The Washington herald., 1907-03-04

New York. March S.-Under heavy
selling of stocks for both sides of the
speculative account, and as the unques-
tiOnable result Of liquidation by actual
investors. the prices of the standard rail-
way shares in the market fell last week
to a new low-record level for the year
and, indeed, to the lowest point reached
BY them since July, 1905
From the point of view of those who
attach Importance to the course Of values
in the security market during relatively
shorter periods Of time, and base their
operations upon swings in the move
ments of prices, rather than upon broad
economic and financial conditions, this
drop IN prices was significant 1t obvious
" nullihed the hope that had begun 10
be strongly entertained that the low level
touched by prices in the earlier part Of
the month was the lowest that would be
reached, or that in other words, at this
range Of values such a measure Of invest
ment and speculative support would be
attracted 10 the market that abundant
resistance would be offered 10 al further
efforts 10 depress quotations.
Causes of the Drop.
resumed its downward course, and there
was no telling when this would be
stopped. It is needless TO say that the
influence that depressed the market was
the character Of the testimony adduced
at the investigation held in this city by
the Interstate Commerce Commission into
the Hartman management; and 1t must
be said that the impression made by this
testimony in the financial community was
RllIOst the only matter during the week
10 which the stock market paid any heed
whatever. II is now clear that this same
Hartman investigation, or the just fears
of hnanciers concerning il, has for long
time been a more potent influence IN the
market than has been commonly under
stood
It was shown that some years since d
syndicate of rich men took possession Of
the Chicago and Alton Railroad property
and after having weighted down its entire
future by an increase OF over S50000,VJ0
net water, In its bonded Indebtedness and
general capitalization shifted it over into
other hands with its treasury stripped Of
funds at a profit 10 themselves OF over
-S24,0OOOOO. a stock dividend was In the
first place declared upon the Chicago and
the shape of a capitalization of eX-
penditures made upon the property under
previous management. running as far
back as the year 1865, that had long since
been charged 10 income account and gen
eral Improvement Of property.
Cloud on Bond Issue.
In defense Of this it has been urged that
the road had right to issue securities
all
which should have been properly charged
as Is alleged. to capital account at the
time. The method by which this was ac-
cOmplished was by an issue of bonds the
disbursement TO the stockholders being
made out of the proceeds Of the bonds
sold It developed at the Interstate Com
merce Commission hearing that it was a
matter OF very serious doubt if this bond
issue was legal under the laws of the
State Of Illinois. and It appears. there
fore very likely that proceedings may be
begun by the proper law officers question
ing the validity of the bonds concerned.
The syndicate having in charge the
Alton management sold to themselves all
these bonds and a further quantity still al
price OF $3.50 a bond, and shortly after
ward Tesold them at various prices be
tween 800 and $3.50 bond Il must in
fairness be admitted that in this trans
action the general body of the Alton stock
holders was not injured since the synGi-
cate responsible for what took place con
stituted 81 per cent of the Alton share
holders. and all the stockholders who
wished TO do so were allowed 10 take q
pro rata share of the bonds. II anybody
was injured il was the people who bought
the bonds, not those who were interested
In the Chicago and Alton.
Bonding of UnbuiIt Railroad.
1t also developed, among other things
that the bonds covered a new railroad
line not yet in existence. and that when
those to whom the Alton property was
finally turned over came to look at what
they had bought they found this particu-
lar item of Indebtedness standing against
them with no assets to show for 1t. It is,
il seems. a customary railroad practice TO
issue bonds in this way upon prospective
railway construction. There is nothing, 1t
is said. particularly heinOus at all In such
an issue of securities. Il remains 10 be
seen, however. what the courts would say
II they were asked to construe the matter
of "a division of the proceeds OF mort
gage made in this manner to other pur-
poses than that designated in the instru-
ment so that when those who took over
the Alton road started 10 build the new
extension for which the money had been
raised they found that the money was
gone.
In the case of both the Union Pacific
and the Alton systems a classification OF
hooks was established. it being shown
that the Alton report last year was so
doctored as to show to the eye OF any
body except a trained expert a surplus
of S2Gl, eco, when in reality deficit OF
S7C0C00 had accrued; while in the year
1905 the Union Pacihc's annual report
credited the company with the possession
of $4,000 shares OF Southern Pacific stock
that had been sold 10 William Rockefeller
in order TO fortify the position Of the
company in the suit brought against It
by James r. Keene. assailing its right
TO maintain q controlling interest IN the
Southern Pacific management
story of the L. p. Dividend
Emphasis was again laid very strikingly
upon the declarations last fall of the un-
wontedly large dividends upon the Union
Pacific and Southern Pacific common
shares. The president of the Union Pacific
Railroad testified at the hearing that ia
July of last year it was disclosed at a
meeting OF the directors OF these com
panies that the earnings of the Union
Pacific and Southern Pacific lines.
especially the latter, were assuming such
magnitude as 20 make inevitable the be-
ginning OF dividends on Southern. Pacific
at q relatively high rate Of interest and
large increase i'll the dividend on Union
Pacific And yet during all this time.
while the directors OF the companies were
conversant with these earnings. they
were. In the case of the Southern Pacific,
which was by far the more important