The New York herald., 1921-11-22
Transit Evidence Indicates
1918-19 Dividends Had
Fictitious Basis.
STALE DEBTS AS ASSETS
Auditor Unable to Explain. SO
Belmont, Berwind and 9th
er Directors Will Testify.

After day OF sensational testimony
tending to show that an actual condi-
the Interborough Rapid Transit Com
pany only through unfair bookkeeping
methods at time when it was de-
claring enormous dividends for the
benefit Of its stockholders, the Transit
Commission yesterday ordered before
II the surviving members of the Inter
borough's board of directors for the
years 1913 and 1919.
1t is intended to catechize them fully
concerning facts about which L. +. j.
Gaynor, veteran chief auditor Of the
corporation, has been able to give evil
dence only as a subordinate. They will
be asked whether they authorized a
system Of balance sheets and book
keeping which concealed the COM
pany's corporate weaknesses and cre-
ated fictitious surplus by listing as
assets millions of dollars of worthless
stocks of subsidiary companies and
additional millions in bad debts and
dead claims.
Members of the old Jnterborough
boards, whom Clarence j. Shearn, spe-
cial counsel for the commission, and
James L. Quaclkenbush. general coun-
sci for the I. r. T., were directed TO
invite to appear for Interrogation in
clude these men prominent in finance:
August Belmont, chairman of the
board; L. ]. Berwind, chairman of the
executive committee; Brig.-Gen. Cor
nelus Vanderbilt, Thomas Dewitt
Cuyler, chairman of the Association Of
Railway Executives; Morgan j.
OBren, formerly Justice of the State
Supreme Court; Daniel G. Reid, Frank
dec. Sullivan, w. Leon Pepperman and
Horace NJ. Fisher.
Two Directors I'm Europe.
Alr. Quackenbush explained that Mr.
Berwind is returning from Europe on a
ship due here on November 2S. Gen.
Vanderbilt also is abroad and the coun-
seilor had no knowledge of his plans for
homecoming. He undertook to. notify
the others Immediately. Unless Mr.
OBrien or Mr.. Belmont should desire
an earlier appearance. 1t lis likely Mr.
Shearn will await the return of Mr..
Berwind, who succeeded to the chair
nanship of the executive committee on
the death OF Theodore p Shonts.
Mr.. Gaynor was again the chief wit
ness yesterday In the examination which
is under way at 40 Lafayette street.
Mr. Shearn punched holes pitilessly in
the veterans auditing methods. 1t was
the admitted inability of the witness to
answer questions involving company
policy that finally caused the summon
Ing OF the men who during the period
under inquiry were the fountain head of
authority.
1t was brought out that the cost OF
the subway lease to the Interborough
was $14.500,00o. Then" asked the ex-
aminer. IF 1t had fifty years to run. un-
DER proper accounting you would de-
duct one-fftietn OF the s14.5o0.0oO in
each year and write 1t off. because each
year your lease is becoming less val
uaDleT The witness admitted that
might be ideal accounting"
Your directors might object to It.
"
MS a matter of correct accounting that
ought to be donc?'
Il will agree to that" Mr.. Gaynor
conceded.
IF there was no compulsion put on
YOU by your board OF directors that is
the way you would do. II, isn't it?''
We'll. that Is one way 1t could be
done"
1T Is the best way, the ideal way, as
you just said. isn't it2'
YES" admitted the auditor.
Ideal Method Not Followed.
+. And IL that ideal way had been fol-
lowed IL would have resulted In writing
off something like $4,000. GOO in the value
Of the lease In these nineteen years and
that has not been done?'
TT has not"
80 that if that had been done. what
would have been deficit. would IT notY'
We'll II would have affected the ac-
curnulation OF the surplus"
but your surplus for the fiscal year
1871, ending last June. was only $2.242,-
JG0. II this had been done, as l say,
your reported surplus would have been
r. deficft?'
'If that had been done. yes"
Mr.. Shearn later reverted to the dis
cusslon OF the value OF the stock Of the
New York and Queens County Company
and showed that the Interborough had
included among its balance sheet assets
It's bills and accounts receivable from
the subsidiary corporation. none OF
which IL secured by bord deposits cx-
cept s2.000000 OF TIE bills receivable.
Tho examiner contcnded the auditor.
under the commissions uniform rules OF
accounting. had no right to include these
items as assets when they were the ooli-
cations OF an involvent concern MIR.
Confined on Page Twelve.
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