CORRUPTION IN A TRUST

Press, Volume LX, Issue 11751, 27 November 1903, Page 5

CORRUPTION IN A TRUST

AMERICAN SHIPPING COMPANY REVELATIONS,

United Press Association—By Eloctric Telegraph—Copyright. NEW YORK, November 25. In connection with the application of tho Receiver of the United States Shipbuilding Company, correspondence has been produced showing that Mr Charles Schwab tried to bribe Mr Lewis Nixon, President of the Company, with 200,000 dollars to accept tho reorganisation scheme.

A great sensation was caused in New York in the early part of last month by charges made against Messrs Charles Schwab, Lewis Nixon, Irving Scott, Leroy Draper, and other promoters of the re-ceutly-collapsed United States Shipbuilding Trust.

In answer to an action against the defunct company, brought by the Mercantile Trust and the New York Security Companies, to foreclose mortgages on the former, Senator Smith, receiver for the company, asserted undi-r oath tliat fraudulent practices occurred when the company was organised. Ho charged Mr Schwab with having sold the Bethlehem Steel Works to the Shipbuilding Trust for £6,000.000, "well knowing that- the said property waa not worth £2,000,000."

He charged the other promoters with obtaining over £8.000,003 for properties and plants not worth £2,000,000. Various sales, it was asserted, were made through false statements concerning properties and respective values. Mr Smith further asserted that the directors of the trust were mere dummies for Mr Schwab, and acted solely under his instructions. He and his associates, acting in collusion with the so-called reorganisation committee, forced the trust into insolvency and wrecked it ao that they might acquire its assets.

The evidence in the case cau.«ed great excitement in financial circles. The trust collapsed last June, and its fall brought about the retirement of Mr Schwab from the presidency of the Steel Trust. The charges against the promoters were the outcome of the appointment of a receiver to protect the interests of the bondholders.

Typical of the methods of the trust promoters was Mr Schwab's connection with the Bethlehem Steel Corporation. The facts appear to be aa follows: —

Mr Schwab bought the Bethlehem Steel property, possibly with the idea of unloading on the United States Steel Corporation. Mr Morgan apparently refused to assent, but relieved Mr .Schwab of the burden, using the funds of the syndicate formed to float the United States Steel shares.

Mr Schwab next persuaded the Shipbuilding Trust organisers to buy the property from Messrs Morgan, paying them what Mr Morgan had paid to Mr Schwab, but giving five millions of Shipbuilding stock beside.

Mr Schwab then made a private contract with Messrs Harris, Gates, and Co., Mr John W. Gates's firm, to sell the new stock of tho Shipbuilding Syndicate, but stipulated that the stock of Messrs Morgan and Schwab must be sold before anyone else had a chance.

Mr Morgan's firm promptly denied that it had ever had any connection with the inception, organisation, or financing of the United States Shipbuilding Company.

Further evidence indicated that Mr Schwab expected to drag down the trust and regain control of the Bethlehem plant along with other planta merely by foreclosing tiie mortgage.

Mr Leroy Dresser testified es follows:—"We wanted to nsk Mr Schwab to release his grip of the Bethlehem Company so that the Shipbuilding Company might be lifted out of its troubles. The wrecking of the .Shipbuilding Company is due to Mr Schwab'* withholding through his board of directors the money of the Bethlehem Works from the Shipbuilding Company. Mr Schwab very nearly succeeded last winter in obtaining complete control through the resulting embarrassment of tho company's finances. The Reorganisation Committee then formed made up Morgan dummies and-demanded that the old bondholders should surrender their rights to Mr Schwab, and that the shareholders should give control to a voting trust named by Sir Schwab. For this Mr Schwab was to put up only £500,000, whereby lye would have captured the entire property, including tho Bethlehem plant. This scheme was upset by the courts pending the lawsuit.