TnE FARMER, THE INVESTOR AND THE RAILWAY. 39 



dividends being eontiimeil as long us bonds can be sold and a market found for tbe stock, 

 and when one of these bubbles is aliout to burst, the manipulators make further vast 

 profits by selling "short" and then liaving disclosures made of tlie hopeless condition of 

 the corporate finauces. 



Yet another form of corporate fraud is the purchase or construction of cheap branch 

 lines, and selling them at two, three or four times their cost to Hie Company of whose 

 interests the profiting parties are the trustees. Sometimes these lines are consolidated with 

 that of the parent company and new issues of securities made to cover the added mileage, 

 while in other cases the olil company enables the schemers to sell immense issues of the 

 shares and bonds of tbe auxiliary line at bij.'h prices by guaranteeing the bonds of the 

 latter and leasing its road at an exorbitant rental. Loadect down in this way the old 

 company frequently ceases to pay dividends. 



Again tbe parent comjiauy re.solves itself info a construction company and covers 

 Into its treasury tbe profits arising from the construction of cheap branches. For in- 

 stance, it is shown on pane 391 of the 1SS;» report of the Kansas Railroad Commissioners 

 that the St. Louis & San Francisco Railway Company derived a profit of $07,871 from 

 the construction of ten and one-half miles of roaJ that should not have cost over $10,000 

 per mile, but which, with this profit added and stock issued for a nominal consideration, 

 is capitalized for $28,845 per mile. This company has built many hundred miles in recent 

 years, and construction profits have aided in the paymentof dividends on preferred stock, 

 while providing a basis for levying, for all time, tolls to pay interest and dividends on the 

 bonds and stock representing the profits divided. Thus, the greater the profits from con- 

 struction, the greater the sums which can hereafter be extorted from the user of the 

 railway. 



^Poor's Manual shows that to make contemplated extensions the stock of the Mis- 

 -sonri Pacific was, during 18S6-87, increased J15, 000,000, and the funded debt 1514,376,000, 

 and while the capitalization of the parent company was thus increased $29,376,000, t the 

 lines built or purchased were capitalized from $8,000 to $.'i2,000 per mile, the result of such 

 multiple capitalization being to add an immense amount of water to old as well as new 

 issues. There are some very instructive phases of the construction of this new mileage. 

 For instance, the 310 miles of the auxiliary Fort Scott, Wichita & Western is shown by 

 Mr. Poor to have cost |;4,666,000; the funded debt is shown by Kansas Railroad Commis- 

 sion to be $5,666,000, and Mr. Poor shows that ^4,666,000 of such bonds are deposited with 

 tbe Union Trust Comiany to secure |i4,666,000 of Missouri Pacific trust mortgage bonds 

 issued to (irovide the $4,6(i6,000 which the road is said to have cost. Has the user of this 

 railway a right to ask what became of tbe other $1,000,000 of mortgage bonds and the 

 $7,000,000 of capital stock upon which rates are based, and which make up a capitalization 

 of $8,000,000 in excess of cost, and-what was the consideration therefor? 



In the case of the 411 miles of the Missouri Pacific's Denver, Memphis & Atlantic 

 line, Mr. Poor shows the cost to have been $4,920,000, and Kansas report shows bonded 

 debt to be $6,561,000, the first mortgage bonds exceeding the cost by $1,641,000 and the 

 entire capitalization being $8,202,000 in excess of cost, a large part of which was borne by 

 the municipalities along the line. Like conditions obtain with all Missouri Pacific lines 

 built of late years except two short ones not yet mortgaged. 



Another mode of collecting excessive tolls and defrauding the public is that prac- 

 ticed by the subsidized Pacific lines in jmying $900,000 per annum to tbe Pacific Mail 

 Steamship (Company to forego competition, and then charging the public two or three 

 times this sum to recoup themselves for such illegal diversion of corporate funds. 



A unique case is that of an Ohio corporation, where the men who afterwards be- 

 came the directors and managers gave their notes lo certain bankers for money borrowed 

 for the purpose of buying the shares which were to give them control of the corporation, 

 aiid, having by this means secured control, applied — in whole or in part — to the payment 

 of suchnotes the first mortgage bonds of tbe company to the amount of -?S. 000, 000, although 



•"Poor'.s Man ii.il" is a compendium of such flnancial and traffic statements as tlie railway cona- 

 p.Tnies prepare for publication. 



tAugust, 1-90 It is now stated that the Missouri Pacific has added $30,000,000 to its capitalization. 



