The Birmingham age-herald., 1910-09-20
Witnesses Are Examined Upon Stock Manipulation
 By Certain Roads
FIGURES ARE GIVEN BY
 ILLINOIS CENTRAL MAN
Testimony Relates To Issuance of Stock and Upon What Basis the Shares Are Given to
 Stockholders

 and manipulation designed to turn over to alleged stockholders large sums of money without putting in the company S record any evidence of more than pass ing fair dividends was the subject delved into today by the interstate commerce commission here at the continuation of its hearing, following the suspension of the general advance of freight rates of western lines which had been scheduled to take effect September l. s The stock manipulation feature of the inquiry which seems to bring out what grounds the railroads have for asking the increase, was suggested by Commits sioner Judson c. Clements, and was inn mediately taken up with the commission s attorney, Frank Lyon, and Attorney John H. Atwood of Kansas City, who appeared for the general shippers committee which is fighting the increase. Controller M. P. Blauvelt, of the Illinois Central rail- road, was the witness from whom the startling disclosures which followed were obtained.
 Commissioner Clements called the wit ness attention to figures he had furnished on direct examination by the railroads counsel, w. H. Horton. The commits sioner said:
 You say, MT. Blauvelt, that in 1891 your capital stock was $40.000.oOo on 2S75 miles of road, and in 1910, on only about 170o miles more it was s109,000,00O. Also that in 1891 the bonded indebtedness was only $62,O 900, while in 1910 it had reached s176, 900. Why is this?
 Excess for Improvements
 "Well," was the answer, what would appear to be the excess went to improve the roadway and to the equipment and purchase of other roads,"
 "And how was the stock raised for these purposes?" continued the commits sioner. Was it on the open market?" Part of 1t was, but most of 1t was sold to the stockholders at par.
 Was there ever declared a stock divi- dend7"
 ..Oh, no: I am sure there was not. But 1t amounted to the same as any other dividend. Illinois Central stock sales represented real value. you must see, in dollars and cents."
 Here Attorney Frank Lyon, for the commission, took a hand in the cross examination, seeking to have the witness differentiate between giving stockholders stock dividends or giving them stock worth more than par at parity. The controller insisted there was vast diff ference even If the result was the same in cash to the stockholder, which he ad- mitted.
 This part of the testimony opened a new disposition of corporation's stock, and Commissioner Lane, after asking if 1t was to make the stock value approach the cash value and being informed 1t was not, allowed the attorney to delve into the par stock deals of your stock sold at 150 in the open market" asked the attorney, and you gave it to your stockholders at 100, what became of the extra $50 of its value?' Why. 1t went to the stockholders" was the answer.
 Added To Capital Stock
 .Then, the upshot of 1t was that your company added to its capital stock by letting stock go at 100 when it needed money, when 1t could have sold less stock on the open market, satisfied its need and kept the capital stock down, giving less capital to figure dividends upon, Is not that so?" was the next inquiry
 Controller Blauvelt was unwilling such an impression should prevail, he said, and explained by saying:
 ''Suppose we dumped $15,00000 in stock on the market at once, 1t would send US value way below par. consider 1t good business policy to sell where we were
 
 trol of the road where it was.
 Attorney John H. Atwood of Kansas City. representing the general shippers committee, was anxious to know, he said, how much of the company's Sb,O0O,O0O in stocks and bonds has thus been sold at rar since 1900.
 Gan you give me the figures?" he asked.
 The reply caused other attorneys for the shippers to hastily examine the rec ords that had been submitted by the company. MT. Blauvelt answered:
 T find the sum was $49OOO,ooo par value"
 That sold in small dabs on the mar ket, or If 1t all could have been sold at market prices would have amounted to about third to half or more in addi- tion to that figure, would 1t not?"
 T don't know" replied the witness.
 Market Prices Quoted
 'T think I can help you," answered the attorney. He read from a stock and bond companys pamphlet, which quoted the high and low market prices in the period covered as between 122 and 174, with an average of about 150. After fur ther questioning along the same line, which brought out no new facts, Com- missioner Clements interposed an inquiry which directed the questioning along a new line-that to which stock sale money was put ana the possibility or actual gains of the company being hidden in its owning stock and bonds in subsidiary companies. The controller answered this question by insisting that when the par ent company paid out maintenance cost for the subsidiary companies and the subsidiaries paid back dividend those re- turns were not properly sources of in come to be considered in computing dividends.
 The commissioner asked:
 Some of this additional property which your company acquired was pur- chased by earnings, was not it?"
 Ut was," was the reply.
 "Then," interrupted Attorney Lion, "does the income include returns from these outside companies?'
 NO, certainly not" replied Controller Blauvelt. Few of them pay any divi- dend, and return revenue Is consumed nj payment of expenses on their sep arate lines. and does not furnish the parent company with any excess for in- come"
 Attorney Clifford Thorne of farmers cooperative association then sought to show by the witness that the present years high cost of maintenance was