The Seattle post-intelligencer. [volume] (Seattle, Wash. Terr. [Wash.]) 1888-1914, 1894-11-16
LAKE SHORE ANSWER.
The Stockholders Accuse Bond
holders Of Fraud
ssyrssas ARE roo MANY BONDS
r,-.x.. "a sns~ That the Debt kHoeeas
the agreed Ls1it-sfssssseo
Called Main Line

the Insoa rust 1s9fh p1sys y.
vs.. the Seattle. Laxs shore Il E.As's'n 'al'-
way. to forsc!ose mortgage on sns pfop-
49, af ths road. has been served on the
$500. for The bondhoIdsrs. And alleges
bx cay ef Affirmative defense that the
.torkboider. have been cheated by an
ovsr.l..us az bonds through the fraud and
calIu.son os their own directors and OIL
60. Atprexen. the ovsy-issus 10 said TO
amount TO sfae. co.
The answer admits that mortgages or
dead Of trust ~ss delivered TO the Union
Trust COMPANY August TO- 1855. but AYERS
that the amount sf the bonds 20 be issued
nader the mortgage was confined by the
conditions of the instrument 10 an amount
not exceeding So 600 per milo Of the main
aud branch lines Of the road completed or
under construction or 10 be completed In
Washington, fdano. Montana and Dakota.
Ali the stock conveyed Is ssid 20 have been
transferred for the equal and pro rata
benefit and security OF ali persons or
bodies corporate thss might become the
holders OF aay of the bonds
Prior TO the execution Of the mortgage.
the answer SAYS. the persons then the
trustees Of the Lake Shore, many OF them
being officers a. we'll trustees. formed
construction company uncsr she laws oil
the territory, and entered Into contracts
from time 20 time for the building OF the
road: and the officers and directors oil the
construction company, who we're likewise
officers and directors Of the railroad CON-
pany. contracted ia fact with themselves
and agreed 10 issue bonds ia payment OF
the cost of construction. All the bond
holders under the mortgages who we're
officers. directors or stockholders in the
construction company At the tunes
referred 10 are alleged to have had
Notice Of the above facts. and, therefore,
the assumption is taken that not
one OF them IL an innocent purchaser. IL
IL further stated that the bonds taken in
payment Of the construction work. based
upon estimates controlled by the identical
officers In the two companies. were taken
81 a valuation considerably less than par.
tho enact valuation being unknown be-
cause the present officers and directors
have been unable 20 obtain access TO the
books of tho company. The defendant
states that many OF tho present holders of
the bonds acquired them Mt the reduced
figures with full knowledge of that fact.
and OF the intimate alliance existing be-
tween the construction company and the
railway company set forth above.
"a
II dsfanlted In the annual payment into
the sinking fund. and also In the payment
of interest upon the bonds then In the
sinking fund. but states that every failure
In payment vas caused by the excessive,
unauthorized. illegal and fraudulent over
issue OF bonds. Ii admits also that the
mortgsged property mentioned in the bill
OF complaint, in Its present condition, is
inadequate security for the amount
OF fhe bonds outstanding: vet IL
would be adequate and proper security for
the payment of all bonds issued in
pursuance Of the mortgage. If the same had
been issued in number aud at the times
contemplated by the terms and true in
tent and spirit OF the agreement. The
necessity for sequestering the income and
applying IL toNa ard the reduction of the
amount due on the bonds IL claimed TO
have been caused largely by thu fraudu-
lent and unlawful oyerissue.
The defendant denies that the complain
ant. as trustee under the mortgage or
otherwise, elected TO declare the principal
OF the bonds 20 become due July -. 1894
Answering further, the defendant AYERS
upon information and belief that many OF
the present holders of The bonds secured
by the mortgage, and many Of the holders
OF the bonds ~ the time The action was be-
gun. we're directors or officers OF the con-
struction company and also directors or
officers of the railroad company as IL was
then organized, and in their capacity as
such knowingly and fraudulently con
spired. eoliuaed. confederated and agreed
with each other for an overissue of the
bonds. In support of tho averment. the
answer Saws that today there are not more
than 2i4 $50 miles of road covered by the
mortgage. while the fact Is that there were
issued hy the railroad. as organized at the
time, o.6fo bonds of the par value OF 81. 90
each. such an issue would require for
basis, under the terms aud conditions of
the mortgage. az least 81 miles Of main
and branch lines constructed or in process
OF construction; while IN fact the entire
system will not exceed 2ia2sa miles.
Although the railroad company, after
the issue Of the bonds. redeemed and can
celed III OF them. nevertheless. the an
swes SAYS, there stiii remain outstanding
5 h1S Of the bonds. requiring as basis for
their issue a. least 80 miles of road. Prior
TO the redemption aud cancellation there
was az ovsrissae OF sSio.oa. and the
present amount. "a stated above. is Si9a 600.
The defendant is unable 10 specify with
who are alleged 60 have enriched them
selves in the fraudulent manner indicated.
or "a tell the numbers OF the bonds. or
tue exact dates when ihs transac-
tsons took place. Tor the reason that
all the directors aud officers Of the Lake
Shore at the present time are compelled
90 dspsad upon information derived from
saeh documents as they have teen able to
secure from time 10 tine. The railroad a
therefore, com PEELED e. rely upon the dis
covery 10 he had under the direction Of
the court 10 establish the allegations with
greater precision. Bat the avsrment IA
made that the president or actsas prcs!-
dpat, and she secretary, OF the Seattle Lake
Shore & Eastern railway at the time Of the
ISSUE. esrlGeztton and delivery of the
bonds referred 20. IS well a. the chief snxi-
Eser. acre each q them Unidentified with the
construction company 20 saeA an extent
aud in SAGA a manner that tasv could aud
DAD. iov tue purpose az carrying out the
colluslvs Aad Unlawful combinations. or
der sad demand the issue aud delivery of
tie aoaas; and the ehssf engineer, VITO
was slso ga oiEcer % the construction
company. certified that enough offas road
vas completed 80 justify tie issuance OF
the soaes.
Ia ordsg more fully 20 establish the fact
taAt The Issue Of the bonds wAx IN excess
o. ghe eost 81 construction, the railroad
company SAYS that gAe road has been
built by tie construction company ia an
uHsorkaAnliks and smuTaesieAa3e man.
psrs that there was total lack Of s.dinrs
for Eaills and ether Industries. particularly
sgom Seattle noFth Ssrl that xAege spUrs