New-York tribune., 1903-10-06
SCHWAB UNDER FIRE.
THE SHIPBUILDING CASE.
Sold a 81 800 900 Plant for O,O0O,-
900, 1t Is CHARGED.

Exceedingly harsh charges were made yes
terday by ex-senator James Smith, jr. receiver
of the United States Shipbuilding Company act
ing for himself and in behalf Of that corporation.
against Charles NJ. Schwab. D. lie Roy Dresser,
Lewis Nixon, John 5. Hyde. E ". Hyde. Charles
r. Eanscom. / NJ Scott, Charles ] Canda.
Horace W Cause and John ". Young. pro-
noters Of the United States shipbuilding Com
pany. who were guilty. so il vas alleged under
oath. OF fraudulent practices in the formation
Of the company. Especially harsh are the
charges made against Mr.. Schwab
Mr.. Smith. through his counsel Guggenheirner,
Cnterrnyer & Marshall. yesterday filed in the
United States Circuit Cou1- an answer 70 two
actions brought against the shipbuilding COM
pany and Mr.. Smith. receiver. by the Mer-
camille Trust Company and the New-York Sc
curity and Trust Company, the former 10 FORE
close its mortgage as trustee for a ; PEI cent
mortgage bond issue Of S16,OO0OOO, and the lat
ter to foreclose its mortgage. also as trustee.
upon bond issue Of S10O00000.
The answer to the suit Of the New-York Sc
curity and Trust COMPANY states that Mr..
Schwab prior TO the formation Of the United
States shipbuilding Company. became the owner
Of three hundred thousand shares Of the Beth
Iehen Steel Company, Of the par value Of $50
each. but for which q sum not exceeding s. was
paid. The Bethlehem Steel Company had out
standing S1,350.00C in bonds. and second
money purchase mortgage of ST.5Oo000. and
when acquired by Mr.. Schwab was worth not
more than S7.200000
The answer next alleges that about June 1902
Mr Schwab conceived the scheme Of transfer
ring the Bethlehem Steel Company to the Ship
building Company at an excessive and fraudu-
lent consideration. and in manner that would
enable him to control the shipbunding Company
and also enable him TO absorb for his own use
ALI the property and assets Of the Shipbuiding
Con1uanv To accomplish this. the answer
or -ges. Afr. Schwab represented that his stock
H. he Bethlehem Company was worth $4,000.
coo and that the company had during the year
ending earned q profit OF ,OO0, and had
surplus OF S411SOcO. whereas. in fact. the net
earnings for the year had not been more than
81 OOOOOO and the surplus did not exceed 3d.
100000.
Mr. Schwab, it is charged, caused John ".
Young who acted under his instructions, to pro
pose to the directors Of the shipbufdng COM
pany TO buy the Bethlehem plant for 100000.
to be paid with S1OO000OO Of bonds and $40
OcOOo0 Of common and like amount OF pre-
ferred stock The directors Of the shipbuild-
ing company. who were mere dummies for
Schv.ab and who acted solely under his instruc-
tions and directions" undertook 10 carry out the
terms OF the transfer. and the 100000 bond
issue was made. with the New-YOrk Security
and Trust Company trustee. The S20,O00.oOo
Of stock was also turned over 10 Mr.. Schwab.
The only consideration was the shares in the
Bethlehem Steel Company, which Schwab and
Young well knew were not worth to exceed 81
10000 II is charged that in making the trans
fer the directors Of the shipbuilding company
acted in bad faith. and that none Of them exer-
cised any individual judgment whatever with
regard 10 the valuation OF the shares Of stock
purchased.
The answer charges that by reason Of the
character of this transfer the shipbuilding com
pany's shares constituted full payment for the
stock Of the steel company. and that the bonds
were. therefore. issued without consideration
and are null and void. the mortgage given Sc
curing them being likewise Of no force.
Mr.. schwab. in receiving the bonds and stock
became justly indebted 10 the shipbuilding com
pauy in the sum of S20OOO.0O0. it is claimed.
through the Shareholders Liability act of New
Jersey. under whose laws the shipbuiIding com
pany was organized By reason of this. it is
said the bonds have been fully paid and the
receiver. Mr.. Smith. is entitled TO an Offset for
S20O00000 II is also alleged that the persons
acting as directors OF the shipbuilding company
not qualified 70 act such, not being bona
fde holders Of stock in IL.
The answer next contends that Mr schwab
and his associates. to further defraud the ship
building company. conspired with the directors
OF il 10 insert certain provisions in its charter
TO enable them TO control its affairs and acquire
its property at less than the true value This
insertion IN the charter provided, the answer
says. that the holders Of bonds could vote IN
all meetings Of the company on equal terms
with the shareholders The insertion enaoleo
the bondholders to elect three OF the seven d.
rectoTs OF ts- --ssipany
Sorffued 10 fourth page.