The producers news. [volume] (Plentywood, Mont.) 1918-1937, 1928-02-03
BOARD RAPS ST. PAUL
f.. WRECKING GANG

The country's biggest capitalists
must plead guilty to either colossal
laundering or knavery after the re-
port of the Interstate Commerce Com
mission on the receivership and re-
organization of the Chicago, Milwau-
kee & st. Paul railroad. Although
the commission approves the Kuhn,
Loeb & Co. plan for reorganization
the road, its analysis brings out the
responsibility Of the financiers for
wrecking this important transporta-
ton system. The commission reveals
chronic sacrifice of sound manage
ment to the private detectives of com
peting capitalists.
The commission refuses to allow
the bankers a percentage for under
writing the new securities issued in
the process of reorganization but the
Kuhn, Loeb National City Bank inter
ests will receive as reorganization
managers over $3,500,000 out of the
assessments on the stockholders. They
will probably pick up additional hun
dreds Of thousands through their
right to take up shares Of stock where
small stockholders default on the as
sesSments.
The commission holds the conStruc-
ton of the Puget oSund extension the
chief cause leading, to the receiver
ship. Plans for this were laid in con-
sultatiOn with such outstanding finan-
ciers as w. K. Vanderbilt and VIM.
Rockefeller. The cost was estimated
at $60,000,O00 butt actually cost
more than four times that amount
and the commission found that the
accounts "were grossly distorted, pri-
marily to strengthen the credit of the
st. Paul"
A previous report of the commits
sion shows that the financiers inflat-
ed the cost Of the extension by charg-
ing operating expenses to cost of con-
struction, that they reported to the
commission an investment in road and
equipment one hundred million dollars
In excess of the TRUE amount in or
der to support an excessive bond is
sue and inflated early profits bv in
adequate charges for depreciation of
equipment.
Dealing with the decision of the fin
anciers to build the extension to the
coast, the commission SAYS:
In the course of our Investigation
we have been unable to find that anv
adequate engineering or traffic sur
veys were made. On the contrary ev-
erything indicates that the project
was the result of rivalry between
powerful groups 1t is obvious that
the stockholders in general had no
voice in the momentous decision: per
Sonal rivalries and ambitions were
Tree to do as they willed with 'reat
property"
The commission badly states that
the directors do not seem to have ex-
erclsed any responsibility for the fl
nanclal structure of the st. Paul. It
continues: Many of the directors
mad no special qualifications for the
duties of the board and took little or
no interest in the company's affairs.
The state of affairs shown in the rec
ora is unfortunately neither new nor
rare. inertia upon the part of stock
holders and inattention and irrespon-
Slplllty on the part of at least some
directors have usually attended rail-
road lnsolvencies in the past"
The commission holds that the ac-
QUESTION of the Terre Haute and Gary
roads were drains on the st. Paul in
CURED at a most mopportune time
and that the terms upon which the
Ierre Haute was acquired were i'm
provident. Incidentally Percy Rookie
teller admitted under cross examina-
ton before the commission that he re-
cceived $4,000 for his part in bring
ing about the purchase of the Gary.
also that he continued to sit informal
Iy on the st. Paul directorate after
resigning to conform with the Claw
ton Act and that his family controlled
at least 10000 share of St. Paul stock.
Rockefeller could recall no impor-
tant instance in which the directors
had ever opposed his wishes.
The Kuhn Loeb National City Bank
interests according to the commission
took exhOrbitant profits in financing
the st; Paul. From the $4,000, 900
IN bonds to repuurchase bonds origin
ally sold in France they divided a
profit of $1,819,OOO, or more than 59S
when go would have been generous.