The sun. [volume] (New York [N.Y.]) 1833-1916, 1914-01-27
Railroad System "Wrecked'
by Financing, Says Com
merce Board.
YOAkUM BIG GAMER
Twelve Per Cent. of Funded
Debt in Discounts and
Commissions.
BANKERS ALSO CRITICISED
Net Cost Of Financing Securi.
ties Since 1901 Amounted
to $50, 100000.

10 S5U, JUU.OVV.
WASHINGTON. Jan. 26.--The Interstate
Commerce Commission made public to-
day the results OF its investigation OF the
so-caned wreckine Of the Frisco system
The commissions findings are only
mildly personal. but nevertheless they lay
A. heavy burden upon Benjamin T.
Toakum and the directors and officers
who were associated with him in the
management and control Of the system
now In the hands Of receivers.
The commission finds that the Ills Of
the ST. Louis and San Francisco Railroad
and its allied lines are OF financial and
not OF an operating character.
The commission attributes the !nsol-
~ency OF the system TO the acquisition of
new lines at prices greatly IN excess OF
construction costs, to the sa;e OF its
funded debt securities at extravagant
rates OF discount, TO investments IN stocks
Of Industrial companies on which no dv!-
bends have been paid and to other similar
causes.
Tne Bl8 OtsCOUntSs
The commission shows that IN twelve
years discounts on bonds and notes and
premiums paid on the retirement OF under
lying issues cost the Frisco system the
enormous amount Of S3o,I52,602." The
commission makes the startling statement
that of tho net amount oI the Friscos
funded debt now outstanding more than
1905 per cent repres 'nts discounts and
commissions which went TO bankers
within the widest possible range of
reasonable charges TO the public" says
tue report. mo transportation company
constructed and living upon borrowed cap
ital can Ions survive Il situation in which
IL sells security at 62ia cents on &. dollar
and pays interest On the par value
Thereof
at per cent. the sS0,6S5,74e OF net
discounts and commissions carried by tine
Frisco represents an annual expenditure
az Si,:2G,63v for interest upon moEst
which it never received
The accounts show that the securities
were sold at prices higher than those
above quoted, but commissions varying
from to ~ per cent. paid to bankers,
aggregated more than 100000"
Insiders Profits.
The commissions report shows that the
insiders. including b. j.. Yoakur. profited
handsomely from sales OF railroad prop
critics mad, TO the Frisco company. The
commission gives the details of several OF
these transactions and shows clearly that
some of the properties were handed TO the
Frisco at a considerable Increase over
tic cost OF construction. The Interstate
Commerce Commission Is unable to give
all of the details OF these syndicate trans
actions through which insiders piofted
IL the case. for instance, of nine syn
dicates which sold property to the Fri4co
Company, the aggregate pro 1t was Ss,444-
1sG to members Of the syndicate. This
profit was made on Il total OF only $50.
54S.lli OF cash paid IN. The incomplete
figures show that Mr.. Yoskutn made at
east s366,000 out Of such syndicate trans
actions.
Certain Of the bankers who handled
tho Frisco's securities do not altogether
escape criticism. The commission con-
lends that either the credit of the Fris -
was very poor or that the bankers got
the securities which may or may not
have been as high could have been
obtained from those not directly inter-
ested in the financing Of the Frisco"
New York Bankers Criticised.
of New York by name, because of the sale
~ the 100000 of general lien per
cent bonds (French series) at a price OF
IS. Just before the receivers We're ap-
pointed, These are the bonds which led
10 Il sharp protest from French investors
after the receivers were appointed.
THE sale of securities to the investing
public through the bankers" says the re-
port, "at time when every appearance
indicated the insolvency Of the issuing
company invites and warrants condenna-
ton of all those who assisted or partci-
pated in such sale.
"Speyer 4 Co. should have been aware
OF the poverty of the Frisco and Of It's
difficulties In obtaining funds, rs they
advanced that company on April ~ S725-
COO on its demand note. and $4,000 on
It's nland note dated April 49, and ap-
piled tho proceeds Of the sale Of 1000
600 of these bonds on May 2 to the liqui-
dalton OF these notes"
Kuhn, Loeb & Co. are mentioned in re-
gard 20 transaction which the commits
sion says had the effect OF coucealing
from the trustee under the mortgage the
price at which certain bonds OF the Chi
cago and Eastern Illinois Railroad Com
rany were sold. The report says:
From February lG TO May l. 1912
bonds Of tho par value OF Si,5O6, 900 We're
l.aued lor the purchase OF certain coal
properties, rights, sc, IN Indiana and IL
lnoiS. February 10. 1919, interim bonds
having a par value OF so.6So,0O0 were
deliver-l 70 Kuhn. Loeb & Co. at SO, as
of February !. 1919, and the proceeds.
with interest to February 1G. Mt . per
cent, amounting to s2,3s7.lS7.
"COncealment" Of Price.
"Dn the same day the Chicago and
Eastern Illinois Railroad gave Its note
for 100000 and received that sum from
1fuhn. Loeb Co., which II deposited
IN the National City Bank. simulta neously
check was drawn on the National City
Bank to the order OF Kuhn. Loeb & Co
for S29o.S12. Kuhn. Loeb & Co. then
made one check to the Central Trust Com
pany, trustee under the mortgage, for
s1.6S0.o00. the transaction having the
eject OF concealing from the trustee the
lIiin q xatniI &l,xa a.