New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1914-01-27
BLAME SPEYER & co.
in FRISCO BOND SALE
Commerce Commissioners
Say Roads Poverty
Was Apparent.
SYNDICATES REAPED
SS,OOO,OOO HARVEST
Reeeivership Due to Financial
Juggling, Says Report Sub
mitted to Senate.

- =
mitted to Senate.
From The Tribune Bureau
Washington. Jan. %-severe oriuo'sm'
in the form Of findings Of fact sgainst
the financial management OF the St LOUIS
& San Francisco Railroad and the bank
ers who participated in the recent sale or
honds OF the road. is contained in re-
mort Of the Interstate Commerce Commits
sion submitted 20 She Senate to-day IN
rospopsc 10 a resolution directing an In
vcstigation.
"rho difIlculties Of the Frisco the re-
nor, recites. were Of financial and not
OF an operating character, IS, despite the
increase in the net operating income IRON
SsSS2.iSs FOR the year ended June So lSS''
20 81. sT7. tS7 for eleven months OF the hscai
year 1918. the surplus Of income available
for dividends In 1897 was SsSi.oSS. while on
May q. 1918. there was deficit OF SloeS'-
elS. Had IL not been for book charges
covering the loss on the operation OF
South Texas lines for eleven months OF
,he fiscal year 1918. amounting 10 NAs'-
eas. and amortized discount of S4S.SS'
there would have been a surplus OF 81
Oqa 500. or an increase in surplus for the
1918 period over the year 1897 Of SSl.oS4
The operating income for the eleven
months Of 1918 was $S,SiS.25S greater than
that for tho fun year Of 1897.
The sale Of securities TO the investing
public" the report adds Through the
bankers at a time when every appearance
indicated the insolvency OF the Issuing
company. invites and warrants condemna-
ton Of all those who assisted or partci-
pated in such sale Speyer & Co. should
have been aware of the poverty of the
Frisco and OF it's difficulties in obtaining
funds, as they advanced that company on
April "a S725.OOO on its demand note, and
$4,000 on its demand note dated April g.
and applied the proceeds of the sale Of
81 10000 Of these bonds on May 10 the
liquidation Of those notes.
Roads Poverty Apparent.
The report asserts that The inability OF
the Frisco 20 meet its obligations seemed
to have been apparent for some time
prior to the application for a receivership;
that strenuous efforts were made by its
officers to tide over financial difficulties
from day to day; that money was bor-
rowed from all available sources until
every avenue OF assistance was exhaust
cd. marketable securities being either
sold or pledged as collateral under the
numerous loans. and that notwithstand-
ing this exhausted financial condition, the
Frisco sold to Speyer & Co, of New
York. $4,000 Of its general lien per
cent bonds.
Financial operations, which included the
requirement Of lines through syndicates,
which profited 10 the extent of more>than
$500. 900, some Of which was pocketed by
the roads own officers, are cited as
among the underlying causes Of the
trouble.
THE insolvency Of the Frisco" the
various causes:
First. Disproportionate capitalization.
Second. The acquisition of new lines.
Third. The financing by the Frisco Of
the New Orleans. Texas & Mexico Rail
road and other South Texas lines.
Fourth. The desire for an entrance
into Chicago. resulting in the assumption
Of heavy fixed charges in the acquisition
of the stock OF the Chicago & Eastern
Illinois Railroad.
Fifth. The sale OF its securities at
prices so low as to indicate a deplorably
weakened credit or an extravagant ar
rangement with bankers, TO whom large
profits accrued in the purchase Of the
bonds, and the subsequent sale of same 10
the public.
Sixth. Miscellaneous causes, among
which are the payment Of dividends upon
its preferred stock in spite OF its weak
ened credit and need Of money; poor in
vestments and expensive rentals, among
which are the investment in the New Or
leans Terminal Company, stock in the
Kirby Lumber Company and rentals paid
the Crawford Mining Company.
Liabilities Beyond Reason.
The report shows that the funded debt
OF the railroad on May q, 1913, when the
receivership was ordered, amounted to
S263 per cent OF the total capital liability,
the total capital at that time amounting
10 sos. 633 1893, of which only SOL ,364, 100 was
capital stock and s244,26s, 1893 was funded
debt, including equipment trust notes.
That the interest bearing liabilities of
the Frisco system exceeded the stock
liability by S75 per cent, land were wholly
disproportionate when compared with the
capitalization OF other carriers, includ-
ing those in the territory west OF the
Mississippi River" IL asserted by the
commission, which submits figures for
eight selected railroads. showing the aver
age ratio Of funded debt to capital liza
oillty to be 5365 per cent
The requirement through syndicate
operation Of the st. Louis, Brownsville &
Mexico Railway Company, the report
says, represented profit Of 1885 per cent
on the subscription OF each syndicate
member. The syndicate was composed of
ninety-nine members. A summary Of the
syndicate operations on properties sold to
the frisco and the profits of subscribers
and trust companies Is given in the re-
port as follows:
"Oklahoma City and Western-Paid, S2,-
oe7.o43 IS; proft. $3s9,27S 50.