The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1897-05-31

road traverses country rich in coal mines,
stone quarries, hardwood forests and agrl-
cultural products Religious papers publish
the prospectus, and pious preachers living
along the line write letters to Eastern jour
nails extolling the management and pro
claiming the success of the enterprise.
When the people of small saVings-the
preachers, teachers, widows. executors,
guardians and trustees-and all those who
are seeking safe investments have been
properly Fingered" by these publications,
the syndicate announce that a limited
amount of 'firsts" will be sold for the beg
carly price of 80 cents on the dollar, and
seconds" say, at 40 cents, and each deliV-
cry of bonds so sold is ''sugared'' by do
nation of an equal amount of stock.
The proceeds of the sale of the first bonds
issued are used to exc out the earnings
and pay few instalments Of interest, but
licly known. BY bookkeeping juggle it is
made to appear that the road is making
net earnings when in fact it is not paying
taxes and operating expenses. 1t is very
ineXpert auditor of q railway company who
cannot show that his insovent company is
earning its interest and dividends il is a
device of syndicates who are preparing to
unload. to direct the auditor to sophisticate
the accounts for that purpose. Take for
a sample q case that came before me for
investigation, in which the bondhOlderS and
general creditors of an insolvent railway
company were quarreling over the question
whether the company had made net earn
ingS in given year. The books and audi
tors reports showed a handsome balance to
the credit of net earnings. When cornered
the auditor swore that by direction of the
president he had credited to betterment and
permanent-improvemen account a half
million of dollars which was properly
chargeable to operating expenses, and by
this simple process he made II to appear
that his insolvent company paid all eX-
penses ana made net earnings The fact
was the property was running down and
creating a large floating debt. The device.
however, ena bled the president to work off
upon deluded investors a large block of
bonds. Being questioned. the auditor said
he knew 1t was wrong, but he felt bound to
hn ~ of h Gs snCff Irrr1a Inns
Loyola required that the inferior should be
as a corpse in the hands of his superior.
This sham bookkeeping and putting are
sometimes kept up, and the interest INSTALL
menuS are punctUally paid until the unload
ing process Is completed. when the gentle
men composing the syndicate turn their at
| tention to new ventures. After a while,
with no more unissued bonds to SELL the
coupons are defaulted and the victims
learn the truth. Meanwhile the bonds and
stocks have been listed" at the stock eX-
change and when the tumble begins the
holders rush to the market and take what
they can get. Or if enough of them have
pluck to hold on they organize committee
and commence proceedings to foreclOse the
mortgage, which ordinarily means a scaling
of frStS" and seconds, and the utter
obliteratiOn of the underlying bonds and
stock The committee come West, make
tour of inspection, and discover that instead
of a well-built, thoroughly equipped rail-
way they have as a security what Colonel
Ingersoll has felicitously called "a streak
of rust and a right of way" The road is
unballasted, the ties are rotting, the sta
ton houses are tumble-down shanties, the
trestleS and culverts and bridges are dan
gerous the quarries and mines and forests
have not been discovered and everything
is dilapidated. The car rentals are in ar
rears, and the pay rolls and supply claims
to a large amount are due and unpaid.
receiver is appointed. receivers certificates
are issued 70 raise funds to make the road
safe for public travel, these certificates be-
coming liens prior to the lien of the first
mortgage bonds and priority is also al
lowed to labor and supply claims The
road is ultimately sold and after paying
the receivers debt and other preferred
claims, the balance is distributed to the
holders of the first mortgage bonds and
coupons. When the interest is defaulted
the small holders usually become panic
stricken, and by the time the road is sold
the most of the securities have passed into
the hands of a few men who lay their plans
for q new deal. During the last twenty
years nearly forty railways in Ohio, Indiana
and Illinois have gone through the fore
closure flint mill.
/ have before me list of twelve railways
located wholly in part in the State OF
Indiana which have passed under the ham,
mer in foreclosure proceedings. The aggre-
gate length of the roads when they were
sold was 2,143 miles, and the interest-bear-
ing mortgage debt at the time of sale was
S67 480 000 being $31 al per mile. In no sim
gle case was the property worth the mort
gage debt and of course all the stock was
worthless