The San Francisco call., 1896-02-27
Properties That Would Be of
Little Value to the
Mortgages.
LETTER TO SENATOR SHERMAN
Startling Facts Brought to Light by
John 7. Doyle-An Investiga.
tion Likely.

NAo SAOSS
invest in the securities of the companies
comprised In the Southern Pacific Com
pany, has up to the present writing, been
entirely Ignored, notwithstanding that
somewhat over $50 ,00o, 900 worth of securl-
ties are involved.
Attention was first called to this imposi-
tion on the financial world in letter ad-
dressed to Senator John Sherman by John
L. Doyle on January 80, 1895, in reference
to the funding measure now before Con-
gress pertaining to the Indebtedness of the
Central Pacific Railroad Company to the
Government.
In arguing against the funding bill, Mr.
Doyle wrote as follows:
''If Congress undertakes TO take title to,
or security on, this Central Pacific road
without previous judicial ascertainment
and adjudication of the details of prop
erty and its title, it will probably get road
without terminals, without ferry accommo-
dations, without adequate stations or roll
ing stock-a skeleton road; what has been
epigrammatically described as two streaks
Of rust and right of way"
In explanation of this broad and peculiar
assertion Mr.. Doyle continued as follows
road business carried on by these parties,
for the past twenty years, has been done,
not for the legitimate profits of transpor-
tation, but from those derived from the
Issuance and sale of railroad bonds.
Every piece OF property the road be-
comes possessed of is straightway mort
gagged for all 1t will possibly bear, and the
bonds taken by the managers themselves,
under the now familiar disguise of a con-
struction company. The interest is pune
tually paid Tor receipted forl by themselves
to themselves, until by the aid of stock
board manlpulatIons the ownership OF the
securities is gradually transferred TO the
public in search of investments.
p THE mortgages are usually so arranged
as TO present the sem blance of q substan-
tial security, and yet to afford no real one
10 the holder, because the thing mort
gaged is wholly incom plete and unservice-
able without some other property which is
mOTtgaged to other parties for other debts.
The Southern Pacific Company as gen.
eral lessee can put all the separate parcels
TO profitable use, but the mortgages when
they come to foreclose and own the secur-
ity Will find they have got but one leg of
q pair of tongs, the other leg of which is
retained by the Southern Pacific Company.
This peculiar mode of dealing is fairly
illustrated by the mortgage of the Central
Pacific Railroad to secure one set of bonds,
and the mortgaging of the terminal
grounds, indispensable 10 its utility, to
secure another, while the connecting
ferry is a separate property belonging to
neither.
Similarly the first mortgage of the
Southern Pacific Railroad april 1, 1879
nominally covers a single road leading
from San Francisco to the Colorado River.
Passengers and freight sent overland via
the Southern Pacific road are supposed to
2 b.aY u
But this IS delusion, for when the mort
gage was made the road was under con-
struction and ii was built IL sections.
The section of l10 miles or so connect
ing the track through the Santa Clara VAL
lev with that through the valley of the
San Joaquin Ia very difficult piece of
mountain road ana expensive to con-
ing of it has been abandoned. Passengers
and freight by the Southern Pacific road
are dependent upon the Central Pacific
road (San Joaquin Valley division) and
other roads for access TO San Francisco.
"The bonds of this issue having all been
showed off 10 the public, the managers
have no longer any motive for building
the connecting link across the coast range,
and in their latest mortgage (Septem Der
Is, 1889 covenant to issue no more bonds
under that OF 1875, which Is equivalent
TO covenant never to complete the origi-
nal road described in that mortgage.
These are specimen cases.
In another portion of this communica-
tion occurs the following:
The report of the Pacific Railway Com
mission (vol. X, p.s7) shows that the net
earnings of the Central Pacific road over
all operating expenses, taxes, interest on
debt and Government requirements-abso-
Lutte clear profts-were as follows:
Down to Dec. 81 1869. ............. $2,427, ,533 SO
n Der 31 1873 & 5T6 5lQ
Thence 10 Jan. 1, 1884. ............. 52536,916 80
In all 1,o3S,SIO IL
1.-THE capital stock is shown in the same
report to have been entirely fictitious and
the whole of the $246. .062, ,365 ithe gross re-
CENTS from which this residuum was de-
riyed) was wrung from the pioneers of the
Pacific Coast, and chiefly from the people
OF California, by excessive charges levied
mainly on local traffic. Honestly applied
IL would have extinguished the whole Gov
ernment debt"
In concluding his letter 10 tne oenator
Mr.. Doyle wrote:
Senator Sherman, the people of Cali
fornia have faith in you and trust you,
to this by their a1fecuonate
admiration for your brother, the general,
who roughed it here with us In early days.
and whom they proudly reckon as one OF
themselve They have been confirmed In
il bv their observation Of your public
career and the kindly recollections they
cherish of your visits TO our State and OF
their intercourse with you.
"They are convinced that to extend or
refund this railroad debt will make it
total loss to the United States and infiict
dire calamity ON them, besides tacitiy
a series Of enormous frauds,
the pardon of which would be disgracefuI
TO the country. They are equally per-
suaded that study of the case will so con-
vince every upright and Impartial mind.
Very many of US rely on you TO give IL
such study, and TO give us the aid OF your
voice and influence to defeat so odious and
oppressive measure"
Many of the bonds lin the way de-
scribed by Mr.. Doyle) are said to be now
in the hands of trust companies and saw
ing institutions, many having been sold at
10 per cent above par.
In view OF these facts it is not unlikely
that the committees of stock boards which
list these Improperly and inadequately Sc
cured bonds may institute an inquiry, or