Omaha daily bee., 1910-09-20
Shares Sold to Stockholders at Less
Than Real Value.
WOULD LOWER VALUE ON MARKET
Witness Saws Good Business Policy
Demands Methods Employed.
GAINS HIDDEN In OTHER FIRMS
Commissioner seeks 90 Prove Sub
sidiary Companies Secretly Hold a
Portion OF Earnings. hut Testi-
mony il 10 the Contrary.

CHICAGO Sept. ls.-Alleged stock infla-
ton and manipulation designed 20 turn
over TO the stockholders large sums OF
money without putting in the company's
record any evidence OF more than passing
fair dividends was the subject into which
the Interstate Commerce commission delveo
here today at the continuation OF its hear
ing following the suspension OF tie gen
I eral advance OF freight rates OF western
lines which had been scheduled TO take
effect September l. The stock manipulation
feature OF the inquiry. which aims to bring
out what grounds the railroads have for
asking the increase, was suggested . By
Commissioner Judson c. Clements. and was
Immediately taken up BY the commissions
attorney. Frank Lyon. and Attorney John
W. Atwood OF Kansas City, who appeared
4 for the general shippers committee, which
is fighting the increase. Comptroller NJ. p.
BlauVelt OF the Illinois Central railroad
was the witness from whom the disclos-
ures which followed were obtained
BLauVeIt CrOss-ExamtnatiOn.
/ Commissioner Clements called the wit
ness attention to figures he had furnished
in direct examination by the railroads
/ counsel, W. Il. Horton. The commissioner
said:
You say. Mir. Blauvelt. that in 1891 your
CAPITAL stock was $4oO0e0Oo on 2SB miles
! OF road and in 1910, on only about .T0O miles
more il was Sl0s.OJ0.Oo0. Also that in 1881
/ the bonded Indebtedness was only 81, ,u09,Op,
while in 1919 1T had reached Sl76,O0e,0O. Why
is thisY
Well" was the answer, what would
appear to be the excess went to improve
the roadway and for equipment and pur-
chase OF other roads"
I And how was the stock raised for those
purposes sold?' continued the commissicner
/ Was il on the open market
Part Of it was. but most of 1t was sold
to the stockholders, at par"
Was there ever declared a stock divl-
dsDd?''
! -oh. no. ] am sure there was not That
\ would amount to the same as any other
dividend, you see; the Illinois Central divi-
dends represented real value, you must
see. in dollars and cents"
Here Attorney Frank Lyon for the COM
mission endeavored to have the witness
differentiate between giving stockholders a
stock dividend or giving them stock worth
more than par at par value. The con-
troller insisted there was a vast dlfer-
ence even if the result was the same, in
cash TO the stockholder, which he admitted.
Par stock Deals Questioned.
, This part Of the testimony opened new
disposition Of a corporations stock, and
Commissioner Lane, after asking If it was
to make the stock value approach the cash
value and being informed it was not, al
lowed the attorney TO delve into the par
stock deals.
IF your stock sold at 10 in open market"
asked the attorney. and you gave it TO
your stockholders at 100. what became OF
the extra 80 per cent Of its value?"
: why. it went TO the stakeholder" was
! the answer.
Then the upshot Of it was your company
/ added to its capital stock by letting stock
go al par when it needed money, when it
could have sold less stock on the open
market. satisfied its need ana kept the
E capital stock down, giving less capital 10
= figure dividends upon. isn't that so:' was
: the next query.
Z Controller Blauvelt was unwilling such
y an impression should prevail, he said, and
he explained by saying:
suppose We dumped s15.OOOOOO in stock
on the market at once. il would send its
value way below par ! consider il a good
business policy to sell where we we're sure
it would bring par and keep control Of the
road where il was"
Attorney Atwood asked how much of the
company s2S5.OIo0oO in stocks and bonds had
, thus been sold at par since 1900
The reply caused other attorneys for the
shippers TO hastily examine the records that
had been submitted by the company.
Mr. Blauvelt answered. Il find the sum
was Sse.Oo00OO par value"
/ That sold in small dabs on the market
= % IL il all could have been sold at market
, prices would have amounted 20 about a
, third or a half more in addition 10 the
figure. wouldn't it?
4 don't know" replied the witness.
E i think I can help you" answered the
I attorney.
He read from a stock and bond com
e pany's pamphlet which quoted the higt
y and low market prices in the period covered
between 10 and ia. with an average OF
bout ia
Clements Diverts Subject.
| Commissioner Clements interposed an in
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