Evening journal., 1910-08-16
CHARGE FRAUD
In BOND SALE
Diamond State Steel Co. Stock
holders Make Allegation
Against Bankers
APPLICATION FOR RECEIVER
HELD UP BY COURT

delphia banking nrm OF T.. B. Smith !
& Co. frauduIently retained 1897 500
from the Diamond State Steel Com
pany is made in the bill in equity filed
in the United States Circuit Court
yesterday asking for the appoint
ment Of ancillary receivers, with
power to collect and Distribute the as
sets of the corporation in Pennsyl-
vania.
Te petitioners are Thomas S. Davis
and George w. Todd, stockholders Of
the original corporation, which was
formed IL years ago under the laws
Of Delaware and which went into the
hands of receivers in December, 1905.
Messrs. Davis and Todd are holders
of the company's first mortgage bonds
to the amount of $2sS,00O and they
filed their bill for the appointment Of
ancillary receivers on behalf of them
selves and all other creditors. The
application was heard by Judge Hol-
land and held under consideration.
The Charge Against Smith & Co.
1t is set forth in the bill that the
Diamond State Steel Company was in
corporated in April 21, 1899, by Ed
ward B. Smith, Walter N. German,
George w. Morris, Evans r. Dick,
William ID. Alexander, John S. jerks
and Howard I. Wallace, with an auth
orized capital of $3,OO0,O0O, divided
into 100000 shares, at $40 per share
that the entire capital stock, except
ing 210 shares subscribed for by the
organizers, was placed in the hands of
Il. r. Smith & Co. as agents for the
company. to sell all the stock to the
public excepting 12,S25 shares, on
payment of Sc per share, 81 of which
was to go to L. b. Smith & Co. as COM
pensation for their services. The re-
naming 12,S25 shares were to be de-
livered to holders of stock and owners
of the Diamond State Iron Company.
In pursuance of this agreement, the
bill alleges, f. b. Smith & Co sold all
the stock to the public on the basis of
Sc a share, but instead of paying into
the treasury the amount due, il is
charged that they fraudulently retain
ed 1897 500.
Collected Delaware Assets.
In explaining how this was accom-
plished, the bill sets out that in No
vember, 1904, Henry A. Hitner's Sons
filed a bill in equity in the United
States Circuit Court, in Delaware, al
leging that the company was insolvent
and unable to pay its debts. To this
the company made answer admitting
its insolvency and the Court appointed
James p. Winchester and Howard T.
Wallace, both of Wilmington, as re-
reivers. Mr. Wallace was the presi-
dent of the Board of Directors of the
company. He and Mr.. Winchester col
| lected all the assets in Delaware, but
there still remains unpaid a large pro-
portion of the company's Indebtedness.
IL is set out in the bill that the COM
pany was indebted to the amount of
S1,240,S ,S05.11, S1.0OO00O of this being
on its first mortgage bonds, of which
the petitioners hold $2SS,000, and un-
secured debts amounting to S217, ,297 .26
whereas the assets callected will pay
only 60 per cent. of the bonded indeht-
edness and 10 per cent. of the unse-
cured claims. But this is not taking
into consideration the claim which
Messrs. Davis and Todd contend the
company has against E. B. Smith &
Company for $397,500 with interest
from May s, 1899.
Say Smith Controlled Board.
The petitioners allege that the di-
rectors of the company were under the
control of Edward b. Smith at the
time of the retention of this sum and
( that they were parties to it, and that
In order to suppress and conceal the
fact of the retention of this sum, no
! record, notice or information was given
out at any time by the Board to the
general stockholders.
To further conceal this action on
the part of r. b. Smith & Co., it is set
out that Edward B. Smith on March
10, 1901. caused a new corporation to
be formed under the same name, with
a capital Of $4,250,000. the new COM
pany paying to the stockholders of the
old company shares of stock in the
new company on the basis of 81 1-2
per cent of the face value of their old
shares. II is alleged that Edward d.
Smith caused the election Of himself,
Evans r, Dick, Edward Wolf, Walter
NJ. Gorham, George w. Norris and
Howard T. Wallace as the Board OF
Directors of the new company, and
Mr.. Wallace was made president of
the Board.
It is then alleged that Edward b.
Smith and Howard T. Wallace took
from the safe of the old company the
books containing the entries of state
ments of moneys received and deposit
ed them in a trust company in their
Joint names, subject to their order
and control, and that by an agreement
under which the new corporation was
formed, the lated came into posses
sion of everything belonging to the old
company, including the right to bring
an action at law against e. B. Smith
e. Co. for the recovery of the 1897 500
alleged to have been fraudulently
retained.
Want a Pennsylvania Named.
After reciting these charges the pc
titioners asked the Court to appoint
an ancillary receiver or receivers as
part Of the original proceedings, to
collect and take charge of all assets
I'm this state, with the special request
that the Court name as ancillary re-
ceiver a citizen and resident of Penn
sylvania who has in no way been con-
nected with either the old or new com
pany, in order that proceedings may
be brought against e. 3. Smith & Co
to account for the moneys they are al
legged TO have fraululently retained
IL was stated that the principal
members of the banking firm are al
present on their vacations, and their
counsel, John G.. Johnson, is also in
Europe. They are consequently un-
prepared with a formal answer, and Il
! is believed that for that reason Judge
Holland held the application under
consideration.
: Specialists In Prescriptions.
A u.