New-York tribune., 1920-04-15
Law Violation
Seen in BRIT.
Dividend Plan
Division Made Before Com
pany Earned Money to
Make Payments, In
vestigation Reveals
Mayor Orders an Inquiry
New York Consolidated
May Face Prosecution
Under the Penal Code

The question as to whether the New
York Consolidated Railroad Company,
the operating company for the Brook
lyn Rapid Transit system, had vio-
lated the law in declaring dividends
a year in advance without having suf-
ficient funds from current income to
meet them was raised yesterday at
the traction Investigation before the
Board of Estimate. Mayor Hylan asked
William B. Carswell, Assistant Cor
poration Counsel, who conducted the
hearing, to ascertain whether this
practice was contrary to the state
law. Major La Guardia, President of
the Board Of Aldermen, declared he
believed it was a violation Of the
penal code.
The matter came up at the resump-
tlon of the inquiry into the affairs of
the Brooklyn Rapid Transit Company,
during the examination cf Wood Lou
doun, Deputy Commissioner of Ac-
counts, who has been examining the
company's books and records.
s30,949,97S Revenue
Mr.. Loudoun and Mr.. Carswell both
said, however, that despite the prom
ises Of Lindley M. Garrison, receiver
of the B. R. T., no assistance what
ever was being rendered by tho COM
pany officials. The city's investiga-
tion. as the Mayor expressed it, had
to be done by "sapping and mining"
Mr.. Loudoun testified that the New
York Consolidated Railroad, as origi-
nally constituted, from December /,
1912, to December 1, 1919, had q gross
revenue of SSO.949.978, with operat-
ing expenses of $48,962,676; taxes,
$4,946, ,948, leaving q net operating in
come of $27,040 453. The non-operat-
ing income amounted to S2602,067. All
deductions from gross income amount
ed to 1927 ,784, leaving a net income
available for dividends of S7,614,735.
The witness said it was the custom
of the company officials to declare divi-
dends on the preferred and common
stock for a full year in advance, pay
able quarterly.
In the first half of the fiscal year Of
1919 dividend of $945,000 was de-
clared, the witness said, but only S472,-
500 had been paid at the time the re-
ceiver took charge. The total amount
paid in dividends for the period 1913 to
1919 was $10,300,500, or $2,6S5,764 in
excess Of the income earned. The bal
ance was made up from the surplus ac-
"In other Words" said the Assistant
District Attorney, "the situation was
this, that without regard to whether or
not there were going to be earnings
out Of which to declare dividends they
in advance, at the beginning of the fs-
cal year, on the assumption that there
we're going to be earnings, declared u
dividend"
The witness said that was correct
Mayor Hylan asked if it was to be
understood that they paid dividends
when they did not have sufficient funds
for the purpose. The witness explained
that fortunately the company had a
surplus of $2,000,00O and that the cur
rent earnings would not have made up
ahc deficit unless they had had the sur
plus.
La Guardia Sees Violation
"The fact is that they declared divi-
dends, not knowing whether they were
going to earn dividends" said Major
La Guardia. "It strikes me that that is
q violation of the penal code"
At the request Of the Mayor the AS
s;stant Corporation Counsel said he
would look into the legal phase Of the
matter more thoroughly. Mr.. Loudoun
further testified that under the re-
ceivership there had been an improve
ment in gross earnings of $1,O47,1 1872
ever the first six months Of 1919, when
there was no receiver
The representatives of the p. r. T.,
these lines that you speak Of, were up
in Albany in favor of these bills that
this Broome Country Assemblyman
has introduced" interrupted The Mayor
These very same people that are
more or less responsible for declaring
these dividends which they did not
earn.
ut is pretty near time the people
woke up, and the Senators and AS
semblymen ought to know and under
stand the condition that exists in this
city. These companies declare divi-
dends in advance, so it will have an
effect on the stock market, and further
than that, use the money up instead
OF holding IL 50 that they can use it
to pay deficit in another part of the
year"
~ The hearing was adjourned to April,