The morning call. [volume] (San Francisco [Calif.]) 1878-1895, 1894-07-19
A VETO OF STOCK WATERING.

The Governor OF Massachusetts, recently
vetoed the Bell telephone bill, which al
| lowed that corporation to issue S30,000,000
Of stock TO its shareholders without any
restrictions. The proposition was to dou-
bic the amount of stock, bringing that ag-
gregate up to S60,000,00 The stock had
been quoted on the market at $500 share.
or 100 per cent abnve par. The public
would have been required to pay charges
sufficient to make the dividends good on
the watered stock. Governor Greenhalge
in his veto message recommends legisla-
ton to prevent the stock watering of
quasi-public corporations, either through
the fundamentally of construction COM
paDies or otherwise, and to prevent the
issue of bonds as bonus to parties who
subscribe for stock. He recommends that
the expenditures of corporations be con-
fined as strictly as possible to the pur-
poses for which they were organized. and
that honesty and fair dealing should be
required between stockholders and the
public.
The Governor goes beyond this special
veto to recommend that all contracts for
the lease, sale or purchase of railroads or
street railways should be subject to the
approval of Railway Commissions. The
evils, 10 his view, attending the initiation
Of securities of corporations which re-
ceive from the public great privileges not
granted TO private persons are so great as
to call for legislation prohibiting all such
mutations.
The Bell Telephone Company was Or
ganiZed under charter obtained from the
Massachusetts Legislature. 1t sought to
d 0 just what other great corporations have
done all over the country. 1t proposed to
water its stock. This could only be done
by permission of the Legislature. The
oil went through; but the Governor
stepped between the corporation and the
public, and stopped the game. 1t is the
first instance that has been noted where
the executive of a State has interviewed in
this way.
What is needed is a law in every State
preventing any corporation from increas-
ing Its stock except by the payment of
the full amount at par for every share of
stock subscribed.
One of the abuses of stock watering has
assumed the form of overissues of bonds.
The stockholders pay in small sum and
issue bonds to do the rest About two
dollars in bonds are usually issued for
every dollar that is actually necessary 10
constructing railroads. The bankruptcy
Of a number OF railroads to-day can be
traced directly TO the oYeriasue OF bonds.
The road goes into the hands of receiver
because it cannot pay the interest on that
excessive issue of bonds.
An instance might he cited where cable
railroad was constructed in q suburban
town at a cost not exceeding $500, 600
Bonds were issued for 100000 The
road could rot pay operating expenses.
and the interest on this overissue of
bonds, and of course went into the hands
Of a receiver, who is one of the bond
holders. II the capital had been confined
to the necessary cost of the road there
would have been no bankruptcy. The in
hation began at the start. Securities in
this and in a great many other instances
were issued that did not represent any
solid basis. That phase Of indirect stock
watering has brought many road into
the hands OF a receiver.