The Washington times., 1915-06-27
Revelations Greater Than
Those Of Hartman and New
Haven Roads, Is Claim.
WREckING PLOT ALLEGED
Profits EntitIe Road to Place
Among Stable Concerns,
But Are Hidden, Is Charge.
By JUDsON C. WELLIVER.

Three thousand pages Of testimony
taken by the Interstate Commerce Com
mission In its investigation Of the A.
nancial affairs and physical condition
Of the Rock Island railway system.
have been bound in huge volumes OF
typewritten matter to become the basis
for = report Of the commission and it
70 expected sensational development
later.
In ordinary times, 1t 10 declared, the
revelations Of this investigation would
create a bigger sensation than those
following the inquiries into tho Harri-
man and New Haven systems. and the
reorganization Of the Alton.
That the Rock Islands earnings
even now are such that 1t Is right
fully entitled to place among the most
stable and profitable systems in the
country, and that the truth about its
physical and financial condition has
been persistently concealed in fur
therance Of a project Of wrecking its
credit and freezing out the minor
shareholders, are among the sensa-
: ttonsl charges.
Profits Were Extracted.
:, II IL said that hundreds Of millions
! Of profits have been extracted from the
long manipulation Of the property
which began back in 1902.
The beginnings Of the Rock Island
operation by the interests that have ever
since been known as the RoSk tsiand
daring than the most recent develop
ments, according to the commission's
Testimony. The Rock Island Railway
Company had $4,000. 1000 capital stock
when the incursion into Its affairs be-
gan. The first step was quietly to buy
up about $aoOoo,o0O Of this stock, and
then. adding the power of proxies to
ri Il was controlled by the new inter
ests without a dissenting voice.
Firmly in the saddle. the new powers
decided on new device. Instead OF
: merely watering the securities directly
they formed two holding companies-the
Rock Island Company Of New jersey,
which had $4, 900 900 preferred and $685.
600 common stock authorized; and the
Rock Island Railroad Company. OF
Iowa. with $3.50 900 stock and SIS, ,00C
Of bonds authorized. Each of these
companies issued its stock and handed
It to the other company; each placed the
others stock in its treasury, and called
II paid up."
For Seven Directors.
The New Jersey company was to have
seven directors. and be the head of the
system: to control it was to contro
the entire chain of underlying corpora
tons. SC. it was provided that only IT.
preferred stock should vote for d1rec
tors Of the first class, of whom there
wero four. or a majority. In the fina
analysis. the organization contemplatet
that control OF majority OF this pre-
ferred stock should control the whole
chain.
These holding companies being dull!
organized, a trust agreement was mad,
York. under which the stock Of tn
Rock Island railway was to be de
posted In exchange for a variety Of tn
securities of the holding companies
For every 500 share Of railway com
pany stock was to be given
One hundred dollars In stock OF tn
Rock Island Railroad Company 9TH
Iowa corporation).
One hundred dollars of the commo
stock of the Rock Island Company
tNew Jersey corporation.
Seventy dollars Of the collatera
trust bonds of the Rock Island Ratroa'
Company: secured by deposit Of tn
stock Of the Rock Island Railway Com
pany illinois corporation).
Thus at tho conclusion of the trans
action OF tho stock Of the Illinois cor
pOTdtiOH, WHICH owned tne pnySlCd
property. was in trust to secure tn
collateral bonds of the railroad compan
lowa corporation). The earnings o
which to maintain these securities wer
the dividends on the stock of the rail
way company.
To Create Demand.
To create demand for tn estocks,
dividend Of ten per cent was paid, whio
was not earned. but was paid from tn
monies received for a sale Of additions
capital stock. Thus at length. on tn
basis OF the original capitalization {
$6O, ,0o0, 900. no less than $3.50, ,000.0 900 {
securities were issued.
The investigation went carefully int
alleged methods OF dissipating the PROF
and later fee control OF the Burlington
Cedar Rapids & Northern road. 1t d,
yeloped that one man got $4,000 frol
the Rock Island in connection with tn
coup, and sS5,000 from the Burlington
Cedar Rapids G. Northern. Another ma
got $l5l 900 for putative services In tn
same connection.
One of the interesting details whlc
the testimony developed Is that L. ]
Loree received $450,000 for ten month
services as president of the Roc
Island. When H. U. Nudge. presider
after Loree, was on the stand. he wa
asked about wages. and protested thf
the wage-earning employees were pal
too much but 1t was unavoidable. Aake
MS own salary, ne SAID II was S6O,QOC
and when asked II he didn't think
excessive, he was very sure 1t was no
The attorney Of the company got $50
00o the chairman of the board OF IL
Rock Island Company, $4,000; men
bers Of the board. $4,000 each. ann,
ally.
Bought the Frisco.
The Rock Island system bought IL
Frisco. under a contract by which.
there had been any profits. they wouI
have accrued to the holding companie.
but instead there was a loss. and II
railway company had TO stand It. Z
get the Frisco property OF the hanC
OF the Rock Island 1t was necessaI
to pay s7,500,000. This was provided /
an issue OF bonds OF the railway con
pany
RsGk Island losses on the absorptic
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