement Company of Philadelphia, which controlled this property under lease, had capitalized the future hopes of the proposition into a holding company, kn6wn as the Rhode Island Securities Company, and had issued $19,899,000 of debentures, which represented an investment of approximately only $6,000,000...
...On the New Haven board of directors there was a representative of the Pennsylvania Railroad, which railroad owned 35,000...
...Billard Merely a Blind OF THE "Billard transactions" the report says: "That Billard, however, was merely a New Haven agency is shown by the following facts, which stand out in the record: "He never paid a dollar of his own for the stock or In any of these transactions...
...shares of New Haven stock...
...Lane made a proposition to Mr...
...This gas company also owned some Connecticut trolley lines, and it was made a further condition of the Rhode Island trolley acquisition that the New Haven take over these properties...
...At this stage of the fortunes of the Boston and Maine, Gardner Lane, of the banking house of Lee, Higginson * Co., of Boston, approached Lewis Cass Ledyard, who represented in the directorate of the Boston & Maine 55,000 shares of stock held and owned by the American Express Company...
...One of the most complicated problems resulting from corporate entanglement and intercorporate transactions is the method by which the New York, New Haven and Hartford Railroad Company eliminated the steamers Yale and Harvard from competition in New England passenger traffic and secured control of certain freight steamers and wharf^ property in Boston...
...Suit should be maintainable by the New Haven to reduce to its own possession the assets controlled by the New England Investment and Security Company...
...Millions Wasted on Trolleys ilT HE purchase of the Rhode Is-1 land trolleys was another instance of millions wasted in acquiring properties that bring an annual deficit instead of a surplus, and constitute a liability instead of an asset in the New Haven system...
...It parallels other lines already owned by the New Haven, and traverses territory which the New Haven already served...
...Through the control of voting strength resulting from stock ownership by other corporations, a few persons whose individual holdings were small in comparison with the volume of stock of the company, were enabled to perpetuate their full control of the New Haven company...
...It seems very strange that Mr Mellen was not able to identify with any particularity any one with whom he had these transactions except the late Thomas j. Byrnes...
...By this extended contract, the Boston and Maine is likely to lose, conditioned upon the same volume of business, approximately $10,000,000...
...The blame for the Westchester rests squarely upon the directors of the New Haven road...
...When the details had been worked out by Mr...
...but impolitic, unwise, illegal and disastrous as it was to prove, it was undertaken...
...AVrecking of Boston and Maine . i (Q EFORE the New Haven secured d control of the Boston & Maine Railroad, the stockholders of the latter had realized substantial dividends for a period of more than fifty years...
...Thus by a mere exchange of stock those controlling the New Haven were enabled to extend their domination over almost the entire railroad property in five states...
...Of the New York, Westchester and Boston Railroad Company the report says: "The Westchester is a story of the profligate waste of corporate funds...
...The navigation company furnished the $2,000,000 for which the Billard Company was capitalized...
...mm N the course of the investiga-W% I tion many instances were ¦ uncovered of violation of Jr the laws of different states...
...It is inconceivable that this enterprise could have been entered into by the New Haven as a result of the mandates of good judgment and proper railroading...
...Directors Should Disgorge 0 C0MMBNT is necessary to 1^1 make clear to the mind the corrupt and unlawful nature of this transaction, and it would seem that the amount illegally expended could not be recovered from Mr...
...A very casual study, however, of the map of the Westchester and the New Haven lines into New York impeaches the reasonableness of any such explanation...
...The report then reviewed President Mellen's representations to the late j. P. Morgan about the Westchester transaction and spoke of the franchise difficulties and litigation which followed...
...There is no evidence that the Billard Company acted for or on behalf of any interest other than the New Haven...
...there was a representative of insurance interests that owned 35,060 shares, and a representative ot an express company that had a contract with the railroad...
...Mellen testified that these Connecticut trolleys represented a payment of about $10,000,000 more than their value...
...The one accomplished result, however, of the Westchester transaction, was the stifling of competition into New York city from New England...
...Mellen for the assuming of this additional burden the board of directors, without question, acquiesced...
...Mellen's connection with the New Haven was severed and' five of them, aggregating $50,000, approximately, are still outstanding...
...Mellen...
...Billard testified that he did not pay any of his own money for the stock...
...There is reason for the belief that this railroad, in the hands of its former management, would have continued to pay dividends and serve its constituency of passengers and shippers with reasonable rates and adequate facilities...
...A Corrupt Deal THE report then goes on to deal with various financial transactions which were under investigation...
...These great names proved to be of no reliance to investors...
...This is an illustration of what has been a most dangerous tendency In recent times...
...They are alike culpable and responsible to the stockholders...
...Maine stock did not begin until the Mellen-Morgan-Rockefeller management was forced upon it...
...As these were not directly understood to he pertinent to our inquiry under the Senate resolution, we did not follow* them in their details...
...Great Names Fooled Investors ttXl/ITH the realization of the ille-W gality of its control of the Boston and Maine stock it began the startling series of transfers, shifts and evasions by which it was sought to make it appear that the New Haven had divested itself of the Boston and Maine stock, while at all times it was being retained in friendly hands and under the control of the New Haven...
...The New England investment and Security Company and its affairs constitute a striking illustration of the deliberate attempt to entangle the New Haven with street railways, which has recently been publicly avowed by former President Mellen...
...Ledyard that the express company should exchange its Boston and Maine shares for New Haven shares...
...Mellen'testified, was not worth 10 cents a pound...
...The difficulties under which this railroad system has labored in the past are internal and wholly due to its own mismanagement...
...The directors of the Billard Company confessed that they were dummies and knew nothing of its operations...
...Many of these due bills were not presented until Mr...
...The Billard Company was organized by the general counsel of the New Haven...
...Juggling Millions IT IS pointed out that the capitalization of the New Haven system was increased from $93,000,000 to $415,000,-000 since June 30, 1913...
...There were just thirteen things that had to be done, according to Mr...
...The handling of bank deposits and security sales of these corporations are massed in a few hands, carrying with them a power and domination over large amounts of banking capital as well as the control of great railroad systems...
...This was done after a conference between Mr...
...The remainder of this startling report follows.—Editoe's Note...
...The Westchester acquisition was planned and executed by a special committee of the board, consisting of Directors Morgan, Rockefeller and Miller, with President Mellen as chairman...
...Mellen, the deliverer appeared in the person of Thomas j. Byrnes, at one time an inspector of police in New York city...
...The movement downward of Boston an...
...The evidence shows that the Rhode Island trolley transactions were deliberately entered into, with a full knowledge of the large deficit that they would bring and with the determination to acquire trolley control in Providence, regardless of expense...
...Mellen, to get the Westchester out of its franchise difficulties, and it is significant that all amendments to the franchises were obtained, and the sequence was that the New Haven, in addition to these things, received 30,-341 of the 34,053% outstanding shares of the New York, Westchester and Boston Railroad Company stock, which, Mr...
...This was the beginning of evil days for both the Boston & Maine and the New Haven...
...This leaves the sum of $204,000,000, which was expended for operations outside of its railroad sphere...
...Mellen testified, merely capitalized water...
Vol. 6 • August 1914 • No. 31
