Evening public ledger. [volume] (Philadelphia [Pa.]) 1914-1942, 1914-10-16
EXPERT SAYS ROCK
+ ISLAND STOCK WAS
FIVE TIMES WATERED
Financial Manipulators Got
$300,0O0,000 for Issue
Worth $90,00O,00O U. S.
Commission Is Told.

WASHINGTON, Oct. 16-The Interstst,
Commerce Commission today. threw IL,
searchight on the Chicago, Rock 1slant
and Pacific Railroad system, to get al
the truth of charges that the stockholder,
have been left "holding the bag" while
q small coterie of financiers Incurred
obligations of more than $500 600, 600
Revelations are expected which will
parallel, or surpass, those in the famous
New Haven inquiry.
Chief Counsel Joseph w. Folk who is
prosecuting the inquiry for the Commits
sion, is directing his fire first at alleged
manipulations through holding companies,
by which stock, bought for $9O0O0,000 and
representing a controlling interest in the
Rock Island, was watered, II Is alleged,
and sold for $500, ,OO0, 600. to the profit,
II Is charged, of S21O.OOO.OO0 to the manipu-
lators.
HOW STOCK WAS WASTED.
r. A. Shawrood, an accountant In the
employ of the Commission, was the first
witness to take the stand. Commissioner
Clements, who is presiding over the in
vestigation, emphasized to Governor Folk
chief counsel, the desirability of expe-
ditng the hearing for the benefit of wit
pesses.
one of the first disclosures brought out
was how the Rock Island stock had been
increased to five times It's original cap
italization shortly after the Reid-Moore
syndicate obtained control OF the road.
Sherwood told of the formation of the
Iowa and New Jersey holding companies,
the directors of which were employees of
the Rock Island Railroad. The total
Iu iecn h,,t tha t,,,A Irts
ing companies were $3.50. 900. .00o These had
no earning power of their own, examina-
tion disclosed. but were dependent en-
trely for earnings on the dividends on
SIl,000O60, the stock of the Rock Island
road.
Then the stock of the Rock Island was
watered five times over?" asked Folk.
Yes" replied Sherwood.
EXPENSES PUT AS OPERATING.
Sherwood said that for s1,oOo,ooo par
value of the old railroad company stock
the holders received $71OOo, 900 bonds In
the Iowa company and 20 per cent of $71,-
100000 of preferred stock of the New Jer-
sey company, and 81, 900, 900 common stock
of the New Jersey company. This made
a total exchange of $191, 700 900 of securl-
ties Of the holding companies in return
1or Sl'OOo'OOO of the old company's stock.
LOSS OF $35.OOo,O0O IN FRISCO.
The Rock Island system sustained an
outright loss of $S5, 10000 by its purchase
and subsequent sale of the ST. Louis and
San Francisco, better known as the
Frisco system, according to Examiner
Sharwood's testimony. The Rock Island
bought the Frisco stock at 12o and sold it
at 57i4.
Six million dollars was lost outright by
the Rock Island similarly in the pur-
chase and sale Of the Chicago and Alton
Railroad.
Examiner Sharwood's testimony showed
that the s35OOOO,OoO capital stock of the
various holding companies created by the
Rock Island system was .four-fifths water.
The only actual value upon which this
stock had to depend for backing was the
s7l 100000 capital of the Rock Island Rail
road.
One of the most entertaining deals In |
the history of the Rock Island system, ac- |
cording to Chief Counsel Folk. who |
brought out the story by examination of |
the witness. was that by which a $7.50O,00J |
debt OF the Rock Island Railroad, the |
actual company, was funded by the Rock |
Island Railway, the holding concern.