Great Fortunes from Railroads Part 21

THE SPECULATOR, DREW, GETS CONTROL.

Not satisfied with the thefts of public funds, the successive cliques in control of the Erie Railroad continually plundered its treasury, and defrauded its stockholders. So little attention was given to efficient management that shocking catastrophies resulted at frequent intervals. A time came, however, when the old locomotives, cars and rails were in such a state of decay, that the replacing of them could no longer be postponed. To do this money was needed, and the treasury of the company had been continuously emptied by looting.

The directors finally found a money loaner in Daniel Drew, an uncouth usurer. He had graduated from being a drover and tavern keeper to being owner of a line of steamboats plying between New York and Albany. He then, finally, had become a Wall street banker and broker.

For his loans Drew exacted the usual required security. By 1855 he had advanced nearly two million dollars--five hundred thousand in money, the remainder in endors.e.m.e.nts. The Erie directors could not pay up, and the control of the railroad pa.s.sed into his hands. As ignorant of railroad management as he was of books, he took no pains to learn; during the next decade he used the Erie railroad simply as a gambling means to manipulate the price of its stocks on the Stock Exchange. In this way he fleeced a large number of dupes decoyed into speculation out of an aggregate of millions of dollars.

Old Cornelius Vanderbilt looked on with impatience. He foresaw the immense profits which would accrue to him if he could get control of the Erie Railroad; how he could give the road a much greater value by bettering its equipment and service, and how he could put through the same stock-watering operations that he did in his other transactions.

Tens of millions of dollars would be his, if he could only secure control. Moreover, the Erie was likely at any time to become a dangerous compet.i.tor of his railroads. Vanderbilt secretly began buying stock; by 1866 he had obtained enough to get control. Drew and his dummy directors were ejected, Vanderbilt superseding them with his own.

VANDERBILT OUSTS DREW, THEN RESTORES HIM.

The change was worked with Vanderbilt's habitual brusque rapidity.

Drew apparently was crushed. He had, however, one final resource, and this he now used with histrionic effect. In tears he went to Vanderbilt and begged him not to turn out and ruin an old, self-made man like himself. The appeal struck home. Had the implorer been anyone else, Vanderbilt would have scoffed. But, at heart, he had a fondness for the old illiterate drover whose career in so many respects resembled his own. Tears and pleadings prevailed; in a moment of sentimental weakness--a weakness which turned out to be costly--Vanderbilt relented. A bargain was agreed upon by which Drew was to resume directors.h.i.+p and represent Vanderbilt's interests and purposes.

Reinstated in the Erie board, Drew successfully pretended for a time that he was fully subservient. Ostensibly to carry out Vanderbilt's plans he persuaded that magnate to allow him to bring in as directors two men whose pliancy, he said, could be depended upon. These were Jay Gould, demure and ingratiating, and James Fisk, Jr., a portly, tawdry, pompous voluptuary. In early life Fisk had been a peddler in Vermont, and afterwards had managed an itinerant circus. Then he had become a Wall street broker. Keen and suspicious as old Vanderbilt was, and innately distrustful of both of them, he nevertheless, for some inexplicable reason, allowed Drew to install Gould and Fisk as directors. He knew Gould's record, and probably supposed him, as well as Fisk, handy tools (as was charged) to do his "dirty work" without question. He put Drew, Gould and Fisk on Erie's executive committee.

In that capacity they could issue stock and bonds, vote improvements, and generally exercise full authority.

DREW, GOULD AND FISK BETRAY VANDERBILT.

At first, they gave every appearance of responding obediently to Vanderbilt's directions. Believing it to his interest to buy as much Erie stock as he could, both as a surer guarantee of control, and to put his own price upon it, Vanderbilt continued purchasing. The trio, however, had quietly banded to mature a plot by which they would wrest away Vanderbilt's control.

This was to be done by flooding the market with an extra issue of bonds which could be converted into stock, and then by running down the price, and buying in the control themselves. It was a trick that Drew had successfully worked several years before. At a certain juncture he was apparently "caught short" in the Stock Exchange, and seemed ruined. But at the critical moment he had appeared in Wall street with fifty-eight thousand shares of stock, the existence of which no one had suspected. These shares had been converted from bonds containing an obscure clause allowing the conversion. The projection of this large number of shares into the stock market caused an immediate and violent decline in the price. By selling "short"--a Wall street process which we have described elsewhere-- Drew had taken in large sums as speculative winnings.

The same ruse Drew, Gould and Fisk now proceeded to execute on Vanderbilt. Apparently to provide funds for improving the railroad, they voted to issue a ma.s.s of bonds. Large quant.i.ties of these they turned over to themselves as security for pretended advances of moneys. These bonds were secretly converted into shares of stock, and then distributed among brokerage houses of which the three were members. Vanderbilt, intent upon getting in as much as he could, bought the stock in unsuspectingly. Then came revelations of the treachery of the three men, and reports of their intentions to issue more stock.

Vanderbilt did not hesitate a moment. He hurried to invoke the judicial a.s.sistance of Judge George C. Barnard, of the New York State Supreme Court. He knew that he could count on Barnard, whom at this time he corruptly controlled. This judge was an unconcealed tool of corporate interests and of the plundering Tweed political "ring"; for his many crimes on the bench he was subsequently impeached.

[Footnote: At his death $1,000,000 in bonds and cash were found among his effects.] Barnard promptly issued a writ enjoining the Erie directors from issuing further stock, and ordered them to return to the Erie treasury one-fourth of that already issued. Furthermore, he prohibited any more conversion of bonds into stock on the ground that it was fraudulent.

So p.r.o.nounced a victory was this considered for Vanderbilt, that the market price of Erie stock went up thirty points. But the plotters had a cunning trick in reserve. Pretending to obey Barnard's order, they had Fisk wrench away the books of stock from a messenger boy summoned ostensibly to carry them to a deposit place on Pine street.

They innocently disclaimed any knowledge of who the thief was; as for the messenger boy, he "did not know." These one hundred thousand shares of stock Drew, Gould and Fisk instantly threw upon the stock market. No one else had the slightest suspicion that the court order was being disobeyed. Consequently, Vanderbilt's brokers were busily buying in this load of stock in million-dollar bunches; other persons were likewise purchasing. As fast as the checks came in, Drew and his partners converted them into cash.

GOULD AND HIS PARTNERS FLEE WITH MILLIONS.

It was not until the day's activity was over that Vanderbilt, amazed and furious, realized that he had been gouged out of $7,000,000.

Other buyers were also cheated out of millions. The old man had been caught napping; it was this fact which stung him most. However, after the first paroxysm of frenzied swearing, he hit upon a plan of action. The very next morning warrants were sworn out for the arrest of Drew, Fisk and Gould. A hint quickly reached them; they thereupon fled to Jersey City out of Barnard's jurisdiction, taking their cargo of loot with them. According to Charles Francis Adams, in his "Chapters of Erie," one of them bore away in a hackney coach bales containing $6,000,000 in greenbacks. [Footnote: "Chapters of Erie": 30.] The other two fugitives were loaded down with valises crammed with bonds and stocks.

Here in more than one sense was an instructive and significant situation. Vanderbilt, the foremost blackmailer of his time, the plunderer of the National Treasury during the Civil War, the arch briber and corruptionist, virtuously invoking the aid of the law on the ground that he had been swindled! Drew, Gould and Fisk sardonically jested over it. But joke as they well might over their having outwitted a man whose own specialty was fraud, they knew that their position was perilous. Barnard's order had declared their sales of stock to be fraudulent, and hence outlawed; and, moreover, if they dared venture back to New York, they were certain, as matters stood, of instant arrest with the threatened alternative of either disgorging or of a criminal trial and possibly prison. To themselves they extenuated their thefts with the comforting and self-sufficient explanation that they had done to Vanderbilt precisely what he had done to others, and would have done to them. But it was not with themselves that the squaring had to be done, but with the machinery of law; Vanderbilt was exerting every effort to have them imprisoned.

How was this alarming exigency to be met? They speedily found a way out. While Vanderbilt was thundering in rage, shouting out streaks of profanity, they calmly went ahead to put into practice a lesson that he himself had thoroughly taught. He controlled a sufficient number of judges; why should not they buy up the Legislature, as he had often done? The strategic plan was suggested of getting the New York Legislature to pa.s.s an act legalizing their fraudulent stock issues.

Had not Vanderbilt and other capitalists often bought up Congress and Legislatures and common councils? Why not now do the same? They well knew the approved method of procedure in such matters; an onslaught of bribing legislators, they reckoned, would bring the desired result.

GOULD BRIBES THE LEGISLATURE WITH $500,000.

Stuffing $500,000 in his satchel, Gould surrept.i.tiously hurried to Albany. Detected there and arrested, he was released under heavy bail which a confederate supplied. He appeared in court in New York City a few days later, but obtained a postponement of the action. No time was lost by him. "He a.s.siduously cultivated," says Adams, "a thorough understanding between himself and the Legislature." In the face of sinister charges of corruption, the bill legalizing the fraudulent stock issues was pa.s.sed. Ineffectually did Vanderbilt bribe the legislators to defeat it; as fast as they took and kept his money, Gould debauched them with greater sums. One Senator in particular, as we have seen, accepted $75,000 from Vanderbilt, and $100,000 from Gould, and pocketed both amounts.

A brisk scandal naturally ensued. The usual effervescent expedient of appointing an investigating committee was adopted by the New York State Senate on April 10, 1868. This committee did not have to investigate to learn the basic facts; it already knew them. But it was a customary part of the farce of these investigating bodies to proceed with a childlike a.s.sumption of entire innocence.

Many witnesses were summoned, and much evidence was taken. The committee reported that, according to Drew's testimony, $500,000 had been drawn out of the Erie railroad's treasury, ostensibly for purposes of litigation, and that it was clear "that large sums of money did come from the treasury of the Erie Railroad Company, which were expended for some purpose in Albany, for which no vouchers seem to have been filed in the offices of the company." The committee further found that "large sums of money were expended for corrupt purposes by parties interested in legislation concerning railways during the session of 1868."

But who specifically did the bribing? And who were the legistators bribed? These facts the committee declared that it did not know. This investigating sham resulted, as almost always happened in the case of similar inquisitions, in the culpability being thrown upon certain lobbyists "who were enriched." These lobbyists were men whose trade it was to act as go-betweens in corrupting legistators. Gould and Thompson--the latter an accomplice--testified that they had paid "Lon" Payn, a lobbyist who subsequently became a powerful Republican politician, $10,000 "for a few days' services in Albany in advocating the Erie bill"; and it was further brought out that $100,000 had been given to the lobbyists Luther Caldwell and Russell F. Hicks, to influence legislation and also to shape public opinion through the press. Caldwell, it appeared, received liberal sums from both Vanderbilt and Gould. [Footnote: Report of the Select Committee of the New York Senate, appointed April 10, 1868, in Relation to Members Receiving Money from Railway Companies. Senate Doc.u.ment No. 52, 1869:3-12, and 137, 140-146. ] A subsequent investigation committee appointed, in 1873, to inquire into other charges, reported that in one year of 1868 the Erie railroad directors, comprising Drew, Gould, Fisk and their a.s.sociates, had spent more than a million dollars for "extra and legal services," and that it was "their custom from year to year to spend large sums to control elections and to influence legislation." [Footnote: Report of the Select Committee of the a.s.sembly, a.s.sembly Doc.u.ments, 1873, Doc. No. 98: xix.] [Footnote: "What the Erie has done," the Committee reported, "other great corporations are doubtless doing from year to year. Combined as they are, the power of the great moneyed corporations of this country is a standing menace to the liberties of the people.

"The railroad lobby flaunts its ill-gotten gains in the faces of our legislatures, and in all our politics the debasing effect of its influence is felt" (p. 18).]

Vanderbilt later succeeded in compelling the Erie Railroad to reimburse him for the sums that he thus corruptly spent in fighting Drew, Gould and Fisk. [Footnote: Railroad Investigation of the State of New York, 1879, ii: 1654.]

Their huge thefts having been legalized, Drew, Gould and Fisk returned to Jersey City. But their path was not yet clear. Vanderbilt had various civil suits in New York against them; moreover they were adjudged in contempt of court. Parleying now began. With the severest threats of what the courts would do if they refused, Vanderbilt demanded that they buy back the shares of stock that they had unloaded upon him.

Drew was the first to compromise; Gould and Fisk shortly afterward followed. They collectively paid Vanderbilt $2,500,000 in cash, $1,250,000 in securities for fifty thousand Erie shares, and another million dollars for the privilege of calling upon him for the remaining fifty thousand shares at any time within four months.

Although this settlement left Vanderbilt out of pocket to the extent of almost two million dollars, he consented to abandon his suits. The three now left their lair in Jersey City and transferred the Erie offices to the Grand Opera House, at Eighth avenue and Twenty-third street, New York City. In this collision with Vanderbilt, Gould learned a sharp lesson he thereafter never overlooked; namely, that it was not sufficient to bribe common councils and legislatures; he, too, must own his judges. Events showed that he at once began negotiations.

GOULD AND FISK THROW OVER DREW.

The next development was characteristic. Having no longer any need for their old accomplice, Gould and Fisk, by tactics of duplicity, gradually sheared Drew and turned him out of the management to degenerate into a financial derelict. It was Drew's odd habit, whenever his plans were crossed, or he was depressed, to rush off to his bed, hide himself under the coverlets and seek solace in sighs and self-compa.s.sion, or in prayer--for with all his unscrupulousness he had an orthodox religious streak. When Drew realized that he had been plundered and betrayed, as he had so often acted to others, he sought his bed and there long remained in despair under the blankets.

The whimsical old extortionist never regained his wealth or standing.

Upon Drew's effacement Gould caused himself to be made president and treasurer of the Erie Railroad, and Fisk vice-president and controller.

When Gould and Fisk began to turn out more watered stock various defrauded malcontent stockholders resolved to take an intervening hand. This was a new obstacle, but it was coolly met. Gould and Fisk brought in gangs of armed thugs to prevent these stockholders from getting physical possession of the books of the company. Then the New York Legislature was again corrupted.

A bill called the Cla.s.sification Act, drafted to insure Gould and Fisk's legal control, was enacted. This bill provided that only one- fifth of the board of directors should be retired in any year. By this means, although the majority of stockholders might be opposed to the Gould-Fisk management, it would be impossible for them to get possession of the road for at least three years, and full possession for not less than five years.

But to prevent the defrauded large stockholders from getting possession of the railroad through the courts, another act was pa.s.sed. This provided that no judgement to oust the board of directors could be rendered by any court unless the suit was brought by the Attorney-General of the State. It was thus only necessary for Gould and Fisk to own the Attorney-General entirely (which they took pains, of course, to do) in order to close the courts to the defrauded stockholders. On a trumped-up suit, and by an order of one of the Tweed judges, a receiver was appointed for the stock owned by foreign stockholders; and when any of it was presented for record in the transfer book of the Erie railroad, the receiver seized it. In this way Gould and Fisk secured practical possesssion of $6,000,000 of the $50,000,000 of stock held abroad.

ALLIANCE WITH CORRUPT POLITICS AND JUDICIARY.

From 1868 to 1872 Gould, abetted by subservient directors, issued two hundred and thirty-five thousand more shares of stock. [Footnote: Fisk was murdered by a rival in 1872 in a feud over Fisk's mistress.

His death did not interrupt Gould's plans.] The frauds were made uncommonly easy by having Tweed machine as an auxiliary; in turn, Tweed, up to 1871, controlled the New York City and State dominant political machine, including the Legislature and many of the judges.

To insure Tweed's connivance, they made him a director of the Erie Railroad, besides heavily bribing him. [Footnote: "Did you ever receive any money from either Fisk or Gould to be used in bribing the Legislature?" Tweed was asked by an aldermanic committee in 1877, after his downfall.

A. "I did sir! They were of frequent occurrence. Not only did I receive money but I find by an examination of the papers that everybody else who received money from the Erie railroad charged it to me."--Doc.u.ments of the Board of Aldermen, 1877, Part II, No.

8:49.] With Tweed as an a.s.sociate they were able to command the judges who owed their elevation to him. Barnard, one of Tweed's servile tools, was sold over to Gould and Fisk, and so throughly did this judge prost.i.tute his office at their behest that once, late at night, at Fisk's order, he sportively held court in the apartment of Josie Mansfield, Fisk's mistress. [Footnote: The occasion grew out of an attempt of Gould and Fisk in 1869 to get control of the Albany and Sesquehanna Railroad. Two parties contested--The Gould and the "Ramsey," headed by J. Pierpont Morgan. Each claimed the election of its officers and board of directors. One night, at half-past ten o'clock, Fisk summoned Barnard from Poughkeepsie to open chambers in Josie Mansfield's rooms. Barnard hurried there, and issued an order ousting Ramsey from the presidency. Judge Smith at Rochester subsequently found that Ramsey was legally elected, and severely denounced Gould and Fisk--"Letters of General Francis C. Barlow, Albany": 1871.

The records of this suit (as set forth in Lansing's Reports, New York Supreme Court. I:308, etc.) show that each of the contesting parties accused the other of gross fraud, and that the final decision was favorable to the "Ramsey" party. See the chapters on J. Pierpont Morgan in Vol. III of this work.] When the English stockholders sent over a large number of shares to be voted in for a new management, it was Barnard who allowed this stock to be voted by Gould and Fisk. At another time Gould and Fisk called at Barnard's house and obtained an injunction while he was eating breakfast.

It was largely by means of his corrupt alliance with the Tweed "ring"

that Gould was able to put through his gigantic frauds from 1868 to 1872.

Gould was, indeed, the unquestioned master mind in these transactions; Fisk and the others merely executed his directions. The various fraudulent devices were of Gould's origination. A biographer of Fisk casually wrote at the time: "Jay Gould and Fisk took William M. Tweed into their board, and the State Legislature, Tammany Hall and the Erie 'ring' were fused together and have contrived to serve each other faithfully." [Footnote: "A Life of James Fisk, Jr.," New York, 1871.] Gould admitted before a New York State a.s.sembly investigating committee in 1873 that, in the three years prior to 1873, he had paid large sums to Tweed and to others, and that he had also disbursed large sums "which might have been used to influence legislation or elections." These sums were facetiously charged on the Erie books to "India Rubber Account"--whatever that meant.

Gould cynically gave more information. He could distinctly recall, he said, "that he had been in the habit of sending money into various districts throughout the State," either to control nominations or elections for Senators or members of the a.s.sembly. He considered "that, as a rule, such investments paid better than to wait until the men got to Albany." Significantly he added that it would be as impossible to specify the numerous instances "as it would be to recall the number of freight cars sent over the Erie Railroad from day to day." His corrupt operations, he indifferently testified, extended into four different States. "In a Republican district I was a Republican; in a Democratic district, a Democrat; in a doubtful district I was doubtful; but I was always for Erie." [Footnote: Report of, and Testimony Before, the Select a.s.sembly Committee, 1873, a.s.sembly Doc.u.ments, Doc. No. 98: xx, etc.] The funds that he thus used in widespread corruption came obviously from the proceeds of his great thefts; and he might have added, with equal truth, that with this stolen money he was able to employ some of the most eminent lawyers of the day, and purchase judges.