The Salt Lake herald. [volume] (Salt Lake City [Utah]) 1870-1909, 1906-11-21
USED THE MAILS
FOR SW|NDLIhG
Fraudulent Underwriting Con-
Germs Raided by Federal
Officers in Chicago.
SEVEN CROOKS ARRESTED
SCHEME Planned OUT NEARLY A
MILLION DOLLARS.

Chicago. Nov. 2a.-Several underwriting
companies, which are alleged to be the
largest fraudulent concerns of the kind
ever operated in Chicago. were raided
here today by United States marshals.
assisted by postal inspectors and seven
men. accused of promoting the fraudulent
enterprises, were arrested. According to
the federal authorities, the men accused
of operating the swindles had many vic
tins and obtained nearly 81 100000 by the
scheme The names of the men arrested
ana the companies with which the fed
eral authorities say they are connected,
follow:
W. J. Root. president: W. II. WeIeh.
vice president: and w D. HurIbut secre-
4 Guarantee company: Charles EndicOtt
Brown. president of the Prudential Sc
curities Corporation Brokers. Frank S.
WinslOw. president American CORPORATION
q Security company: Ezra c. Karnum,
president National Stock & Guarantee
company. and the Bankers Credit K Mer-
camille company; David O. Owings Ma
uOnai STOCK x Guaranty company.
Three Secured Bail.
Hurlbut Root and Welch were taken
TO the United States district court aud
gave bonds of $500 each for their appear
ance for trial According to the postal
authorities, the other men who were ar
rested were locked up in jail because they
were unable to secure bonds
The alleged fraudulent operations of the
men. as explained by the postal authOri-
ties, is that the underwriting companies
were in league with certain of the bro
kers with whom they divided the fee
taken for the supposed underwriting
derwriters
The plan by which the svindles were
carried on. ii is alleged by the federal
authorities, involved representations in
SFgT 0anT1. hoe Il
writing and guaranty companies had Civ
en- trust companies certain assets and col
lateral security to indemnity bonds given
the investors until the time the bonds
Tnatured. The corporations were given
bonds a maturing periods all the way
from twenty To forty years.
How the Scheme Was Worked.
In using the mails to circulate their
methods of doing business the alleged
fraudulent companies informed corporate
enterprises desiring money that they
could secure funds by calling at the Chi
cago offices. On arrival in Chicago the
corporations officials would be introduced
TO alleged capitalists. who represented
that they had available capital to fl
nance business propositions and would
buy the underwfitten stocks provided
the corporation officers would have them
underwritten by responsible guaranty
companies. X is asserted that these al
legged capitalists would then advise that
the WofR be done by the Central States
Underwriting * Guaranty company, the
American Corporation & Securities COM
pany or the National Stock K Guaranty
company of San Francisco. The brokers
in the alleged fraudulent transaction
would represent to the prOpOSed victim
that they would get no compensation
for their work unless they actually sold
the stocks and they would be content
with a commission of from One-half TO
one per cent on such stocks as they
sold.
The Fees Divided.
The victim was assured there could be
no doubt that the stocks underWritten
would realize, as the capitalists to whom
the victim had been introduced would be
certain to buy them. The brokers would
then take the men seeking the under
writing to the offices of the guaranty
company and arrange for guaranteeing
the bonds ON payment of a fee of / per
cent of the amount of underwriting The
federal authorities assert that in each
case the underwriting company was given
a fee. and that in many cases the Off
GERS representing the company seeking.
the underwriting had scarcely left the
underwriting office by the front door
before the broker who introduced the can
italist would enter through another en-
trance and get half the underwriting fee.
and the underwriting venture would then
be closed by the underwriters and The
brokers, no attempt being made to sell
the stock. The government officials say
the men arrested never entered into a
proposition in which less than s10o COO
was involved. and that they in many
cases obtained as much as 81 geo 600 wort h
of stocks to underWrite