New-York tribune., 1921-11-22
Directors Must Explain
'I8, 10 Dividends When
There Were No Earn
ings, Say Examiners
Il" Deal Involved
9OO-Year Payment
Books Would Show $12.-
100000 Deficit if Made
Up Properly, Is Belief

Directors of the Interborough Rapid
Transit Company, who in l91S-1919
voted dividends for a period during
which, it is alleged. the company had
no earnings, will be subjected to ex-
animation by the Transit Commission
as to the motives for their action and
on other important phases of the in
vestigation bearing on the solvency of
the Interborough.
The decision Of the commission to
ret to the roots OF the traction muddle
by questioning officials in high respon-
sibility came late yesterday at the close
Of hearing which revealed several
new facts concerning the finances of
the transit company, including the
following:
900-Year Pact Barred
That during its existence of eighteen
years the Interborough had paid under
operating expenses" s75.336,OOo as
profits and dividends to the Manhattan
Elevated Railway Company, within
s4,o00,00o OF the total actual cost of
the original a." and that under the
provisions of the contracts these per
cent payments would continue for 900
odd years.
That out of the entire net income of
the 1nterborough for the same period,
amounting to s67,867, ,87S, after surplus
adjustments, S65, 1925 900, or 1879 per
cent on the total capitalization of $685.
100000, was distributed in dividends,
lesving book surplus of $2,242, 1878,
without making any provision for
writing off uncollectable bills, bills re-
ceivable and accounts receivable.
That if the Interborough had listed
about $S,000,000 as liabilities instead
Of assets and had provided for the
amortization of s5,000,000 demanded in
ITS forty-nine year contract it would
now have deficit of S12,000,000 in
stead Of a surplus of S2,242,S78
Flaws in Bookkeeping
That, according to Mr.. Shearn, the
company's bookkeeping methods were
faulty N that various accounts did not
show what the actual cost of operat-
ing the city's subways was and that
the system of accounting had failed
to show whether the actual operation
Of the subway lines was profitable Or
improbable
That. according to the commissions
counsel, had the Interborough made a
falr and honest statement in its bal
ance sheet the company would have
been revealed as bankrupt.
That the Interborough supplied
power to the New York and Queens
which was charged against the opera
li0n OF tho city'c c11hwavS
Principal of the traction officials
whom the commission desires to place
on the witness stand to explain the
inference of Clarence ]. Shearn, special
counsel of the commission, that divi-
oends were paid on assets that should
have been listed as liabilities, are Z. J.
berwind, who succeeded the late Theo-
dore P. Shonts as chairman of the ex-
eeutive committee; August Belmont,
chairman Of the board, and General
yornellus Vanderbilt. Mr.. Berwind is
que home from Europe tomorrow and
General Vanderbilt is abroad. The
commission is expected to take up this
extended stage of the inquiry soon
sieer the arrival of Mr.. Berwind.
Directors To Be Called
Other directors who will be sum-
moned to testify regarding the state
oL fects on which the board declared
me dividends in question are Morgan
=. :; obrlen, since resigned; Horace M.
rr'sner, secretary of the board; Daniel
S..,,td =. ,Fteid, W. L. Pepperman, F. de C.
sullivan and Thomas De Witt Cuyler
Inc announcement by the commission
wa vas the climax of an all-day quiz of
neward f. j. Gaynor, veteran auditor
:. the lnterborough, who last Thurs
uay was admonished by the commission
Continued on page nIns)