New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1915-08-18
Wants Directors Made Re-
sponsible for Dissipa-
ton of Funds.
ACCUSES ROCK
ISLAND OFFICIALS
Commission Declares Record of
Road Emphasizes Need of
Restrictive Laws.

INTERSTATE OOHlWclSe COMMISSION III a
report issued to-day, following its in
vestigation of the Rock Island Rail-
road financing. The report severely
crticises the directors and officers Of
the company for the change between
1902. when the road was thriving and
its stock was selling at $500 a share,
and 1914, when its shares had fallen to
$40, with a receivership little later.
THE evidence shows" says the COM
mission, that the earnings of the rail
way company have steadily increased
and that in 1914 they were the largest
in its history"
The report concludes with a strong
plea for some such law as the Reyburn
railroad securities bill, which. passed
the House at the last session of Con-
gress, but died in the Senate.
"By this case" the report says, "the
need of some limitations on the issu-
ance Of stocks and bonds by common
carriers, whether directly or through
holding company devices or otherwise,
is again demonstrated.
"The property of the railway COM
pany will be called upon for many
years 10 make up the drain upon it's
resources resulting from transactions
outsid de the proper sphere in which
stockholders had a right to suppose
their moneys were invested. This rec
ord emphasizes the need of railway
directors who actually direct. There
are too many passive directors who &C
quesce in what is being done without
knowledge and without vestigation.
Duties of Director.
"A director of railroad is a quasi
public official, who occupies a position
of trust director who submits
blndly to the exploitation of his com
pany is party to its undoing. and he
should be held responsible to the same
extent as if he had been a principal in
stead of an accessory before the fact.
The greater his prominence the greater
his responsibility and the greater his
derel. ction.
obviously, a man of large affairs
could not attend to all the details in
intricate transactions, but it is incon-
ceivable that a director of ordinary
business prudence ana sagacity would
sanction large expenditures without an
inquiry as 70 the purposes of such dis
bursements. Sc long as this situation
exists, however, ii suggests the need OF
a law to charge such directors with in
dividual responsibility for the disSipa-
tion of corporate funds.
"The Clayton antitrust act, which
becomes effective October Is, 1916, will
make it unlawful for any person at the
same time to be a director in two or
more competing corporations any one
of which has a capital, surplus or UNI
divided profits aggregating more than
81 100000, but common carriers are eX
pressly exempted from its application.
Ii should be just as grave an offence
for an official of Il railway to be faith
less to his trust for financial gain as
it is for an elected official of the gov
eminent to betray his trust for money
reward.
at is 1. forceful commentary on the
methods by which a great railway may
be manipulated into recelvershlp
when it is noted that the general cOuh-
sci, after drawing the bill for a re-
ownership, sold his stock, and the local
counsel, who represented the railway
company in the receivership proceed
ings, owned no stock in the railway
company, and that none of those di-
rectly participating in the receivership
proceedings had any financial interest
in the railway company. The real own
ers of the railway-the stockholders.
the security holders and the directors,
except those composing the syndicate
and in its confidence-were in igno-
rance of the receivership application.
"Mr. Nudge, former president of the
railway company, is one of the receiv-
ers. The general counsel for the rail-
way company, who planned the receiv-
ership in obedience 10 the will of the
syndicate, is now counsel for the re-
ceivers.
Coincidence in Stock Activity.
"The bill was filed April 20. The rec
ords of the New York stock market re-
veal that the railway stock was mac
tive until the day this bill was COM
pleted, March 20. Then the stock be-
gan to be largely dealt in, and the
price increased from $40 TO $50 a share.
When the bill was fled and receivers
were appointed the stock dropped from
500 to $40 d share"
The report points out that at no
Of the board was any author
ity ever given to ask for receivers, and
says:
According to the testimony, the bill
was completed by the general counsel
March 30, 1915, and the fact that it was
to be filed whenever desired by those
in authority was known only to certain
insiders. The testimony clearly estab-
lished the fact that the railway COM
pany could easily have paid the debt
of $4,000 upon which the receivership
application was based, and that ar
rangements hroSably could have been
made TO meet all pressing obligations
of the railway company"
The commission gives a table of
seven items, which, il says. SHOW an
aggregate loss to the railway company
of more than $4,000 600" and adds that
prior 70 June 30, 1914. the company
paid to financial institutions in con-
nection with the issuance of bonds
commissions aggregating more than
81 500, 900 and suffered discounts of
more than Sl7,700,ooo.
Gains to Certain Men.
THE amount of gain. according TO
W. B. Leeds, D. c. Reid. W. II. Moore
and J. H. Moore, through their control
and manipulation of the railway COM
pany is probably not ascertainable.
the report continues.
"A significant transaction" says the
commission, "is that growing out of the
action Of c. II. Venner. a stakeholder
Of the railway company. He made de-
mands upon the officers Of the railway
company in December. 1902. and in
January, 1903. for list Of its stock.
holders. Being ignored. he instituted
on January 81, 1908. a proceeding in a
state court Of Illinois to enjoin the
organization Of the holding companies
and the exchange OF railway company
stock for their securities.
an February and March. 1904, the
-.;t,yay .ounapv Maid Manner goal 600