Savannah morning news. [volume] (Savannah) 1868-1887, 1885-12-14
THREE MILLIONS SLIP AWAY.
An Asset that the Union Pacific Railroad
Company Ought to Make an Effort to

II is plain that strenuous efforts Will be
made by the Union Pacific Railroad COM
pany to secure the passage of an act OF
Congress extending the time for the pay
ment Of it's Indebtedness to the govern
ment. An elaborate pamphlet has been
prepared with tlis view. So much stress
Is placed on the inability OF the Union Pa
cltic company TO pay its Just debts to the
United States that many persons who
nave kept themselves posted in railroad
matters during the past few years wonder
why 1t is that the officers Of the Union
Pacific company do not make an effort 10
recover money that should be in the treas
ury OF that corporation.
The So, 100000 OF securities pledged in
the consolidated trust OF the Kansas Pa
cihc railroad, and taken out by sidney
Dillon, Jay Gould and Russell Sage,
ought TO be refunded by them TO that
trust. The history of that transaction is
told in the records of the United states
Circuit Court, and the facts ale OF char
acter that ought to be kept before the pub
lie attention until restitution Is made.
The question involved is one whether a
trust fund can be depleted or misappled
at the will of few men who happen to
control it.
On May /, 1870, the Kansas Pacific Rail-
road Company executed a mortgage,
known as its consolidated mortgage. to
Jay Gould and Russell Sage, as Trustees,
to secure the holders OF its bonds to the
amount of S3,000,000. A very large pro-
portion of those bonds were provided to
be issued in exchange for outstanding
obligations of the Kansas Pacific Rail
road Company, and the balance were to be
sold, 30 that by means of the mortgage
substantially the whole bonded debt Of the
company was to be verified and
consolidated. BY that instrument
there was transferred to jaw
Gould and Russell sage a quantity
of stocks and bonds, including 29,9S6
shares of the capital stock of the Denver
Pacific Railway and Telegraph Company.
These shares were of the par value of 500
each. 1t was stipulated that the securI-
ties thus transferred to could aud Sage
must be held for the security OF the bonds,
Providing there should be default of the
principal or interest the trustees were en-
powered to sell all OF the securities held
by them in trust. There was no provi-
sion, however, for the exercise of any
other power over the stock.
Arrangements for the consolidation Of
the capital stock of the Denver Pacific
Railway and Telegraph Company with
the capital stock of the Union Pacific and
the Kansas Pacific Companies were in
progress in 1880. The shares of stock OF
the two last named companies were
worth in the market their par value. On
Jan. Il, 1880, Sidney Dillon, President of
tue Kansas Pacific Railroad Company,
wrote short letter TO Trustees Gould
and Sage, asking that the 29,9SG shares OF
Denver Pacific stock which were in the
consolidated trust be conveyed back to
that company. Mr. Dillon wrote that the
shares in question possessed very little
market value at the time, but that the
company had an opportunity to use
them to advantage. Trustees Gould
and Sage replied that they had
some doubt as to their right 10
surrender the shares, but they would not
throw any obstacles in the way of judi
cial proceeding to accomplish that pur-
sOse. Both jay Gould and Russell Sage
were then directors in the Kansas Pacific
Company, and were the owners of very
large amount of the stock. Mr.. Gould
was also director in the Denver Pacific
Railway and Telegraph COMPANY
Messrs. Gould, Sage and Dillon constitut-
ed a majority OF the Executive Committee
Of the Kansas Pacific railroad, and they
controlled the corporate affairs OF the said
company. MIR. DllOn's request was prac-
tically a request from Dillon, Gould and
Sage as Kansas Pacific directors to Gould
and Sage as trustees to betrav their trust.
In compliance with Trustee GOuld's
suggestion a suit was brought by the
Kansas Pacific Company asking to have
the 29,9S6 shares OF stock taken from the
trusts of the consolidated mortgage and
delivered to the Kansas Pacific Company.
The plaintiffs in this suit alleged that the
stock they were trying To get was Of but
little value to the consolidated bOndhOld-
ers. A reference, by consent of both par
ties to the suit, was held in the offices of
the Union Pacific Railroad Company.
Testimony was offered that the stocks in
| question possessed very little value, but
| not word was uttered by Mr.. Gould
or his associates about the proposed
consolidation OF the Union Pacific, the
Kansas Pacific, and the Denver Pacific
roads, which consolidation would of
course give a greatly increased valHe to
the shares of Denver Pacific stock. No
bondholder was q party to the legal pro-
ceedings. Trustees Gould and Sage Kept
their promise and threw no obstacles in
the way of this little scheme of grab. On
the report of the referee a decree of the
court was issued on Jan. 26 directing the
delivery of the stock to the Kansas Pacific
! Company. 1t was so delivered, and on
the following day the articles of CONSOLE
! dation were executed. BY the terms OF
the consolidation the trust stock became
eXchangeable for the stock of the con-
solidated company, which was worth par
! III luU hGbs nus Tue dlIe0Bu Nalue-
! less shares of Denver Pacific stock be-
came worth $3,0O0,000 by the act of con-
/ solidatiOn.
When Sidney Dillon asked that the trust
stock be surrendered to the company he
/ proposed to take the stock out of the trus-
tees hands, son condition of substituting
the securities into which it may De eX-
changed or other securities OF equal
value" No such substitution was ever
made, and the trust fund for which MIR.
Gould and Mr.. Sage were trustees is short
just to the extent of the value OF the
29,9S3 shares of stock. In fact. Mr.. Gould
and Mr.. Sage should be required TO re-
place the missing shares of stock or their
value i'm the trust fund. Albert S. ROsen-
baum, bondhOlder, began a suit against
Messrs. Gould and Sage as trustees in the
United States Circuit Court several
months ago TO compel an accounting for.
and the payment Of, the proceeds OF
the Union Pacific Railroad Company's
stock which was exchanged for the
20,9S6 shares of stock OF the Denver Pa
ciic Railway and Telegraph Company.
In Mr. Rosenbaum's complaint the value
Of that stock was placed at So. 600. and
the court was asked 10 direct Trustees
Gould and Sage to restore that amount 10
the consolidated trust The plaintiff also
petioned TO have the legal proceedings
under cover Of which the trust stock was
turned over TO Gould, sage, anu Dillon,
as directors of the Kansas Pacific Rail-
way Company, declared null and void on