Evening star. [volume] (Washington, D.C.) 1854-1972, 1910-06-24
WATERING Of STOCK
Right to Regulate Upheld by
Wickersham.
TALKS TO ILLINOIS BAR
No More Radical Step Than Legisla.
tion Already Enacted.
CENTRALIZING Is GOING ON
Congress Has Right Under Constitu-
ton to Enact Laws,
He Contends.
TALKS TO ILLINOIS BAL
CENTRALIZING IS GOING ON

CHICAGO. June 24.-In a vigorous de-
fense of the power Of the national gov
ernment to legislate on the subject Of
the issuance of stocks and bonds by rail-
road corporations. subject to the inter-
state commerce act. Attorney General
George v. Wickersham spoke for an
hour this morning before the Illinois
State Bar Association.
The basis for his talk was the provision
in the new railroad law authorizing the
President to investigate questions per-
tanning to the issuance Of stocks and
bonds by railroad corporations and the
power Of Congress to regulate them. The
enactment OF such law. he contended.
was not nearly so radical a step as was
the enactment Of the permissive act OF
1868, which gave to q railroad corpora
ton Of one state the right to carry on
Interstate commerce. or the interstate
commerce act OF 1887.
Opposition to All Progress.
The Attorney General pointed out that
opposition had been made to every pro-
gressive measure of commerce regula-
ton.
But" he declared, in closing his
speech, ''the centr aiizing tendency has
gone steadily on, and the control OF Con-
gress over interstate railroad companies
has been exercised In an increasingly
comprehensive manner.
Such progress is inseparable rom
growth. The great arteries Of communi-
cation between different parts OF the
country and the instrumentalities which
control their operation can only be prop
erly regulated in the public interest by
the central national power: q power
which Is sovereign. which Is exclusive
when exercised, and which should be ex-
ercised to correct every evil OF q public
to be susceptible Of correction only by
national legislation"
Authorities Are Cited.
Numerous legal authorities were cited
by the Attorney General. from which.
he declared, 1t may confidently be as
serted that while Congress may itself
create corporations for the purpose Of
carrying on interstate commerce. IT may
also prescribe rules and regulations under
which q corporation created by the laws
OF a state may conduct such commerce.
and that when 1t does so, such state
corporation might engage only In such
commerce in conformity with the rules
and regulations SO laid down by Con-
gress. and that these rules may have
reference not only to the exchange Of
goods and commodities. but to the sub
ject the vehicle and the agent OF such
commerce, and their various operations.
Reference was made by Mr.. Wicker
sham to the condemnation. both by courts
and economists, of the reckless issue of
stocks and bonds by railroad companies
without adequate consideration, which.
he declared, had come to be generally
regarded as an evil. certainly as demorai-
izing in its effect on the public as the
carnage of lottery tickets from one state
to another.
Effect Of Watered Stock.
The twenty-year period of railroad re-
ceiyerships and foreclosures testified elo-
quently. he declared. to the practical
effect Of such unwarranted issues of Sc
curities upon the ability Of railroad COM
panies to properly perform. their func
tions as instrumenta1ities Of interstate
commerce; while the utterance of stock
for inadequate or fictitious considera-
ton hads furnished the opportunity for
the most irresponsible and speculative
control Of these highways of commerce
and had resulted in the injury which al
way followed a control Of property by
those who had no real investment in 1t.
SUCH control. Mr.. Wickersham contin-
ued, all experience demonstrated, would
not be generally exercised in the interest
of the road and to insure the safe con-
servative management necessary to meet
the requirements of the public and the
proper discharge of the obligations i'm
posed upon the carrier by law. On the
contrary II was almost inevitable that
such control would be employed for pure
ly speculative purposes and to secure i'm
mediate profit to those in temporary con-
troll.
One of Great Abuses.
1t was this public aspect which lent
force to the conviction that "watered"
and bonus stock was one Of the great
est abuses connected with the manage
ment Of corporations, and it was this ef-
feet upon the fitness of the carriers to
perform their duties under national legis-
iation that required and justified federal
supervision and control of the subject.
The Attorney General admitted that the
federal government could not confer on q
state corporation power to borrow money
and issue obligations therefor. nor to Gre
ate and issue shares of stock. Only the
power which erected the corporation
could vest 1t with authority for those
purposes
Congress Has Right to Legislate.
But" ne contended, under all the
rules and enalogies to which reference
has been made Congress assuredly may
regulate and restrain the state corpora
ton in the exercise of these as we'll as of
other corporate powers. and may prohibit
any purpose relating to interstate or for
eign commerce except in accordance with
rules and restrictions prescribed by 1t for