He became interested in the Kansas Pacific in 1878, but thought he knew the road in 1874. He remembered a proposition looking toward a unity of interest between the Denver Pacific and the Colorado Central.
Being examined as to the positions of the roads, and as things did not appear to be very clear, Mr. Gould, putting his hand to his inside pocket, said: “I have a little map here if you are not familiar with the location.”
The little map was brought out and all hands gathered around it, while Mr. Gould’s index finger went on an excursion over States and Territories in absolute defiance of the Inter-State Commerce Law. He recalled the fact that the plan of consolidation was considered as early as 1875, after Mr. Anderson read some extract from a paper, but he said it was not carried out then. He might even have had a talk with Scott about it on further consideration.
The little road connecting with the Colorado Central was built by him, and was the result partly of the contest between the Union Pacific and the Kansas Pacific. Prior to 1878 he could not recollect having owned any stock or securities of the Kansas Pacific. His interest in the Union Pacific has increased to 200,000 shares, the total issue of stocks being 367,000 shares. He kept books of his transactions. Mr. Morosini kept them a part of the time.
Q. Where are the books? A. I have them.
Q. Where? A. In my possession.
Q. Are they at the service of the Commission? A. If they desire them, with the greatest of pleasure.
This was the first sensation of the day, and the witness smiled blandly as he felt the full force of it.
Up to this time he had answered every question promptly. There appeared to be no hesitation on his part, and, indeed, there was none during the entire day’s session. Almost every preceding witness had taken refuge behind “I don’t know,” or “I cannot remember,” or “Really I am not sure,” but there was none of this from Gould. And the apparently full and free offer of his books capped the climax.
After this whenever his memory was in any way at fault the witness fell back on the books. In asking him what he had bought certain stocks for he said the books would show.
“Will your books also show who the broker was?”
“Oh, yes; certainly, certainly, certainly.”
In the matter of the St. Louis pool he had conversed with a number of persons.
Q. With whom did you converse? A. I presume with all the signers of the agreement.
Q. Will you tell us all about the preliminary measures leading up to this? A. I would have the neuralgia a good deal worse than I have if I undertook to tell you all of the details.
This was the original proposition of consolidation, which was a stock instead of a bond agreement, and it was soon demonstrated that it would not work.
Q. How soon after this was the new arrangement entered into? A. Almost immediately afterward, I think. The object was the funding of a heterogeneous mass of securities into one class of securities.
Q. Did you confer with others? A. I conferred with myself as well as others. What I thought was a fair price for me was a fair price for the others.
Q. To whom did you deliver your bonds? A. I suppose to the committee, but I do not know.
Q. But you would not deliver $2,000,000 to a man in whom you did not have confidence? A. Probably not.
Q. Who kept the accounts? A. I don’t know.
Q. You don’t remember? A. I don’t charge my memory with these things after they are over, but my books will show, and they are at the service of the Commission.
Mr. Gould’s manner in saying this was unusually suave and polite, and the lines of his mouth relaxed just enough to suggest a smile.
In speaking a few moments later of the securities bought by Mr. Gould from the “St. Louis parties” he was asked of whom he bought them.
“I cannot tell about that off-hand, but my books will show it.”
“Which of the St. Louis people did you confer with?”
“I think they came on here to see me. They were tired out and wanted to sell, and came over to do it.”
“Then you bought all the securities first and tried to get some other gentlemen to go in with you afterward?”
“Yes, several gentlemen whom I thought would be of service to the road. There ought to be some books. Somebody must have kept accounts of the transactions. My recollection is that these people came on and told me they wanted to sell. I asked them how much they thought they ought to have and they gave me the price quoted in the agreement.”
“I simply said, ‘I will take them,’ and that was all there was to it. That is my recollection. In 1879 I owned about $4,000,000 worth.”
The examination led into the stamped income bonds of the Kansas Pacific, and Mr. Gould was asked as to the condition of the road. He thought it was poor. The road had a large intrinsic value, but it had been badly financed and its securities were way down.
Q. Did you not buy some of your securities abroad? A. I bought two millions of Denver Pacific at seventy-four cents, I think, from some Amsterdam people. I was in London and heard that they wanted to sell. I was afraid to go over, because I had very little time, and thought they would probably take a couple of days to smoke before finding out whether they would sell or not. But I was mistaken. I went over and got to Amsterdam in the morning; washed and had my breakfast. I saw them at eleven, bought them out at twelve, and started back in the afternoon.
When Mr. Gould was asked as to the prices he had paid for the securities with which he had acquired the Kansas Pacific bonds he took out his papers and handed the Commission a series of neatly written reports on these purchases and sales.
He purchased in 1879 St. Jo. and Denver first mortgage bonds, $1,562,886.69, for $603,204.78.
Of these, $617,000 worth he sold to Russell Sage, F. L. Ames, Sidney Dillon, S. H. H. Clark, Ezra H. Baker, F. G. Dexter and Elisha Atkins for $246,800.
On January 24, 1880, he surrendered $956,779.76 in these bonds and scrip in exchange for 9,568 shares of Union Pacific at par.
For St. Jo. and Denver Pacific receivers’ certificates to the number of fifty-nine he paid $60,695, and on January 24, 1880, he surrendered them for 590 shares of Union Pacific at par, or $59,000.
Of St. J. and Denver stock during 1879 he acquired 8,819 shares, and sold 3,806 shares to the same persons purchasing the bonds. On January 24 he surrendered the 5,013 shares he had remaining on hand at par for $100,200.
During the same time he bought $784,000 worth of the St. Joseph Bridge bonds for $586,940, of which he sold to Sage and Dillon $150,000 worth for $112,500.
He also bought 4,000 shares of stock for $6,000, making the total cost of $634,000 bonds and 4,000 shares of stock $480,440. Received in exchange for the whole business, 6,340 shares of Union Pacific stock at par, making $634,000.
The gentlemen to whom Gould sold the securities were all directors of the Union Pacific. These gentlemen, the witness thought, retained their bonds until the consolidation, as they were bought with a purpose. “The Denver stock was called trimmings,” said Mr. Gould, smiling, “and went with the bonds.”
On the consolidation of the company he transferred 27,000 shares of Union Pacific Railroad stock for new stock.
He had transferred his Union Pacific stock at one time to some other parties on account of a peculiar law in Massachusetts, which enables an attachment of stock on a suit, whether there was anything in it or not.
“I found out about that law,” said Mr. Gould, “and put the stock in somebody’s else’s name. You can’t tell anything,” he continued, sharply, “about any stock list. There are many shares of stock held by brokers for years.”
After the consolidation he had begun to distribute his stock among other holders.
“I made up my mind,” he said, “it would be better to have four or five stockholders do a little of the walking instead of one.”
Q. That idea was very much stimulated by the rise in the stock after the consolidation, was it not? A. Yes, because the stock went up then so much that there wasn’t enough to go round.
The witness told the story of the employing of General Dodge and Solon Humphreys to recommend the consolidation. They were fair men, he thought, and would make a fair report.
He had not talked to them after they went West to make their report.
Q. How is that? A. Well, he naively replied, while they were making their examination my interests had changed.
Q. They had changed? A. Yes, I had bought the Missouri Pacific.
Q. Did General Dodge and Mr. Humphreys look into the past history of the road? A. I consider the future of a road more important than its past.
Q. Yes, but what I want— A. The past was no criterion as to the Union Pacific road.
Q. But don’t you think that General Dodge and Mr. Humphreys—? A. “All my life,” said Mr. Gould, warming up; “all my life I have been dealing in railroads—that is, since I have been of age, and I have always considered their future and not their past.”
“That is the way I have made my money,” said he. “The very first railroad I ever bought had a most deplorable past, but its future was fair. I paid ten cents on the dollar for its bonds, and finally sold the stock for $1.25. It was the future of the Union Pacific that drew me into it. I went into it to make money.”
“You were not in favor of the consolidation at the time it was made?”
“No, my interests had changed.”
“Did you try to stop it?”
“Well,” said Mr. Gould, slowly, “my opposition to it was known and they were greatly alarmed.”
“Who?”
“Ames, Dexter, Atkins and Dillon. They came on from Boston to see me about it. They had heard that I was going to build an extension to the Denver Pacific and connect the Missouri Pacific. They said I was committed to the consolidation and laid right down on me. I offered my check for $1,000,000 to let me out, and I have offered it since.
“I will pay it now,” said the witness, with a strong rising inflection of the voice and looking hard at the Union Pacific people in the room.
“I offered them a million, but they would not let me out of the room until I had signed an agreement to carry out the consolidation.”
“Where is that paper?”
“I suppose it is in Boston. If I could have carried out my Missouri Pacific plan I would have a property now that would be worth par.”
“I don’t think you have any reason to complain of your profits in the matter,” replied Mr. Anderson, at which Mr. Gould partly closed his eyes to hide their twinkle, and said nothing.
The paper which he signed was an agreement to carry out the consolidation on certain terms. The consolidation was an assured fact after January 15, because the witness held the controlling interest.
“But I have now ceased to be the tower of the Union Pacific,” he said.
In asking Mr. Gould about his connection with Lawyer Holmes at the time of the consolidation, Mr. Anderson asked him whether he was sure about a certain conversation.
“Yes,” he said, “for I had it impressed on my mind.”
“How was that?”
“Well, I remember parting with a lot of stock at ten cents for which I could have got par a few days afterward. Wouldn’t that impress the occasion on your memory, Mr. Anderson?”
Everybody laughed at this, and the witness, although he had lost a million or two, laughed as heartily as the loudest.
As far as the Denver Pacific stock was concerned Mr. Gould said it was worth practically nothing unless the consolidation was made. It was the signature of the Union Pacific that made it good.
“Do you consider that the trustees fulfilled their duty in letting this stock out of trust?” he was asked.
“I consider that it was the only thing to do, and I stand on what was done. I am ready to take the responsibility for it that day, or this day, or any other day.”
[_From the New York Times, May 19, 1887._]
Jay Gould gave another day to the Pacific Railway Commission yesterday. His manner was, as usual, cool and collected, and he was apparently full of a patient desire to tell everything he knew. Yet Mr. Gould told very little, although he answered hundreds of questions, some of them puzzling enough to drive a less long-headed financier into a corner. The Denver Pacific stock and the way it got out of the trust were first taken up. Mr. Gould said he thought the course taken was best for everybody. Naturally he wanted the Denver Pacific to go into the consolidation, holding as he did, $1,000,000 of the securities, and being trustee of over $3,000,000 more. At first it was doubtful if the Union Pacific would take it, but it did for the franchises. “I want to say again,” declared Mr. Gould, “that no director or person connected with the Union Pacific ever made a dollar out of Denver Pacific. I am glad to put a final nail in that coffin.”
His plan at one time was to build a line from Denver to Ogden, via Salt Lake and Loveland Pass. It would have been shorter than the Union Pacific and obtained more local business, for the Union Pacific ran north of the mineral belt and the Southern Pacific south of it. After he obtained the Missouri Pacific he saw what a good thing he had in it, but he was persuaded to give his pledge to go on with the consolidation of the other roads. The Boston folk became agitated within a month after he bought the Missouri Pacific, and got the pledge from him. If the Missouri Pacific had been put through it would have injured the Union Pacific a great deal.
“According to the ethics of Wall Street,” Mr. Gould was asked, do you consider it absolutely within the limits of your duty, while a director of the Union Pacific, to purchase another property and to design an extension of the road which would perhaps ruin the Union Pacific?”
“I don’t think it would have been proper. That’s the reason I let it go.”
“Did you consider your duty to the Government?”
“I had considered it.”
“How would the Government claim have been affected by building a parallel line?”
“It would have been wiped out.”
After the Thurman bill had been sustained by the Supreme Court Mr. Gould had a plan to build a road from Omaha to Ogden, just outside the right of way of the Union Pacific, and give that road back to the Government. It would give others “a chance to walk.” The Government tried to squeeze more out of the turnip than was in it. For $15,000,000 a road could be built where it had cost the Union Pacific $75,000,000.
“You were not devoted to the interests of the Government?”
“I wanted to protect them. Their legislative action hurt their own interests and put those of the stockholders in jeopardy. The Government repudiated their own contracts. Cash was offered to pay the Government the Union Pacific debt. I had the debt reckoned up and offered to pay it. In 1877 or 1878 I made the offer to the Judiciary Committee, of which Mr. Edmunds was Chairman. I made the offer myself. The debt was estimated at $15,000,000 or $17,000,000. But the Government would not concede that interest terminated with the bonds. No action was taken on the proposition.”
Mr. Gould thought he wrote his own resignation as Director of the Union Pacific. He resigned because he ought not to deal with the company while one of its directors. He put it in President Dillon’s office. Mr. Dillon knew what it meant.
“What did it mean?”
“That if the consolidation went through it involved large transactions with Jay Gould, and if I had stayed in it would have complicated things. Before January 10, 1880, no bargain was made to pay par for St. Jo. and Western bonds, nor Kansas Central, nor 239 for Central Branch stock. That came afterward.”
The Colorado Central lease was canceled on account of a State law against consolidating competing lines. Mr. Gould did not know that the Dodge and Humphreys letter was to be presented to the meeting of January 24. He was probably informed of the consolidation on the day it took place. He was also probably present at the first meeting of the new company on January 24. Mr. Gould’s resignation from the Kansas Pacific Board was gone over, and in summarizing his reasons for resigning Mr. Gould said he did not want to be mixed up with trusteeships and directorships. When he was not a Union Pacific director he felt at liberty to take care of himself. There was a chance that the properties might be made hostile to him, and then it would have been improper for him to be a director. He did not know that Russell Sage was to move the acceptance of his resignation.
“At the Kansas Pacific meeting a list of the branch lines obtained from you was read. President Dillon said the company had bought them. What did he mean?”
“Possibly he referred to the directors’ agreement with me.”
“But we can find no record of this in the books. Don’t you think he referred to the agreement with the Boston gentlemen?”
“Very likely, but it had no authority until it was accepted or rejected.”
Mr. Gould was set to explaining some discrepancies between the accounts of his dealings in branch securities, handed in on Tuesday, and the list submitted by Controller Mink. Mr. Mink gave 15,162 shares of St. Jo. and Western stock, and Mr. Gould 8,119. The difference was explained by Mr. Gould’s getting some stock for building the Hastings and Grand Island. He retained control of the $150,000 St. Jo. Bridge bonds he sold Dillon and Sage and turned them over with his own. His $479,000 Kansas Central bonds and 2,521 shares of the stock cost him $431,820.25 at the time he bought the Missouri Pacific. They all went into the consolidation for $479,000. Mr. Gould bought the Central Branch of the Union Pacific from Oliver Ames and President Pomeroy, who came to New York and induced him to go and look at the property.
“I thought it was doing a big business,” said he. “Afterward I learned they had kept the freight back for a week to impress me. So I saw a freight train at every station when I got there. I bought the road anyway.” Its total cost to Mr. Gould was $1,826,500. Over the Central Branch, whose stock was disposed of by Mr. Gould for 239, there was a little stir in the hearing, but the witness tranquilly explained that the road was practically stocked at only $2,500 a mile, and therefore the stock ought to range way above par.
“Has the road earned dividends?” he was asked.
“I don’t think so.”
“Have the aggregate earnings exceeded the fixed and Government charges?”
“I never figured it out. Stock doesn’t always depend upon dividends altogether. I paid 750 for my Missouri Pacific—4,000 shares at that figure. You pay more for rubies than for diamonds and more for diamonds than for glass.”
Then the examination turned to the days just after the consolidation, and the witness was asked if there was any corporate action of the new company before the stock was turned over to him.
“All I know,” he said, “is that the stock of the new company was delivered.”
“Was the new company bound to carry out the Kansas Pacific obligations of this sort?”
“Well, I suppose it assumed the Kansas Pacific obligations.”
“Why were you not paid in Kansas Pacific consols instead of stock?”
“I suppose they preferred stock to bonds. I was clever to them and took stock.”
Another turn carried questions and answers to other differences in the accounts, but the commission got little light. “It’s safe to say the lawyers got the difference,” chuckled Mr. Gould, at the end of the set of questions. He had made large cash advances, at different times, to the Kansas Pacific to meet the floating debt, and very likely these would have to be counted in to explain matters in all cases. There was one point upon which the witness strongly insisted, and that was that all through the negotiations and transactions no class of people nor any particular holders of securities experienced any discrimination in their favor, as compared with the treatment given everybody else.
After the consolidation Mr. Gould said he had few transactions in Union Pacific branch lines. He had an interest in the Denver & South Park, however, a minority interest at first, but subsequently he bought the whole road from Governor Evans. “I’m showing you my whole hand,” he said, cheerfully, at the end of the catalogue of the branches. Of the Union Pacific’s legal expenses he knew of none which were not perfectly legal.
“Who were the road’s counsel in Washington?”
“Messrs. Shellabarger & Wilson were the only ones, as far as I knew.”
“Have you ever been to Washington on business of the company?”
“Yes. And I paid my own hotel bills.”
“Do you recall persons sent to Washington from other places in the interest of the road?”
“Judge Usher and Mr. Poppleton.”
“Who represented the Kansas Pacific?”
“Judge Usher. I don’t know that they had anybody in Washington.”
“How often did you go to Washington for the road?”
“I was there while the Thurman bill was pending. It passed, and I haven’t been there since. No, I take that back. I was down before the Labor Committee. I got rather disgusted.”
“Do you know whether anything was spent to influence legislation?”
“No, sir. I know of no such expenditure.”
“Where could we find records of such transactions?”
“I don’t think such transactions exist.”
“Do you remember advising, at a meeting, that Mr. Ordway, of Washington, be employed in the interests of the Kansas Pacific?”
“No, sir.”
Mr. Anderson read from the minutes of a Kansas Pacific meeting, in 1876, and Mr. Gould remembered that Senator Rollins, a great friend of Mr. Ordway, asked him to write a letter about it. He knew of nothing coming from the letter.
“Do you remember any talk of fighting the Credit Mobilier?”
“I saw some of their stockholders and they said they would turn in their stock to us. Others wouldn’t. The Credit stockholders alleged that the Union Pacific owed their company a great deal of money. I succeeded in getting the great bulk of the stock turned over before a judgment was obtained.”
“You remember your address to the Union Pacific president and directors.”
“I wanted to put myself in a position to bring a suit.”
“Who opposed this proposed action of yours?” asked Mr. Anderson, reading from the minutes of a directors’ meeting that Mr. Dexter moved “to decline to bring suit, as requested by Mr. Gould.”
“I think the directors declined, and I brought the suits individually.”
“There is another letter of yours to the directors, requesting them to begin suit against the Credit for a full accounting of all profits, under certain alleged contracts,” etc.
“I think that was on a different set of contracts.”
Mr. Frederick L. Ames, the first witness called, testified that he was formerly a stockholder in the Union Pacific Railroad, and is a cousin of the Hon. Oliver Ames, Governor of the Commonwealth. He was familiar with the relations of this road and the Kansas Pacific Road prior to 1877. “I personally attended,” he said, “to the affairs of the road under the direction of my father, Oliver Ames. The first dividend of the road was paid in 1875 or 1876. I do not remember the rate paid. I was somewhat familiar with the condition of the Kansas Pacific. I did not think the stock of much value in 1877. Mr. Jay Gould was instrumental in buying up the Kansas Pacific securities in 1876. I understood that he owned a large amount of the funding bonds and unstamped incomes. I never knew what the respective interests of any of the gentlemen interested were. I owned no securities that entered into that pool. I received two certificates for $50,000 each. I have not these in my possession now. They were turned over to somebody. These certificates were probably issued to every member of the pool. I think I paid $100,000 to the Farmers’ Loan and Trust Company.”
Mr. Anderson—Have you been able to find those certificates, Mr. Mink?
Controller Mink—They are not in our possession, sir.
Mr. Anderson—It is very strange that we cannot get any clue to these certificates.
Continuing, Mr. Ames testified as to the manner in which the business of the pool was conducted, a copy of the consolidated mortgage being introduced in evidence.
“I do not remember,” he said, “that I ever contributed the $388,000 funding bonds named in this mortgage. My connection with this pool was limited to the advancement or the $100,000. The pooling rates and mortgage rates were identical. I was a director in the Kansas Pacific Road in 1879. I cannot explain why bonds were issued to persons having claims against the road at a rate which would exaggerate its indebtedness more than $1,000,000. I exchanged my bonds for Kansas Pacific bonds. I do not remember that, in 1880, $2,950,000 of preferred stock was issued to Jay Gould at 75 when the bonds were worth 94. I do not know of any other transaction of the kind. I do not know how the Kansas Pacific Road came to be indebted to Jay Gould for $2,000,000 at this time. All the directors were in favor of the consolidation except Jay Gould. He was unwilling to accede to any such terms as we thought we were entitled to, and seemed very much agitated at the course we had taken. The final consummation was reached at Mr. Gould’s house. I do not remember that we would not let Mr. Gould leave the room until he had signed the paper. The paper was signed by all present. The basis of the consolidation was $50,000,000.”
When asked how he explained the payment of dividends by the Union Pacific with a condition of affairs which requires a sale of stock for the extinction of a floating debt, Mr. Ames said that the declaration of the dividend was made upon the statement of the net earnings, and the road might very well have earned the dividends several times over and at the same time have been building roads and borrowing money and using its funds for other purposes, in addition to the property, which would not interfere with the right to declare dividends. Mr. Ames also said that the directors of the Union Pacific were largely controlled in signing the agreement read at the forenoon session by the fact that they were cornered by Jay Gould. “I think it has resulted favorably for the Union Pacific,” he continued, “and I would not take back the action if I could. I made nothing by the consolidation, as I did not sell my Kansas Pacific stock, but hold it now. Mr. Gould made about $3,500,000.”
Judge Dillon cross-examined Mr. Ames, and showed from his evidence that he had no personal ends served by the consolidation. He said that his interest in the Union Pacific is larger now than it was in 1880, and that he is one of the largest stockholders.
JAY GOULD AND HIS SYSTEM.
The following from the New York _Times_ of April 27, 1887, contains a graphic account of Mr. Gould’s mode of reviewing his system of railroads:
On first thought it seems almost impossible that Jay Gould has only been a railroad magnate of the first class little more than half a decade, yet such is the fact. In 1879 he owned only the nucleus of his present Southwestern system of railroads, and as the rival of the Wabash through considerable territory was the Missouri Pacific, he felt by no means at ease regarding the ultimate fate of his venture. Commodore Garrison owned a controlling interest in Missouri Pacific, which was managed by his brother Oliver. Commodore Garrison did not like Mr. Gould, and would not have objected to make Gould’s purchase of Wabash a dear bargain. He probably would have done so had it not been for Oliver Garrison. The latter and Ben W. Lewis, Gould’s manager of the Wabash, were close friends, and Garrison, as chief executive of the Missouri Pacific, did nothing to injure Gould’s property. But when Mr. Lewis called upon Mr. Gould in New York one day toward the close of 1879, and tendered his resignation on the ground of other interests which claimed his attention, Gould immediately saw breakers ahead, and said so. Lewis suggested that he remove the breakers by buying the control of Missouri Pacific. The suggestion was not allowed to get moldy. Gould called upon Oliver Garrison and offered $1,500,000 for the Garrison interest in the road. Garrison was much surprised, and said it would be necessary to consult with the Commodore. He said, however, that $1,500,000 was at least $500,000 too low. When the Commodore heard of Gould’s offer he rubbed his hands, laughed, and put the price at $2,800,000. Gould retorted that he could have bought it on the previous day for $2,000,000. The Commodore explained that the difference between yesterday and to-day was $800,000. Gould said nothing and retired. He made another effort on the following day. The Commodore had been thinking. His thoughts cost Mr. Gould $1,000,000, for his price on the third day of the negotiations was $3,800,000. Mr. Gould did not express his thoughts, but his speech demonstrated that he appreciated the danger and expense of delay. He said, “I’ll take it,” and he did. Thus from a beginning of less than 1,000 miles he secured control of a system of over 5,000, forming the Missouri Pacific, Iron Mountain, and International and Great Northern and their branches into one compact system. The bargain, in comparison with the present value of the properly, was as close a one as Mr. Gould ever managed to make, and from the day it was closed he has lost no opportunity of extending his railroad properly, which, with lines that are yet on paper, but are almost certain to be built, is soon likely to embrace at least 6,000 miles of rail.