Jasper County Democrat, Volume 18, Number 34, Rensselaer, Jasper County, 28 July 1915 — UTILITIES COMMISSION PROBES STOCK SALES [ARTICLE]

UTILITIES COMMISSION PROBES STOCK SALES

Peculiar Transactions of the L. & N. W. Ry. Co. Told by Present Officers and Witnesses From Remington Who Invested Money—Decision Will Be Made This Week.

At the hearing held before Judges McClure and Edwards of the state public service commission at Indianapolis last Saturday to inquire into the alleged stock sales of the Lafayette & Northwestern Railroad company-—the company which is seeking another subsidy election in Rensselaer and Marion township—the story of some peculiar business deals were brought out. The meeting was attended by Charles Stockton of Round Grove tp., White county, president; O. L. Brown of Lafayette, general manager; Br. A. P. Rainier of Remington, former officer and director; G. I. Thomas of Remington; Edgar D. Collins of Lafayette, attorney for the company; Henry W. Marshal, executive editor of the Lafayette Journal, and John Wagner, president of the Lafayette Chamber of Commerce, all of whom had been summoned to appear and relate what they knew of the transactions of the company.

The story told is one of high finance of the “Get-Rich-Quick” Walingford series: It develops that O. L. Brown, who is general manager for the railroad company, is also treasurer of the Tippecanoe Construction company, which was organized to “build the road;” that the railroad company was incorporated for SIOO,000 which was later increased to $1,500,000 by resolution, but not filed with the secretary of state. It was shown that Perry O’Connor of Round GroyeTtp., and a neighbor of Stockton, who is president of the railroad company, was president o the Tippecanoe Contraction Co.

ockton testified that he had pur-i i lased 30 shares of stock from the construction company, for which he had paid $3,000; that he had also borrowed SSOO from the Montmor-j enci bank and had given S3OO of it to Brown and S2OO to O’Connor; that he with others had signed a note for $2,000 made payable to Brown, personally. It seems that no stock was issued in the railroad company, according to Brown’s testimony, hut some! $20,000 in stock had been sold in the construction company, and that at a meeting of stockholders held in the Hotel Lahr, at Lafayette on July 17, 1915, Brown made a statement in which he said that the above amount of stock had been sold and that the company was then indebted to the amount of $10,350. He also said that $1,500 should be raised

then to pay the expense of some elections that had been lost, etc. In regard to the M. A. Talbot Company of New York and Baltimore, Brown read a letter, to himself, from Patrick Hirsch, whom he said was a representative of the Talbot Company, in which the writer expressed the most explicit confidence in Brown and which stated it was desired that Brown act as sole representative of the (Talbot) company, and if the board of directors of the railroad company would indorse Brown, Hirsch would recommend the financial assistance necessary. ■.

The Democrat is unable to give the testimony in full of the different witnesses, but a few extracts as it was given in Monday's Lafayette Journal will- be of interest to our readers:

Mr. Brown said that on June 14, 1014, permission of the commission was asked to sell stocks and bonds, but that when he learned that a fee of something like $3,000 was charged, he asked to have the petition continued. .

When questioned about the Tippecanoe Construction company, Mr. Brown at first said that it was organized at Logansport by himself, Dr. Pettigrew and others, who he con!d not name, and that it was organized with a nominal capital of $1 0,000. He stated that as far as he remembered the principal offices were to be at Logansport.

Mr. Marshall then asked Mr. Brown if the Tippecanoe Construction company that was incorporated at Rockville was not the same company, and if that in place of he and Dr. Pettigrew, W. O. Boggs of Terre Haute, L. F. Rollins and L. H. Brown were not the incorporators. Mr. Brown replied: “Since you mention it 1 believe that is correct.” ‘I would like to ask you further, Mr. Brown,” said Mr. Marshall, “if the authorized capital of this company was not $50,000 instead of $10,000?" “Perhaps that is right,” said Mr. Brown, “However, the capital has been increased by resolution, but has not. been filed.” “Were the incorporation papers ever recorded at Rockville?” “1 could not say wdiether they were or not.” ** . * “Who were the organizers of the Lafayette & Northwestern Railroad company?” . “Dr. Pettigrew, Dr. Simmonds, Dr. Rainier, W. T. Elmore and myself were the incorporators of the organization.” “Is it not true that the directors of the construction company and the directors of the railroad company were the same and met the same day in Logansport, when this contract was entered into?” “Yes, sir, I believe that is correct.” “Who is treasurer of the railroad company?” “Mr. Brainard is treasurer.” “Who is treasurer of the construction company?” “I am.”

It was afterwards shown that the Tippecanoe Construction company had failed to file articles of incorporation at Rockville, Parke county, as required by law and that no increase of capital stock was ever authorized by the State of Indiana, although certificates of stock had been issued, and printed on the face of the certificates was the following: “Incorporated under the laws of the State of Indiana. Tippecanoe Construction Company, capital stock $200,000, fully paid and non-assessa-ble. Par value SIOO per share.” These certificates were signed by O. LBrown, treasurer, and E. B. Simmonds, president. One of these certificates for six s*hares in the name of G. I. Thomas was admitted in evidence. It is said that E. B. Simmonds is a dentist of Muncie and is one of the incorporators of the Lafayette & Northwestern Railroad Company. “Besides the monies you have told about, how has more money been raised?” asked Judge McClure. “Other monies have been raised by notes from members of the railroad company, ten or twelve thousand dollars has been raised this way, that is, by personal notes. The individuals went put and borrowed the money and turned it over to the construction company voluntarily.” Judge McClure.; “Do you mean to say that, these men went out and borrowed money and turned it over to the construction company and have nothing to show for it except the note?”

“Yes, sir,’’ replied Mr. Brown. “Who signed these notes?” asked Judge McClure. “Why, we would all sign them. We agreed among ourselves to loan the company the money.” “Did you sign the note signed by Charles and Wilbur Stockton and Perry O’Connor?” “I did not, but I signed other notes.”

Charles Stockton, a farmer, living near Round Grove, in White county, testified that he purchased thirty shares of stock in the construction company, for which he paid $3,000, and that he borrowed SSOO from the Montmorenci State bank; that he had given S3OO of it to Brown and S2OO to Perry O’Connor. He said also that he, with others, had signed a note for $2,000, made payable to O. L. Brown, personally. He said that he understood it was for the use of the construction company, but that he had not received in return any notes or other evidence of indebtedness from the company. He and Brown both testified that there was no evidence of the debt shown on the books of the company and that “it was just an agreement arranged

among themselves that it should be paid back when we sold enough stock.” Judge McClure was somewhat surprised at the statements made by Mr. Stockton and had him repeat that he had nothing to show for the loan of the money. Mr. Stockton further stated That he had been elected president of the railroad company some three or four y-eeks ago. Judge McClure then remarked, “Well, that is a pretty easy way to get money.” Judge McClure asked Mr. Stockton if all the stockholders in the construction company had signed the holes that be signed, and he was informed that they had not. Mr. Stockton further stated that he was not a member of the board of dHec-tom of the construction company, ano that be had not had much to do with the management of the railroad company, other than to pm up his money and, as president of the railroad company, to execute a contract with the Lester Company jor the sale of $300,000 worth of preferred stock. Dr. A. P. Rainier, of Remington, a former director and officer in the construction company and also one of the incorporators of the Lafayette & Northwestern Railroad Company, told the commissioners that he became dissatisfied with ihe manner in which Mr. Brown was conducting the affairs of the company after a meeting was held in which a report of Mr. Brown, as treasurer, was submitted, and that he was of the opinion that the company was not complying with the law. He said that he, with (1. I. Thomas, Bert Sheetz and W. T. Elmore, who was at the time vice-president, employed the law firm of Stuart, Hammond & Simms to look after their interests. He also said that on the advice of Mr. Simms, he and the others resigned their offices and had their stock certificates reissued for what they actually paid. Dr. Rainier identified a copy of the report made by Brown and also produced the original. He also identified a copy of the minutes of a meeting held at Remingtn and a copy of the letter written to him by Stuart, Hammond & Simms, Th which they advised the action taken by Rainier, Thomas, Sheetz and Elmore. * * * * * S % * * G. I. Thomas, the well known Remington hardware merchant, told the commissioners that he wasv at the present time an owner of S6OO worth of stock in the Tippecanoe Construction Company. He said that he was present at a meeting of the directors of the company held in Remington, when Brown made his report. In his language, "We thought up to that time that we were in pretty close touch with the affairs of the company, but when we heard that report we found we were not. I first took SSOO worth of the Construction stock, and later when they were running short, I put up SIOO more. So that now I own S6OO worth of the stock. I do not own any stock in the railroad. The contract made between the construction oempany and the railroad company was reported as existing to us, but I never have seen it. When I went into the thing, my idea was. to get a railroad for Remington. We were told that the construction company could build the railroad and take over its stocks and bonds and other assets and thereby we would make our profit. The stock that I first had, was for $2,500, but when we consulted Stuart, Hammond and Simms, and found what was going on. I had it changed to the amount that I had actually put into it, S6OO. I thought for a long time, that I was a director of the company, but I find out now that I was not.

“At a meeting of stockholders held in the Hotel Lahr, at Lafayette, on July 17, 1915, Brown made a statement in which he said that about $20,000 worth of stock had been sold and that the company was indebted to the extent of $10,350. He said that $1,500 should raised to pay the expense of some elections that had been lost, and some expense to the draftsmen that were employed.” Mr. Thomas stated that he had purchased his stock from Dr. C. D. Pettigrew, of Logansport. In speaking of the contracts that existed with Pettigrew and Brown Mr. Thomas said: “Mr. Brown has a contract or did have with the company, whereby he was to receive SIOO per week, and was to receive a bonus of 50 shares of stock.” Henry W. Marshall when' called as a witness, stated in substance: “That the people of Lafayette and those living along the proposed line were exceedingly anxious for the construction of a railroad—that they felt it would be of great advantage to them in many ways—and that he was particularly interested in seeing a line built as members of his family and himself were owners of land that would probably be benefitted by a road and that he would gladly donate $2,000 if he could be assured that a road would be built and oper-ated—-that there was no opposition so far as he knew to the construction of the road, but that there was and would be serious objections if it should develop that it was. merely a stock selling scheme by promoters. who, taking advantage of the need and their great desire for a railroad farmers and others were induced to part with their money for stock and the road never built.” ■ ■ ■

He stated further that from the information he had been able to obtain he was of the opinion that certain promoters of the road had entered into a company to evade the utility laws of the state, and in furtherance of this had caused to be organized a construction company which had entered into an illegal contract with the railroad company to take over and own all the stocks and bonds and other assets the railroad company should ever own or issue and for this consideration the construction company was to consWmct the road and thus the construction company virtually became the railroad company.

That stocks in the construction company had been sold and the purchasers of stocjt had been informed that wonderful profits would accrue to the lucky owners of the stock as it would cost much less to construct :h*3 road than the construction company would receive from the railroad company in stocks and bonds. Mr. Marshall contended that all this was wrong—and that it was a “fixed principle of law” that vou cannot do indirectly the things you are not permitted to do directly, and that the utility Jaws required the assent and authority of the state public service commissioners before any interurban railroad stocks and bonds could be issued or sold and that the questions involved should be settled by the commission in order that the rights of the public and purchasers of stock may be protected. On cross examination of the witness by Attorney Collins in response to the question: "When did you first become suspicious?” Mr. Marshall replied substantially as follows: “My attention was called to the matter of the promotion of the road the latter part of June when Mr. Brown came to the Journal office and left with the news editor an article which he wished published. This article stated that the road had been practically financ-ed—-that the construction was to begin at once an dthat it would be completed and cars running before, next winter —-it gave a glowing account and prospects of the road and stated that Mr. Brown would appear before the directors of the Chamber of Commerce at their meeting the following Wednesday. I blue penciled all the article except that Mr. Brown would appear at the directors’ meeting in reference to the matter and this was published the following morning.” "Mr. Brown appeared at the directors’ meeting of the Chamber of Commerce and with him were W. L. Moyer, Paul Hirsch and G. H. Lester.”

“Mr. Brown introduced these men as financiers from New York who were going to take thp bonds and finance the road. He stated that Mr. Moyer was formerly the president of a New York bank. “My euroisity was naturally aroused to know more of these men, I therefore began in investigation of the financial operations of Mr. Moyer and following the trail found the pathway strewn with the wreckage of financial institutions, with which he was connected, finally culminating in the failure of the 'Day and Night’ bank, and a trust company of Kansas City, which Moyer was promoting and for which, he w r as indicted by the federal government for the fraudulent use of the mails in the sale of stocks in this institution. There is an indictmnt in seven counts found by a United States grand jury pending against Mr. Moyer at this time, and the l nited States district attorney informs me that the case will be tried this year. “As to Lester and Hirsch, am informed by a New York bank, that they are unknown there, therefore I am unable to give any information as to their financial backing.” At this point Mr. Collins asked Mr. Marshall if he considered the fact that Moyer had been indicted proof of his guilt. Mr. Marshall replied that he did not. Mr. Brown later read a letter to the commissioners from Patrick Hirsch in which Hdrsch stated, that his associates wouM insist that Mr. Moyer be authorized to act as the agent of the railroad company in all negotiations of the company, not only in the making of the contracts but in the construction and equipment of the road and with a full understanding and agreement that alt his acts would be ratified and approved by the board of directors of therailroad company. The Patrick Hisch referred to in the letter is, according to Browm’s testimony, “a member of the M. A. Talbot Construction Co. firm,” and it was he, whom Brown testified to paying $750 for making a verbal commercial report recommending to his associates the construction of the road and the purchase of its bonds, and that Hirsch was to receive $750 additional later. Of course, it is understood all the time, that the people along the line must raise (id per cent of all the costs of the road through the purchase of preferred stock (for which the Lester and Hirsch stock selling agency is to receive 20 per cent commission), and‘the voting of subsidies, otherwise the road will not be built and in that event those who invest money stand to lose it all.

After hearing the evidence Judge McClure said: “It seems that a contract exists between the railroad company and the construction company, and that stock has been sold in the construction company. Now the question arises, whether or not it is used to evade the law. “The law generally does not favor doing indirectly, what you cannot do directly. “The utility act is to prevent the unlimited issuance of stock and paper and to protect the people. “I think that the company is an interurban, and that it is a public utility and that it cannot issue any notes or securities except as provided by 1 law.

“Further, here is a contract by which a construction company proposes to build a railroad and furnish equipment. Now, when the construction company constructs the road, it is to take over the stock and bonds of the road. Now that construction company has not sufficient funds and it is not capitalized at enough to carry out its part of the contract. “However, this is my personal opinion and I wjll not indicate further, but the matter will be submitted to the entire commission and a decision will be rendered next week.”