The times dispatch. [volume] (Richmond, Va.) 1903-1914, 1914-01-27
Syndicate Wakes Fat,
But Frisco System
Is Wrecked.
BONES ARE PICKED
BARE OF PROFITS
Frcnzied Finance Drives Rail-
road Into Bankruptcy, Ac-
cording to Report of Inter
state Comnission-Story :.
of It's Plundering Is
Filed With Senate.
tspeo,al to Tho Times-Dispatoh ]

Washington, January 26.-Frenzied
finance wrecked tho ST. Louis and san
Francisco railroad system. accordihe
10 the report OF tho Interstate Com
merce Commission filed with the SEN
ato to-day.
Commissioner Clark. who wrote the
report, charges that sS,Oo0,o0o In pro
fits was divided among tho Syndicate
subscribers, and says tho operating cx-
pensee of the system were held down.
showing that the revenues from stock
sales were not used to better the SER
vice.
Causex for Disaster.
Six causes for the bankruptcy of the
system are named. They are:
First, disproportionate capitahza-
ton.
second. acquisition OF now nnes Un
some instances at enormous proht to
ayndicate subscribers).
Third. the financing of various Texas
railroads. including the New Orleans
Texas and New Mexico.
Fourth. an excessive charge paid for
stock of the Chicago and Eastern
Illinois Railroad. in order that tho
Frisco might get into Chicago.
Fifth, the sale OF its securities at
nnreasonably low prices.
sixth, paymen; or dividends on pre-
fcrred stock, regardless OF Its weak
cned financial condition. poor invest
mcnts, expensive rentals and general
bad management
Evasion OF the law IN Missouri. re-
auiring all capital stock OF railroads
10 be sold n, par. is intimated-
The report says: 1T VIII be OBJ
served that the interest bearing liza
biIities of the railroad exceeded the
capital stock liability by 3I5 per cent.
and were wholly disproportionate when
,,,Nfh Ia nit lizU inn nf
other carriers. including those ih tTie
territory west OF the Mississippi River.
Tho excessive issue of interest
bearing securities instead of capital
stock may be due to the reQuir emcnts
or tile state OF Missouri that capital
stock OF railroads may not be sold al
less than par, while no such restriction
* placed upon the sale OF bonds. The
disposition or bonds is usually Ii trans
action with banks or bankers to whom
PROFITS accrue"
Bad management shown.
These securities, the commission
declares. were sold at prices so low
as 10 indicate a deplorably weakened
credit. or an extravagant arrangement
by bankers TO whom large profits ac-
crued in tho purchase OF the bonds
and the subsequent saie OF them to
The public"
The immediate cause OF the bank
ruptcy OF tho railroad the report con-
tinues, was inability to pay the prin-
cipal OF two-year per cent notes,
amounting to S2,5o0.00U. These notes
were secured by S3,9g0, 600 I'm common
and preferred stock of other railroads.
Those who advanced the money de-
manded an additional security. showing
their disbelief in the stock they held,
the report says.
Although IL was up 10 the neck In
~
mission, had apparently exhausted
every possible avenue OF assistance"
the. Frisco Railroad system fcated n
sS,000.000 bond Issue at n price OF rs,
the bonds being sold to Speyer & Co.,
of New York.
The sale of securities TO the invest
ing public through the bankers at a
time when every appearance indicated
the Insolvency of the issuing company,
invites and warrants the condemnation
Of all those who assisted or partici-
pated In the sale. The purchasing com
pany should have been aware OF the
poverty of the Frisco and OF it's diff
Guilty in obtaining funds, AS II adj
vanced. shortly before the bond issue,
nn demand note, the sum of 1925, 600"
Operating Income Not to Blame.
That the operating income of the st.
Louis and San Francisco and it's oper-
ating expenses played absolutely no
part in the financial fasco. Is shown by
the commission. The operating In
come. for 1913 was $1l.677437, as
against s2,332,15S in 1897.
The commission continues:
The absorption of the increased in
come is accounted for by charges of
S3,140.610 covering the cost OF the
lease of the Kansas City. Fort Scott
and Memphis Railway. the Kansas City,
Memphis and birmingham Railroad and
the Kansas City, Memphis Railway and
Bridge Company, by the increase in
the funded debt, from s1.9e4,OO0, in
1897 to s10.6S4 600 in 1913"
While the railroad was thus skidding
iGward ,'nI, insolvency, ss there We're rich
building new roads and selling them to
the system" the commission points
out. The names of Il. T.. Yoatum ~ T.
Perkins and others are listed by the
the syndicating of roads.
There were nine syndicates in all.
The subscribers paid in $26,54S,000 and
drew out Il profit OF sS.444,000. This is
the commissions opinion of this policy:
The financial policy Of the Frisco in
tho acquisition of new lines at prices
greatly In excess of construction costs
and the sale of It's funded debt securi-
ties. at extravagant rates of discount,
including the payment OF premiums on
retired issues. tho Investment in stock
Of industrial companies, on which no
ton Of heavy fixed charges for Its
Texas lines and the Chicago and East
ern illinois,. far greater than It's re-
excessive charges upon Investment ins
and the use OF terminal md coal prop
critics. have resulted In tho not revenue
OF tho Frisco being absorbed.
During all this time the Frisco
line was spending no money In i'm