New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1912-04-13
Court Allows Investor MiSled by
Prospectus to Recover.
TEST CASE IS DECIDED
Action Against U. S. Independent
90. Affects 155 Suits, In
volving Millions.
by Telegraph 70 the Tribune. ]

Albany, April 12.-Pending litigation In
volving several million dollars Is affected
by the independent telephone decision
handed down to-day by the Court OF APP
peals. BY the decision, Frank u. DoWney'
Of Rochester, wins in his action against
Thomas w. Finucane, the we'll known
Monroe County Democratic politician, and
other directors of the United States lnde-
pendent Telephone Company.
Downey brought the suit as test case
TO recover 1900 which he had invested IN
bonds of the company through pros
pectus claimed by him 10 be fraudulent
He obtained a judgment of N'H2 IN the
Monroe County Supreme Court. when IL
now affirmed by both the higher courts Oh
the state. There are l55 similar actions III
the Court OF Appeals. The case was argued
by Alton B. Parker and J. Nj. r. OGrady
for Downey. and by John G. Milourn ana
Daniel y. Kenefck for the telephone com
pany.
The effect of the decision is that persons
who invest money in the bonds OF cor
poration, relying upon prospectus CON-
tanning misleading statements concerning
the properties of such corporation, are en-
titled to recover the money so invested.
The United States Independent Telephone
Company was a holding company organized
to acquire control of Independent companies
and 10 compete with the Bell system. par
tlcularly in New York City. 1t was incor-
porated under the laws OF New Jersey, with
a capital stock Of s!0,0c0.cOO. The syndicate
was formed through the assistance of Will
lam u. Page. a New York lawyer. and &C
Of
dent Telephone Company.
This company gained control Of the Mer-
camille Electric Company, which was sup
posed to have a franchise for operating an
independent telephone line in New iork
City streets The only use 1t ever made OF
the franchise, however, was TO operate
burglar alarm system in the financial DIS
trict. The par value of the Mercantie
Electric Companys stock amounted TO only
5000. This was purchased by The syndl-
cate for $4,000 and turned over to the
New York Independent Telephone Company
for $4l. 900 600 OF It's stock.
When this stock was purchased the mu-
nicipal authorities had not granted any
permit for an extension of the franchise
and there was doubt that they would do 80
The prospectus OF the company. which was
prepared by Mr.. Page. however. stated
that the corporation had franchise for
the city OF New York 1t was signed only
by William O. Fem. who died before the
trial OF the case. The right Of the plain
tiff TO recover rested on the agency OF Fem
to act for the promoters In securing stock
subscriptions by means Of the prospectus
Judge Willard Bartlett wrote the opinion
I.
and Chase concurred Judge Hiscock dis
scented and Judge Warner did not act in
the case. Judge Bartlett in his opinion
says:
1t is obvious that II the facts in regard 10
the limited use to which the franchise mas
been put by the original grantee for burg
lar alarm purposes only had been set forth
IN the prospectus. together with the DIS
Crrpancy between the cost OF the franchise
10 the promoters and the amount Of stock
issued therefor. no careful investor would
have been induced 10 put any money into
bonds based on such foundation.
If Fem was the agent OF these defen-
dants, as members OF such syndicate. his
acts in furtherance Of the enterprise and
all that he did In reference to the pros
pectus must be deemed binding upon them.
The defendants claimed that Fem acted
az the agent for the United States lndepen-
dent Telephone Company solely. and did
not act for the individual members OF the
syndicate. They, therefore. claimed they
could not be held liable for his fraudulent
representations. Judge Bartlett said that
this argument did not apply In this case.
as the evidence did not permit an Inference
that Fem in issuing the prospectus. was
the agent Of the United States Independent
Telephone Company, rather than the agent
Of the defendants as members Of the syn
dictate.