THE FIRST CRIME OF AMALGAMATED
That those of my readers who are not versed in stock affairs may
appreciate the unusual character of these announcements, it is proper
for me to explain their divergence from the form of the average
financial advertisement. It is the invariable custom in all stock
subscriptions for the corporation which is being offered for sale, or
the bank or bankers assuming responsibility for the proposition, to set
forth at length the facts essential to a proper understanding of the
enterprise: if a new corporation, its reason for existence and the
security offered; if old, its history and the immediate purposes for
which additional funds are asked. It is the same in finance as in
ordinary business. If you are offering for sale goods which cannot speak
for themselves, it is necessary that some one talk for them so those who
purchase may know what they are receiving for their money. Under normal
circumstances the initial advertisement of the Amalgamated Company would
have stated the amount of its capital, its organization, and that the
proceeds of the $75,000,000 of stock offered for sale were to go into
its treasury to purchase designated properties. It will be seen from the
Amalgamated's advertisement reproduced herewith, that all the
information vouchsafed intending investors is mention of its $75,000,000
capital, that it has no bonds or mortgage debt, and that it has already
purchased large interests in the Anaconda and other copper properties.
Not a word about indebtedness, equally vital, nor in definition of the
extent of the interests owned. It is quite the briefest, most meagre
notice of subscription ever placed before the public. Indeed, it is
informative and specific only in regard to the officers, who are given
extraordinary prominence. Such announcements are usually signed by the
president and the secretary and treasurer, or else the names of all the
officers and directors are stated, so it is obvious here that the
prominent insertion of the vice-president's name is for a purpose. And
all Wall Street as well as the general public gathered that "Standard
Oil" was so sure of this enterprise that its principal men were anxious
to be known as being behind it.
The offer of the National City Bank begins with a reference to "the
foregoing statement," as though that really showed the purpose of the
sale of stock--leaving the inference that the beneficiary was the
Amalgamated Company. Other details--the designation of conditions of
subscription, terms, etc., follow the ordinary form. In the matter of
oversubscription the offer diverges vitally. Usually it is prescribed
that "in case of oversubscription stock will be allotted pro rata and
the right is reserved to reject any subscription in whole _or in part_."
In preparing the advertisement I purposely left out the "or in part,"
thereby making it impossible to reject any part of any subscription--in
other words, rejection had to be without compromise, so that every
subscriber whose subscription was not wholly rejected would stand on
equal terms with every other subscriber, as he would receive his exact
proportion.
The terms of these advertisements prescribed the conditions under which
subscriptions for the stock of the Amalgamated Copper Company must be
made to the National City Bank, and bound the bank to accept
subscriptions presented in compliance therewith. In fact they
constituted a legal contract binding the National City Bank, an
institution doing business under the national banking laws of the United
States, to allot to every subscriber whose subscription was not rejected
in full, his proportionate part of the entire 750,000 shares of the
capital stock of the corporation, his proportionate part being the ratio
his subscription bore to the entire subscription received at the
National City Bank before twelve noon of Thursday, May 4, 1899. On
receipt of official notification from the National City Bank that he had
been allotted twenty per cent. of his subscription, or one share in
every five subscribed for, the subscriber had a right to think he knew
that the total subscription to the stock had been five times
$75,000,000--$375,000,000--or five times 750,000 shares--3,750,000
shares; and that before noon, May 4th, the National City Bank had in
hand certified checks to the amount of $18,750,000. The public,
including the shrewdest Wall Streeters, has, since the subscription
closed, believed that the subscription totalled the figures given above.
Indeed no one has ever suspected anything to the contrary, because it
was clear that if the allotment was conducted under conditions other
than those contracted for in the advertisement, the National City Bank
had laid itself open to a charge of fraud and was liable to each
subscriber for the proportion of shares of which he had been deprived.
_The actual amount of the subscriptions received on or before noon, May
4, 1899, at the National City Bank was but $132,067,500, and the amount
of the five per cent. certified checks received in the institution up to
noon was only $6,603,375, or $5 per share on a total of 1,320,675
shares._
The meaning of this is that every legitimate subscriber--and I except
the millions of subscriptions which the bank decided were illegitimate
and rejected, as they had a perfect right to do under their contract
with the public--was defrauded of two shares of each three to which he
was entitled. Before me as I write is the original allotment of the
National City Bank to the subscribers, which I propose to print in my
second volume as part of this indictment, showing that the figures are
exactly as I have stated.
From the beginning of my narrative I have claimed that the frauds
committed in connection with Amalgamated could be completely
demonstrated from records outside any evidence of mine. The list of
subscribers and the most cursory examination by the Government national
bank authorities at Washington will furnish all the proof necessary to
substantiate the accuracy of my statement here. At this juncture I shall
not attempt to sum up the bearing or the consequences of this illegal
and dishonest act, but it was one of the main cogs in bringing about the
disaster that ensued. The conditions which led to its perpetration are
narrated later. In passing I may say that while the formation of the
Amalgamated Company by the clerks and office boys (as I have already
described it) and the means by which Mr. Rogers and Mr. Rockefeller let
in their friends to their appointed "floors" were deceptive and
outrageous in their double-dealing, and should be prohibited by law, I
knew them to be so commonly practised throughout our American financial
centres that it never entered my mind to suggest that they were
criminal. The infraction I have just explained, however, is a tangible
fraud and a very different proposition.
The two announcements alone would have had but little efficacy in
persuading the public to part with its money for Amalgamated stock, but
in conjunction with the third advertisement--mine--they proved
irresistible. There was nothing equivocal in my announcement. I not only
advised the purchase of the stock by subscription on the ground that it
was the best opportunity for safe and profitable investment ever offered
the people, but asserted that the shares could afterward be sold for
fifty to seventy-five per cent. advance on the subscription price, so
that every one who obtained a share of Amalgamated for $100 was buying
something which would subsequently be worth $150 to $200. Further I
promised that all the subscribers should be treated alike and gave it as
my opinion that the whole 750,000 shares could at the time the public
was reading my statement be sold for thirty to sixty per cent. more than
the subscription price, and declared unqualifiedly that the assets owned
by the Amalgamated Company were worth from one hundred to one hundred
and twenty-five millions; that the company was then earning from twelve
to sixteen per cent. per annum, and that from the start and ever
afterward it would pay eight per cent. dividends annually.
As I have previously stated, I had no personal knowledge of the
conditions in the several properties comprising the first section of
Amalgamated, but the facts and figures which were put forward in this
advertisement were supplied me by Henry H. Rogers and through him by
Marcus Daly, who vouched for them, and furthermore the three
advertisements were carefully read and scanned by Mr. Rogers himself.
If I had not believed them to be true I should not have put them
forward nor allowed them to be published, but I accepted them as the
public and the financiers did when they read them over the signature of
the known agent and mouthpiece for Amalgamated and "Standard Oil,"
myself. I showed that I believed them by putting my signature to them. I
was and am personally responsible for the truth of these statements, but
more so are H. H. Rogers, William G. Rockefeller, the National City
Bank, and the Amalgamated Company. Even if it had not been a matter of
public knowledge that I was the agent of the City Bank and the
Amalgamated Company and the "Standard Oil" party; if it had not been a
fact, as it was, that I inserted these three advertisements by agreement
with those who were responsible for them and who were doing business
directly with the public; if it had not been a fact that these people
through me paid for these advertisements, thereby directly showing I was
their authorized agent; if I had not taken the precaution to see that
such payment was made by a check signed by William G. Rockefeller,
treasurer of the Amalgamated Company, and yet made to the order of the
newspaper people and handed by me to them, thereby clinching my agency,
nevertheless the advertisement itself would have made it clear that I
was the full and authorized agent, or it would have been stopped there
and then and the bank and the company would have refused to proceed
further, for I say:
"I advise all intending subscribers to send their
subscriptions personally or through their banking or
brokerage house direct to the National City Bank of New
York. While my firm will, for the convenience of its
clients, forward subscriptions, I would have it understood
that such subscribers will receive the same treatment if
they send their applications direct.
"My firm will also furnish subscription blanks to those who,
through lack of time or otherwise, cannot secure them
elsewhere."
I think I have made clear so far the conditions under which these vital
statements were put forward and have lodged the legal responsibility for
them where it belongs. The National City Bank is plainly liable for
violation of the published stipulations under which subscriptions were
allotted, and it is common knowledge that the stock was allotted one
share in five subscribed for, while the original list of subscriptions
shows that the total allotment was less than twenty-seven millions and
the full subscription less than double the amount to be allotted.
It is common knowledge that the dividends were cut to two per cent., and
are at the present time, the best ever known in the copper business,
only four per cent., and that they have been cut under eight per cent.,
so they either could not have been twelve to sixteen per cent. at the
time it was stated they were, or there has been great fraud committed
since. As we are dealing with the greatest national bank in the country,
it will be simple for the Government and banking officials at Washington
instantly to disprove my statements if they are false; otherwise they
must take action, civil and criminal, against the National City Bank.