The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1903-10-06
Reply of Receiver Smith to Petitions
Recently Filed Asking for Fore
closure of Mortgage.
SCHWAB AND ASSOCIATES
ARE ALLEGED TO HAVE SERIOUSLY
WRONGED STOCKHOLDERS.
Said To Have saddIed One Concern
on the Company for $3O,OOO,OOO
when 1T Was Worth S7,2oO,OOO.

NEW YORK, Oct 5.-James Smith, re-
ceiver of the United States Shipbuilding
Company, to-day filed his answer TO the ac-
tions recently instituted in the United States
Circuit Court against the company and him
self, as receiver, by the Mercantile Trust
Company and the New York Security and
Trust Company, the former TO foreclose its
mortgage as trustee for per cent mort
gage bond issue of $16,O00,OOO, and the latter
to foreclose its mortgage, also as trustee,
upon bond issue of $10,0co,OOo-
in his answer Mr.. Smith accuses Charles
NJ. Schwab. ID. Leroy Dresser. Lewis Nixon,
John S.. Hyde, +. w. Hyde, Charles r.
Hanscom, /. NJ. Scott, Charles j. Canda,
Horace w. Cause and John w. Young, pro-
moters of the United States Shipbuilding
Company, os fraudulent practices in the
formation of the shipbullding company.
Specifically Mr.. Smith alleges in his answer
TO the suit of the New York Security and
Trust Company that the Bethlehem Steel
Companys works, worth not more than
81 200, 900 to sl0,0o0,O00, was brought into the
United States Shipbuilding Company on the
basis of SS0,Oo0,00o, the transaction being
fraudulent and to the great injury Of the
creditors, bondholders and stockholders Of
the shipbuilding company. Mr.. Smith fur
Their charges that the shares the ship
building company issued in effecting this
transaction constituted full payment of the
steel company, and bonds mentioned IN the
complaint were therefore issued without
consideration, and null and void, and that
the mortgage given TO secure the bonds Is
likewise null and void; that Mr.. Schwab,
in receiving the bonds and stock, became
justly indebted to the shipbuilding COM
pany in the sum of S20,000OOO through the
shareholders liability act of New Jersey,
under whose laws the defendant company
was organized. By reason OF this 1t IS
claimed the bonds have been fully PAID, and
the receiver, Mr.. Smith, Is entitled TO an
offset for so, 1000. 1t is also alleged that
the persons acting as directors of the de-
PENDANT company were not qualined TO act
as SUCH not being bona fide holders OF
stock in the shipbuilding company.
The answer of Receiver Smith next con-
tends that Mr.. Schwab and his associates,
to further defraud the defendant company,
conspired with the directors OF the COM
pany to insert certain provisions in the
charter of the company, to enable them
to control its affairs and to acquire Its
property at less than its true value. This
Insertion in the charter of the shipbuild-
ing company, so the answer claims, en-
abled the holders of bonds to vote in all
terms with the shareholders, and thus elect
three of the seven directors of the COM
pany.
caused the shipbuilding company to default
in its interest, forcing its Insolvency,
thereby wrecking Ii, and enabling Mr..
sets. 1t is charged likewise that Mr..
Schwab and his associates acted in col
fusion with "a so-called reorganization
committee" caused the interest TO be with
held, by refusing to permit the directors
TO meet, whereby funds might have been
secured from some other sources TO meet
the outstanding obligations. In conclusion,
il is claimed that the mortgage is not a
lien upon the defendant or Mr.. Smith, as
receiver, as the laws regulating mortgages
on chattels was not complied with in the
various States wherein the shipbuilding
company owns property, and that 1T is
therefore void and unlawful.
The second answer is made to the suit
of the Mercantile Trust Company, the
trustees of the first issue of bonds of the
shipbuilding company, which amounted t0
| SIG. 900. The allegations are made that
the companies and plants merged into the
shipbuilding company were worth the sum
| of $41, 10000, and in an exceedingly prosper
Gus condition. having orders that showed a
| profit of at least 100000 1t is claimed
| that John w. Young secured the transfers
| of these properties to the defendant COM
| pany upon the payment OF $l6, 100000 of the
| bonds wherein the Mercantile Trust Com
| pany was trustee, SIS, 100000 of the common
| and 100000 of the preferred stock of the
| shipbuilding company. The answer claims
| that the real value of these properties
merged i'm the defendant company at nc
| time exceeded $10,000,0O0 and that the profits
| in sight did not exceed 100000. The pro-
moters at the present time own at leas,
S1O.O 900 of the bonds and $1,000. 900 OF com.
mon and 100000 of the preferred stock
| OF the defendant company. The claim is
| made as in the preceding suit, that there
| was no real consideration to the bonds
| which the trust claims In its complaint
! were defaulted in the interest payments
| and that they are, therefore, null and voiC
and without force.
| In both complaints the court is asked t.
| dismiss the complaints for the reason that
( there is no real ground in law for the ac
| ton. The allegations in Receiver Smith:
/ answer are in substance such as have beer
! previously made, and to which Mr.. Schwat
| replied in a statement published June ii.