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agreement between Cooke and Smith raised the number from 12 to 18, and the agreement between Cooke and Smith as of January 1, 1870 (p. 1977, hearings), provided that, in round numbers, $19,000,000 was to be used for promotion purposes and the remaining $81,000,000 distributed to the 24 shares held by the parties to the agreement as fully paid-up stock. This agreement increased the previous 18 shares to 24 shares, of which Cooke took 12.

There was also an understanding contained in section 9 of the agreement of January, 1870, that Cooke was to raise $5,000,000 within 30 days. Mr. Cooke took his 12 shares and sold them in Philadelphia for $50,000 each, which netted him $600,000. He then sold $5,000,000 of the bonds and credited the Northern Pacific with 88 cents on the dollar, making thereby for himself another $600,000.

So this one transaction, as far as Cooke was concerned, netted him $1,200,000; but the Northern Pacific received nothing from the sale of the Cooke interest of twelve twenty-fourths in the stock of the company.

Mr. KERR. Do I understand you that he sold the bonds at parat face, rather?

Mr. McGowAN. I think so. Is not that a fact?

Mr. KERR. I am not informed.

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Mr. McGowAN. Mr. Oberholtzer, in his life of J. Cooke, "financier of the Civil War," has a paragraph on this transaction, which appears in volume 2 of the work, page 161, which reads as follows: Mr. Cooke was now ready for the task of his life. Moorhead, after his storm of epistolary opposition, wrote that he was 'quite satisfied with the plan, as it was to be modified in the supplementary agreement. He would "most cordially cooperate in the enterprise," and as Mr. Cooke's brothers, Fahnestock and the other partners seemed now to be entirely agreeable to the firm's identification with the undertaking, every effort was at once put forth to raise the $5,000,000 with which to build the line to the Red River. The "pool" which Mr. Cooke had long meditated and whose success he carefully assured by provisions in the supplementary agreement with the company was the child of ingenuity. It called for total cash subscriptions of $5,600,000, of which $5,000,000 were to the bonds and $600,000 to the stock, the whole amount being subdivided into 12 shares to correspond with Jay Cooke & Co.'s 12 "interests" in the company.

Mr. KERR. In other words, the same person that bought the bonds bought the stock? Is that right?

Mr. McGowAN. Just let me finish this, Mr. Kerr. And Mr. Smalley, in his history of the Northern Pacific, in the paragraph which I read at the hearings last spring, and which appears at page 2047, states as follows:

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Jay Cooke & Co. raised the five millions required to be ready within 30 days by forming a pool" in Philadelphia, the members of which took the bonds at par and were given the 12 proprietary interests in the stock at $50,000 each. The profit of the firm in this great transaction was $600,000 on the bonds for which it paid SS, and $600,000 on the stock for which it paid nothing ; total, $1,200,000.

In my letter of November 23, 1925 (p. 3426), addressed to Mr. Kerr, I asked him the following questions in connection with this matter in the hope of developing the information for the benefit of the committee:

28. In connection with the following questions contained in this paragraph I direct your attention to a report made by a special committee appointed

by the president of the Northern Pacific Railroad Co. under resolution of November 15, 1876, to ascertain and determine the names and addresses of all persons entitled to be or become shareholders of the common stock of the Northern Pacific Railroad Co., which report is spread upon the records of the Northern Pacific Railroad Co. I also desire to call your attention to the suit filed by Henry Villard in the Superior Court of the City of New York in the year 1881 to restrain the Northern Pacific Railroad Co., Farmers' Loan & Trust Co., Frederick Building, George W. Cass, J. Gregory Smith, Charlemagne Tower, and the other defendants therein named from issuing or causing to be issued 180,000 shares of the common stock of the Northern Pacific Railroad Co.

Section 10 of the act of July 2, 1864, creating the Northern Pacific Railroad Co, provided: "That all people of the United States shall have the right to subscribe to the stock of the Northern Pacific Railroad Co. until the whole capital named in this act of incorporation is taken up by complying with the terms of subscription, and no mortgage or construction bonds shall ever be issued by said company on said road, or mortgage or lien made in any way, except by the consent of the Congress of the United States."

(a) I should like to know the extent, if any, to which the people of the United States were permitted to subscribe to the stock of the Northern Pacific Railroad as provided by section 10 of the act of July 2, 1864.

I then continued:

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Paragraph 2 of section 1 of the act of July 2, 1864, provided that the capital stock of the Northern Pacific Railroad Co. shall consist of 1,000,000 shares of $100 each."

(b) Is it not a fact that under and by virtue of an agreement entered into between J. Gregory Smith and associates, dated January 10, 1867, as modified by supplemental agreements of July 31, 1867, May 20, 1869, January 1, 1870, and March 4, 1873, the capital stock of the Northern Pacific Railroad Co., to wit. $100.000.000, was divided into 24 shares and allotted to the subscribers to the aforementioned agreements, the details of the agreements and the plan for the division and allotment of the said stock being more fully set out therein?

(e) Is it not a fact that under the 1875 plan of reorganization of the Northern Pacific Railroad Co., in which appears the name of Frederick Billings and others, provision was made that the $100.000 of capital stock of the Northern Pacific Railroad Co. be divided into $51,000,000 of preferred stock and $49.000.000 of common stock?

(d) Is it not a fact that the preferred and common stock of the Northern Pacific Railroad Co., now owned by the Northern Pacific Railway Co., as shown by your item No. 5, is the same preferred and common stock that was issued under and by virtue of the 1875 reorganization of the Northern Pacific Railroad Co.?

(c) Is it not a fact that on February 3, 1870, each of the 24 interests received 934 shares each of the common stock of the Northern Pacific Railroad Co., in all 22.416 shares of a par value of $2,241,600?

(f) Is it not a fact that subsequent to February 3, 1870, there were issued to each one of the said 24 interests 8.505 shares, of the par value of $850,500, for each interest, total par value of $20,412,000?

(g) Is it not true that on the 18th of March, 1881, the executive committee of the board of directors of the Northern Pacific directed the delivery of the certificates for the remainder of the residue of the common stock for the benefit of the 24 original interests, the said residue being approximately 155.646 shares, of the par value of $15.564,600?

(h) Is it not true that Mr. Villard in his suit in the superior court in New York, hereinabove referred to, attacked the issuance of the said stock by the Northern Pacific Railroad Co. for the benefit of the said 24 interests on the ground that the issuance of the said stock was fraudulent. illegal, and void; that the said stock was issued by the Northern Pacific without consideration? In this connection I desire to direct your attention to the affidavit signed by Henry Villard and dated March 24, 1881, which affidavit appears in the aforementioned case.

(A) Is it not true that shortly after the filing of Mr. Villard's suit that Mr. Frederick Billings resigned the presidency of the Northern Pacific? I believe the committee would like to be fully advised concerning the issuance of the aforementioned common stock of the Northern Pacific Railroad and particu39564-26-PT 8- -3

larly with reference to whether or not the Northern Pacific received any consideration for the issuance of this common stock. If any consideration was received for the issuance of this common stock, I should appreciate it if you would point out to me on the books of the Northern Pacific the entries tha have been made in connection therewith. If it is now the position of the Northern Pacific that this $49,000,000 of common stock was issued for a consideration other than cash, I am sure the committee would be glad to have a detailed statement showing the nature of such a consideration.

In answering the questions above I should appreciate it if you would not group the answers but consider each question separately.

In answer to my question (a) in which I asked Mr. Kerr to advise me of the extent, if any, to which the people of the United States were permitted to subscribe to the stock of the Northern Pacific, as provided by section 10 of the act of July 2, 1864, Mr. Kerr answers that he has no information with respect to the subject of this inquiry. Mr. KERR. Will you read the answer, Mr. McGowan? Mr. McGowAN. You read it.

Mr. KERR. I don't care to. You read the question; read the answer. Mr. McGOWAN. I will read as much of it as I think is material, then if that does not quite meet with your approval, of course you can read the whole of it.

Mr. KERR. These questions, Mr. Chairman, of Mr. McGowan's involved an amount of labor and investigation which it is difficult to inform the committee as to the extent of. These letters contain some 50 questions which called for the most careful examination of the records of the Northern Pacific, a compilation of a vast amount of data, and they have been answered by my letters of December 14 and December 15, 1925. Those letters have been on file here for many months, and I have asked, if the committee desired the data, that the letters and the answers should be printed. Now, of course, if Mr. McGowan insists, it may be the committee will feel that he is within his rights in reading these questions at length and stating his mere summary of the answers, but it does seem to me that if the statement was made in good faith, that the committee would be interested in having answers to these questions, the answers should be read in

extenso.

Mr. McGowAN. Mr. Kerr, if you will pardon me, about the good faith, I think if there is any question of good faith in it-and I have never brought up the question of your good faith so far-if there is any lack of good faith on it, it is in your answers and not in the questions that I put. I submit that as being the correct position on that.

Mr. KERR. The question that I raised is that it seems to be proper that if questions are read in extenso, the answers should be read in

extenso.

Mr. McGowan. All right. I was trying to boil this down so that we could make progress.

The CHAIRMAN. How long are the answers?

Mr. McGowAN. Some of them are quite extensive.

The CHAIRMAN. Why could they not go into the record?

Mr. McGowan. They can go into the record, but if they go into the record without any comment on them they go in there in a way that does not, as I see it, represent the true situation.

The CHAIRMAN. Well, they will be read by the committee.

Mr. McGowAN. The committee has not the information, Mr. Chairman, on these questions and answers that I have been able to gather for it, I think.

The CHAIRMAN. Well, they are certainly entitled-Mr. Kerr is entitled to have his answers go into the record; you are entitled to criticize them if you wish to.

Mr. KERR. Well, may it be understood that these letters of December 14 and December 15 may be printed?

I can perhaps hasten the matter by reading these answers myself. Mr. McGowan has already read in extenso the question, and he probably will be willing to have me merely summarize the question so that the answers may be intelligible.

The first question, the first subdivision of No. 8, is as to the extent to which the people of the United States were given the opportunity to subscribe to the stock. The answer is:

The undersigned has no information with respect to the subject of this inquiry except that derived from such records of the Northern Pacific Railroad Co. and the commissioners named in the act of July 2, 1864, as are in the possession of the Northern Pacific Railway Co. and all of which have, at the request of the committee, been made available for examination by Mr. McGowan.

The record of the first meeting of the commissioners held at Boston, Mass., on September 1, 1864, shows the adoption of a resolution as follows:

“Resolved, That the officers of this board, elected this day, be, and they are hereby, instructed to open books, or cause books to be opened, within 90 days from this date in the cities of Boston, Mass., and Portland, Me., to receive subscriptions to the capital stock of the Northern Pacific Railroad Co. and a cash payment of 10 per cent on such subscriptions, and to receipt therefor." The record of the commissioners contains a report by the president and secretary, dated November 15, 1864, that pursuant to the resolution just quoted they opened books of subscription at Boston, Mass., and Portland, Me., and published previous notice thereof.

The record of the proceedings of the board of directors of the Northern Pacific Railroad Co. at its meeting held December 15, 1864, shows the adoption of a resolution directing the president to cause books to be opened for subseriptions to the stock of the company at such places as in his judgment shall be deemed advisable.

The record of the proceedings of the board of directors shows that on January 11, 1865, a resolution was adopted as follows:

"That the executive committee be, and the same is, hereby authorized to adopt such measures and establish such agencies for the disposal of the capital stock of the company and for the encouragement of immigration in accordance with the foregoing resolutions as may be deemed necessary and for the best interests of the company."

It is, of course, impossible after the lapse of more than half a century to furnish evidence of the specific efforts which were made to induce subscription by the public to the stock, but that such efforts were made and were ineffectual clearly appears from Smalley's History of the Northern Pacific, which was largely relied upon by the representative of the Forester at the hearings and which was published in 1883 and therefore not long after the happening of these events. Furthermore, reference to the debates in Congress preceding the adoption of the joint resolution of May 31, 1870, which conferred on the company the power to mortgage its property show plainly that Congress recognized the necessity for this course, because it was impossible to finance the building of the road through stock subscriptions.

Mr. McGowAN. Might I make just one brief observation on that as we go along, and I think we will expedite the whole thing?

As I see it, the act of July 2, 1864, required that the stock be opened to the public. Now, the fact is that the stock was not open to the public. because J. Gregory Smith and his associates took the whole $100,000,000 of stock under this agreement and whacked it up into

these 24 parts when they went into the contract with Jay Cooke. Now, when you come to what were the subscriptions to the stock, 20,075 shares, on which this so-called 10 per cent was paid, all of that stock was declared forfeited. There was also the $600,000 of stock that was issued by Perham and his associates, for what we do not know, and that is the extent to which any of this stock up until 1875 was ever open to the public.

Mr. KERR. The second question is whether or not the stock was divided into 24 shares. The answer is:

(b) The agreements referred to have already been offered in evidence and appear at pages 1988 to 1995 of the printed transcript.

Mr. McGowAN. You agree that there was the division of the 12, increased to 18, and then to the 24?

Mr. KERR. I agree that those agreements were executed; yes.

(c) Is it not a fact that under the 1875 plan of reorganization of the Northern Pacific Railroad Co., in which appears the name of Frederick Billings and others, provision was made that the $100,000,000 of capital stock of the Northern Pacific Railroad Co. be divided into $51,000,000 of preferred stock and $49,000,000 of common stock?

Answer. (c) The plan of reorganization of 1875 is set out at length at page 718 of the printed transcript.

Mr. McGowAN. That shows that it was divided into the $51,000,000 preferred and the $49,000,000 common.

Mr. KERR. Correct.

(d) Is it not a fact that the preferred and common stock of the Northern Pacific Railroad Co. now owned by the Northern Pacific Railway Co., as shown by your item No. 5, is the same preferred and common stock that was issued and by virtue of the 1875 reorganization of the Northern Pacific Railroad Co.? The answer is:

(d) The stock in question is of the character contemplated by the 1875 plan of reorganization and is stock represented by certificates issued in exchange for certificates issued pursuant to such plan.

Mr. McGowan. Now, you say it is "of the character." Is it not in fact the same stock?

Mr. KERR. Well, it all depends on what you mean by "stock," whether you mean a certificate of stock or whether you mean the stock itself. It is obviously not the same certificates, but the certificates represent stock of the same character. The next question is:

(e) Is it not a fact that on February 3, 1870, each of the 24 interests received 934 shares each of the common stock of the Northern Pacific Railroad Co.; in all, 22,416 shares, of a par value of $2,241,600?

The answer is:

(e) The only information on this subject which is available appears in a report to the board of directors of the Northern Pacific Railroad Co. dated May 16, 1877, made by a committee consisting of Charlemagne Tower, Fred erick Billings, and J. Frailey Smith. This report contains the following statement:

"On February 3, 1870, an issue of 22,416 shares of stock, being for $2,241,600, was made among the then owners, or presumed owners, of the 24 interests, which was 934 shares of stock of each twenty-fourth interest."

Mr. McGowan. Then your answer to my question (e) is in the affirmative?

Mr. KERR. No; I said the only information I have on the subject is contained in that resolution.

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