The New York herald., 1921-11-29
Bapital Stock Scaled to $780,
100000 in Face Of Liza
I bilities of $2O2, 900, 900.
II FARE OUTLOOK SERIOUS
kHedley Ayers I. r. I. Paid
! More for Coal Than B. r. T.
Directors Testify To-day.

Through evidence elected by him
yesterday in the transit examination
clarence J. Shearn, special counsel
For the Transit Commission, sought to
prove that the old board of directors
u the Interborough Consolidated Cor
boration and Of the Interborough
Rapid Transit Company, who were
Substantially the same individuals,
had been guilty of violating the cor
poration and the penal law in two
different particulars.
The legal limitations which the ex-
hminer contends were overstepped
we're those prohibiting the reduction
OF it's capital stock by corporation
at a. time when its liabilities exceed
It's assets and the law forbidding the
distribution OF dividends at cost Of
Impairment Of capital.
In laying the foundation for these
charges Mr.. Shearn used as his wit
ness Horace s. Fisher, who is a
director as we'll as the secretary of
the Interborough Rapid Transit Com
pany. As his first witnesses thiE
morning the examiner expects to call
several of the prominent financiers
who were members of those boards
pf directors, during the period con-
rerned. Among them are August
Belmont, r. j. Berwind. who recently
returned from Europe and Daniel q.
Reid. IL
Loan Condftions Ignored. M
Other Sensational revelations yester-
day were that the Interborough Rapid
Transit Company. Just before voting the
enormous dividends OF 1917 and 1918,
was borrower In huge sums from vari-
pus local banks and trust companies. and
hat there had been violation Of one OF
he written conditions on which J.. p.
Morgan & Co, in the latter part of 1918.
pad agreed to hoat the companys issue
BIZ per cent. notes to finance subway
Equipment under contract No. 3.
While Mr.. Fisher was In the witness
THAR Mr.. Shearn got into the record de-
aiis OF the Reorganization" IN 1915 OF
ne old Tnterborough-M Metropolitan Com
,any into the Interborough Consolidated
through the merger" with a small con-
;ern known as the Finance and Holding
Corporation. One Of the most important
|ssults Of this REORGANIZATION" was that
.ny It the $14s.00o,000 capital stock of
3he old Interboroush- Metropolitan was
scaled down to $50,000,000 capital stock
Fin the newly formed holding company
|lnterborough Consolidated.
TT is well known, Is 1t not" asked
Nfr. Shcarn, that II II q violation Of the
law for a corporation to reduce its capt.
tai below the annupt Of its liabilities p
Il understand It is." said the witness.
And the liabilities Of this same con-
ern Of a different name were. before this
] Transaction. 500, 100000, so by this
transaction, which 1 venture to call a
scheme, the company did effect an cnor-
hnous reduction In it's capital stock below
'tts liabilities?"
Eyes. SIR" answered Mr.. Fisher.
Capital stock IL Reduced.
~In other words, continued the ex-
ayuiner. IL It had not been for this
:hanRe Of name and the transaction that
H went through with In form with the
finance and Holding Company the prac-
ical effect Of what they did was pre-
risely that of voting to reduce their own
I,apital stock down to $50.000.o00?"
ked the witness.
"That was the result, and that was
Eomething that was prohibited not only
Inv all the principles Of corporate law
hut by the provisions OF the penal law.
Hyou understand that, don't your The
witness said he understood.
nAnd then, after this company. which
sould not declare dividends unless II de-
,iared them out of capital, which was
also against the law, after this company
Reduced It's capital stocviS by this device
Selow It's liabilities, as 1t was prohibited
do BY law, II began 10 distribute divi-
|iends TO the holders Of preferred stock
III the Interborough Consolidated, didn't
Eyes, SIR
-And continued 10 distribute those
Flividends during the years 1916, 1917
knd 1s1s7"
Correct" replied the !. r. T. secre-
kary
with the minute books of the board
bf directors before him. Mr.. Shearn read
Excerpts showing that declaration OF
these 17I5 and 20 per cent. dividends
WAS preceded by the negotiation OF
iarxe loans by the /. II. r. directorate.
n-hc record of these dividends and OF
ihe borrowings ran thus:
Quarterly dividend OF s1,T50.0c0 de-
I;lared in september. 1917, payable Octo-
her 4; loans Of 81, f,oo0.o0o each from the
vational Park Bank and the Chatham
|and Phenix Bank. made six days prior
10 date Of s~-tdend payment Final
1uarterly divrCend for 1917 OF ~. 100000.
.arcd in November for payment Jam
ry a. 1918: loan OF $1,0o0.ooo from In
borough Consolidated made seven
Ays before payment of dividend. mainly
Iayabla to the Consolidated. II being the
olding company.
The first quarterly dividend Of 1918,
leo for s1.75o.o0g. payable April L..
revealed total borrowings of s2,5o0.0o0
twelve days beforel dividend payment. or
Continued pm Page Nine.
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