Evening star., 1909-02-19
FORESAW BIG PROFITS
Officials of Tobacco Com
panies Criticised.
HISTORY OF COMBINATION
Herbert Knox Smith Tells of Stock
Manipulation.
Many Sidelights on Schemes
Says Officers and Directors Should
Have Shared Special knowledge
With Outside Stockholders.
Schemes

From a manufacturer of cigarettes.
with a capital of s35.O000oO in 1890. the
American Tobacco Company has grown
until now its net capitalization. excluding
ntercompany holdings amounts to the
enormous sum of S316,346.S S21. Ii has alb
Sorbed 80 separate concerns. and now
controls four-fifths of the output of each
important kind of tobacco manufacture
in the United States with the exception
of cigars
The foregoing is set forth in A report
transmitted to the President yesterday by
Herbert Knox Smith. commissioner of
corpora tions, of tire Department of Com
merce and Labor.
Furthermore. Commissioner Smith says.
referring to the company: Its history also
presents important features OF stock ma
nipuatfon. The financial transactions
centering around the organiZatiOu of the
Consolidated Tobacco Company in 1901
are especially noteworthy. At that time
a small body of directors and stockhold-
ers In the combination believed that the
profits of the combination could be great
ly increased in the Immediate future.
To Secure Most of Profits
They organized the Consolidated To-
bacco Company and offered its bonds in
exchange for the common stock of the
American and the Continental in order
thus to secure for themselves most of the
increased profits about to accrue. The
profits accrung to the common stock of
the American and the Continental, after
its acquisition by the Consolidated in
creased greatly, and the small body of
men controlling the iast-named company
SO small, in fact. that six of them held
a majority of its stock. and thus con-
trOlled the entire comhination-becam me
entitled to millions of dollars which had
it not been for the Consolidated trans
action. would have gone to the original
common stockholders"
In his letter of transmttal Commits
sioner Smith states that his report deals
with the history of the great tobacco
combination, from the standpoint of its
organization. the methods by which it has
been developed. including bogus indc-
pendent concerns of the combinatio and
points out clearly that the leading purpose
of the men who have controlled it has
been to dominate the tobacco industry.
Sidelights on Schemes
The report contains not only the details
Of the financial operations of the combina-
tion in its rise, but also many sidelights
on the schemes employed to make the
combination paramount in the tobacco in
duStry.
Referring to the offer of the bonds of the
Consolidated Tobacco Company in eX-
change for the common stock of the
American and Continental, Commissioner
Smith stated that while there was no
concealment Of the fact that the offer
came from the principal officers and di-
rectOrS OF the two companies. yet 1.-The
conduct of this group of men is proper
subject for criticism, because they could
foresee much better than outside stock
holders the large profits about to accrue.
They occupied fiduciary relation to the
outside stockholders. and should have
shared with them equally the special
knowledge acquired by their position