The New York herald., 1921-11-18
Transit Commission Seeks
to Discover if Dividends
Came From Capital.
FEARS CREDIT PADDING
Millions of Assets Only
Worthless Stocks, Is
Lawyers Charge.
AUDITOR FACES ARREST
Refuses to Answer Query
About Investment of S19,-
100000 on Books.

The question of whether the Inter-
borough Rapid Transit Company has
been guilty of paying large dividends
out of capital instead of surplus was
vital issue injected into the Transit
Commission hearing yesterday by
Clarence j. Shearn, counsel to the
commission.
With Edward F.. J.. Gaynor, auditor
OF the Interborough, in the witness
chair Mr.. Shearn sought to show the
company had padded the credit side Of
its balance sheet by carrying utterly
lions of dollars, thus creating ficti-
tious surplus out of which to pay
stockholders dividends.
Mr.. Gaynor insisted that under the
rules Of the old Public Service Com
mission he was obliged to carry such
assets at their cost price and not at
their actual or book value. Mr.. Shearn
countered by asserting that the Third
Avenue and other lines write off assets
after they become worthless. The
bS6Aii tdSl CNtJilliS tLlCCN-
ing up reports and balance sheets Of
all the other companies to determine
what has been their practise in this
regard.
James l.. Quackenbush. general
counsel of the Interborough, insisted
that the dividends had been paid out
of surplus. To have paid them out of
capital, he conceded, would constitute
q crime. Mr.. Shearn continued to de-
veIop evidence, however, tending to
show that the surplus had been more
than wiped out.
McAneny Threatens Gaynor.
Before Mr Gaynor ended what was
for him a trying ordeal he was threat
cned by Chairman AcAneny with con-
tempt proceedings because he refused
persistently to answer a question asked
by the examiner. This is the query:
II ask you once moro if that statement
IL the assets, putting down the value of
stocks Of ypRr company as an invest-
ment OF SIS. 900 900 correctly sets forth
the condition of your investments and
states the fact, if those stocks at the
time the report was made were worth
less?"
The witness finally received until
Mondays session to make up his mind
whether he will answer the question or
persist in a contumacious attitude, which
would render him liable TO prosecution
lcr misdemeanor.
With Frederick W. Lindars, chief ac-
countant OF the commission. testifying
again. Mr.. Shearn had paved the way in
the morning for what he expected to
disclose. He showed from Interborough
records that three times the actual
amount of money put into Interborough
stock had been taken out in dividends
since 1904. OF the s35,000,000 capital
stock of that company $33,s12,S00 is
owned by the Interborough Consolidated
Corporation, successor to the INTERIOR
ough-Metropolitan Company, with a lit
tie more than s1,0o0,000 worth held by
The public.
OnsfderatiOns OF Issue.
Testimony read into the record showed
the following considerations of ISSUE
For S21,620,0o0 cash, s21,40o,000
par value stock. For $4,000. 900 capi-
tai stock of Rapid Transit Subway
Construction Company, 9,600,00O
shares of Interborough stock. par
value. To J. b. Mcdonald and A.
Belmont and others for interest in
the original leases, S4,000,0OO par
value.