The Washington herald., 1914-10-17
Opens PROBE OF
ROCK ISLAND.
Expert Testi6es Stock Was
Watered to Five Times
Its Value.
REVEALS BOOK JUGGLING
Frederick c. SharoOd Lays Founda-
lions for Inquiry. Which Is Likely
to Yield Sensations.

The Interstate Commerce Commission'l
Investigation into the financial affairs
and management Of the Rock Island sys
TEN got under way yesterday. A charge
that the Rock Island stock was watered
to five times its value through the or
ganiEation Of holding companies was one
of the first made by the commission's 9
expert, who has examined the books or
the company. The same expert declared
that there had been a loss Of $40,OO0OOO
TO the Rock Island in the purchase Of the
Frisco and Chicago and Alton roads.
He added that there were false entries
on the books, apparently designed to
boost the market value Of the stock.
Frederick c. SharoOd was the COM
missions expert accountant, who was
called to- the stand yesterday to lay the
foundation for an investigation which Of
hcials OF the commission believe will
yield results as interesting as the recent
inquiry into the financing of the New
Haven system.
DiaelOHeS Aim OF Inquiry.
Mr.. sharood had been on the stand only
q short time when he disclosed the di-
rection in which the commissions inquiry
is aiming. He testified that shortly after
the Reid-Moore syndicate had obtained
control Of the road, the Rock Island stock
tnal capitalization.
Sharood 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
stocks and bonds issued for the two hold
ing companies were $3.50, O00 These,
according to the witness, had no earn
ing power Of their own. but were de-
pendent entirely for earning upon the
81, 900 capital stock Of the Rock Island
road.
The commissions investigators intend
to md out in the course Of their in
quiry what became of about 500, 900
which they contend is the difference be-
tween the original capital and the amount
Of securities finally issued by the Rock
Island Company.
Clements IL PresidinE.
Commissioner Clements is presiding over
the hearing and witnesses are being ex-
amined upon behalf of the commission
by Joseph w. Folk, chief counsel
NJ. L Bell is representing the Chicago,
Rock Island and Pacific Railway Com
pany, the operating company, and Robert
Walker, the Chicago Rock Island and Pa
cific Railroad Company of Iowa, and the
Chicago, Rock Island Company q New
Jersey, these being the two holding COM
panies.
The hearing will be continued today,
when it is believed adjournment will be
taken for several days.
F. L. Hine, president of the First Ma
tional Bank of New York, who is also a
director of the Rock Island, was on the
stand a short time and his testimony
related 20 a loan of S,5oO, 900 made by his
bank to the Rock Island.
Accountant Sharood placed in the record
a complete history of the Chicago Rock
Island and Pacific Railroad Company.
Mr.. Sharood figured out that the stock
of the Rock Island had been "watered"
to ive times its value. From Sharood's
statements it would appear that the Rock
Island was wrecked through the purchase
of what is known as the Frisco line and
also in the purchase of the Chicago and
Alton. Mr.. Sharood estimated that the
loss in the purchase of the Frisco line
was SIS, ,0Oo, 900, and q loss of IS, 80, 900 in
the purchase Of the Chicago and Alton.
Mr. Sharood said that the late E. H. Har-
riman, Jacob Schin and James Stillman
sold the Chicago and Alton to the Rock
Island. Mr.. Sharood charged that the
oficials of the Rock Island had made
misleading entries in their books to make
q good financial showing and to boost the
Rock Island stock in the market.
False Entries on Books.
He said that the books of the Rock
Island company contained false entries,
and stated that the $35,O0O0OO loss in the
Frisco deal showed up on the books
as an asset Mr.. Sharood also showed
records showing payments of 800 900 in
the aggregate to r. A. jackson, vice
president Of the Rock Island, in addition
to his salary of 81, 900 a year. This ;1oo-
900 was accounted for as legal ex-
penses."
summoned to appear and testify: 7. NJ. !
Schumacher, George T. Boggs, George G. |
McMurtry, D. G. Reid, J. W. Wallace, |
and B. F. Yoakum.