A LETTER 
 
 i 
 
 TO 
 
 H. J. JEWETT, Esq., 
 
 JjrMiitenl of % &ii« gailfoajT Company, 
 
 IN KETLY TO HIS 
 
 ) 
 
 (Dated JZLay 13th , 1875, 
 
 BY 
 
 J A S . B . HODGSKIN. 
 
 TIE LIBRARV fir tjj F 
 
 flpp 
 
 Mm fork : 
 
 EVENING POST STEAM PRESSES 
 Nassau Street, cor. Liberty. 
 
 1875. 
 
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 f . BrUf Yh 
 
 76 Wall Street, New York, 
 
 May 29th, 1875. 
 
 H. J. Jewett, Esq., Receiver of the Erie Railway : 
 
 Sir, — Your appointment as Receiver of the property of the Erie 
 Railway Company relieves me from the imputation of seeking to attack 
 the credit of that corporation, the dread of which has heretofore pre- 
 yen ted me from replying to certain statements contained in the com- 
 munication to your shareholders, dated May 13th, 1875. 
 
 Commencing on page 8 of the printed copy of your statement, and 
 after referring at length to the lease of the Atlantic & Great Western 
 Railroad to the Erie Railway Company, you say: 
 
 “ Upon making further inquiries, however, it was found that the 
 statements upon which the lease was based, so far as I was advised of 
 any information having been communicated to this Company, show 
 that for the year terminating on the 30th of September, 1873, the earn- 
 ings of the A. & G. W. Company were $5,315,489.13 ; that the ex- 
 penses of operating and maintaining the road were $3,479,522.03 ; 
 leaving an apparent net earning of $1,835,957.10. 
 
 “ By the terms of the lease this Company for the first year was to 
 pay . as a rental 28 per cent, of the gross earnings of the A. & G. W. 
 Company; the second year, 29 per cent.; for the remainder of the 
 term, 30 per cent.; and upon this showing of the earnings and ex- 
 penses for the year 1873, the apparent net earnings of that Company 
 would seem to be equal to the rental to be paid by this Company. 
 But upon a careful examination of the statement, and from my knowl- 
 edge of the condition of the road and its equipment, I was led to doubt 
 its accuracy and to believe that if this Company assumed the control 
 of that road and recognized the obligations of the lease, the proportion 
 i ^ of the gross earnings to be paid to that Company would be a substan- 
 tial loss to this, and result finally to the detriment of both. 
 
 “For the purpose of determining the correctness of this conclusion , 
 a thorough investigation was instituted. 
 
 “ In the statement of earnings and expenses referred to no charge 
 for car-service was made, nor was any made in the report of that Com- 
 pany to the Auditor of the State of Pennsylvania for that year. Not 
 doubting that such an expense had been incurred, and ought to have 
 been accounted for as a part of the operating expenses of the Company 
 
 k 56463 
 
4 
 
 for the year, and knowing that the Rolling Stock Company was fur- 
 nishing engines and cars, an examination was had into the state of the 
 account between these two companies, as set forth in the report of the 
 Rolling Stock Company to its stockholders, by which report it ap- 
 peared that the amount due to that company from the A. & G. W. 
 Company, for the use of its stock for the fiscal year ending September 
 30th, 1873, was about $600,000. 
 
 “This was subsequently verified by the statement of the Auditor 
 of the A. & G. W. Company to the President of that Company, 
 November 24, 1874, in which statement he fixed the amount at 
 $586,164.30. 
 
 “ The taxes chargeable against the property of a railroad company 
 form a part of its current and operating expenses, and should have 
 appeared in the statement referred to, to have given a correct account 
 of the expenses for that year. Upon examination, however, it was 
 found to be omitted, and, upon inquiry, the amount was" found to be 
 $91,529.29. 
 
 “ These two items*combined aggregate $677,693.59, both of which 
 were undoubtedly chargeable to operating expenses. If the A. & G. 
 W. Company had owned the equipment, its maintenance, with the 
 interest upon the investment, would be a charge against the Company. 
 If, instead of owning, they elected to hire or rent, the character of the 
 charge was not changed. This equipment was necessary to the opera- 
 tion of the road, and to its earnings. These two items, therefore, 
 combined would have reduced the apparent net earnings (as given in 
 the statement to which reference has been made) to $1,158,263.51 — an 
 amount much less than 28 per cent, of the gross earnings. 
 
 “ The expense charged in the statement for maintenance of way 
 was regarded as being exceedingly low, and it was believed that a large 
 amount which should have been charged to that account was disposed 
 of in some other way, either by charging to construction, or by being 
 carried to some other account. This belief has been justified by the 
 printed statement of the proper officer of that company, Mr. Warnock, 
 the Auditor, made November 24, 1874, to the President of his Com- 
 pany, wherein he states that the operating expenses for the year ending 
 30th September, 1874, included the cost of all the track material used 
 in that year ; but he states further that ‘ if to the operating expenses 
 of the year ending 30th September, 1873, there be added the total cost 
 of material used in the track in that year, but which was charged to 
 construction ,’ amounting to $671,302.22, it would make the total 
 operating expenses for that year $4,828,527.84, instead of $3,479,522.03, 
 
5 
 
 leaving a net earning of $486,961.29, instead of $1,835,957.10, as 
 claimed.” 
 
 The inference to be drawn from the words quoted is plain and irre- 
 sistible. You do not, indeed, assert, but you intimate, » that the Erie 
 Railway Company was induced, by fraudulent misrepresentations, to 
 execute, ratify and confirm a lease the true nature of which it was 
 ignorant of, and that these fraudulent misrepresentations were made 
 by the Atlantic & Great Western R. R. Co. 
 
 To show that this inference is not strained, it is only necessary to 
 point to recent editorial in two leading daily journals (extensively 
 copied throughout the country), in which your report is, without any 
 circumlocution, referred to as describing an unsuccessful attempt on 
 the part of the Atlantic & Great Western Company to swindle the 
 Erie stockholders. 
 
 Nor does the fact that you only intimate, without distinctly mak- 
 ing, the charge of fraud, in any essential way change the situation. 
 For it is generally recognized that gentlemen occupying positions like 
 yours, cannot plead the indefiniteness of their words but are held re- 
 sponsible for all reasonable inferences from their statements. Indeed, 
 in the eyes of right-minded men, an insinuation is more injurious to 
 the person referred to than an actual accusation. In dealing, there- 
 fore, with your words as straightforward assertions, I am, while defin- 
 ing their meaning, really diminishing their force, instead of taking 
 anything for granted. 
 
 Your words, then, if they have any meaning, mean exactly what I 
 have stated, viz., that the Erie Railway Company was induced, by 
 fraudulent misrepresentations, to make a lease of the Atlantic & Great 
 Western Railroad, in ignorance of its true condition; that these fraud- 
 ulent misstatements were made by the officers and director of the 
 Atlantic & Great Western Railroad Company, and that, by dint of 
 “ further enquiries,” “careful examination,” “ thorough investigation,” 
 by referring “ to the auditor of the State of Pennsylvania” and to the 
 “ Report of the United States Rolling Stock Co.,” you were enabled 
 to discover and expose these fraudulent misstatements. 
 
 If Geo. B. McClellan and Abram S. Hewitt are absent in Europe; 
 if Gen. Lloyd Aspinwall and Lawrence Wells feel too secure in their 
 own reputations to need defense; if John Tod, Reuben Hitchcock, 
 and H. Parsons of Ohio, are too far removed from the scene to feel 
 aggrieved ; if Gen. J. II. Devereux is restrained by his own position as 
 an officer of court from resenting an attack upon his acts as an officer of 
 the Company ; if these and other well-known and honorable gentlemen 
 
6 
 
 are, for any reason, willing or constrained to allow your statements to 
 pass unchallenged, I neither am willing nor can afford to do so. I 
 was a director of the Atlantic & Great Western R. R. Co. and actively 
 connected with its management during the entire period of negotiat- 
 ing the lease, and up to a brief period prior to its execution. I have 
 since represented, and do now represent, important interests largely 
 affected by the lease, and I feel it due to myself, as well as to those in- 
 terests, to meet with equal publicity your official publication. 
 
 I therefore unhesitatingly characterize the implications or insinua- 
 tions of the foregoing statement as unfounded, and a slander upon 
 the officers and directors of the Atlantic & Great Western R. R. Co. 
 
 You say, “ upon making further enquiries, it was found that the 
 “ statements upon which the lease was based, so far as I was advised of any 
 “ information having been communicated to this Company, show, etc.” 
 In making so grave a charge as that of fraudulent misstatements 
 against gentlemen of character and reputation, you no doubt took the 
 necessary pains to inform yourself of the facts, and your meaning cer- 
 tainly must be, that after using due diligence you were unable to learn 
 of any information having been furnished to your Company except the 
 false statements of which you complain. But the Erie Railway Com- 
 pany has a board of directors, a competent secretary, records and 
 minutes. Surely a board of directors comprising a number of the 
 leading bankers, merchants, railroad presidents and lawyers of Yew 
 York, in making a lease of a railroad six hundred miles in length, 
 with a well-known, large and excessive mortgage debt, notoriously in 
 financial difficulties, did not do so without enquiry, without informa- 
 tion, without knowledge. Surely there was a board meeting on the 
 subject; there was information furnished; there was discussion; there 
 was a vote, perhaps not even a unanimous one, and the information, 
 the discussion, the objections and the vote are recorded on the minutes 
 of the Erie Company. 
 
 Surely some one or more members of the Board first suggested 
 the lease, some one or more advocated it and gave reasons for their 
 advocacy; there was probably a committee appointed to investigate the 
 matter, and that committee must have reported and reported in favor 
 of the lease, and that report with all the information and arguments 
 it contained must have gone upon the records of the Board. Surely 
 some such course was pursued in the management even of the ordinary 
 business of the company. 
 
 Surely the very statements you complain of were not found lying 
 loose upon the directors’ table, they must have been presented by some 
 
7 
 
 one with some explanation of their purpose and object; and if so pre- 
 sented to your Board, there were at least six gentlemen members of it 
 who could have proved their falsity in five minutes. There is nor a 
 railroad man in the United States who does not know that the Atlan- 
 tic & Great Western Railroad cannot be run for 65 per cent, of its gross 
 receipts, or who would hesitate one instant to characterize a statement 
 to that effect as an impudent falsehood. These statements, therefore, if 
 submitted to your Board, must have led to discussion and argument, 
 and a record thereof must be found upon your minutes. 
 
 One of three things must, therefore, be true : Either the Erie 
 Railway Company has no records ; or the Board of Directors made 
 the leas® without enquiry or discussion ; or else the record will show 
 the nature of the enquiry and the discussion resulting from it. 
 
 If the Board of Directors made the lease without enquiry, then the 
 gentlemen composing it are indeed more culpable than I, for one, am 
 willing to believe. 
 
 If there was enquiry and discussion, the falsity of the statements 
 to which you refer must have been made instantly apparent, and the 
 lease, if based upon these false statements, would have been instantly 
 rejected by a Board of honest men. 
 
 As President of the Erie Railway Company, as a man of mature 
 age, of a cautious and diplomatic nature, and a lawyer by profession, 
 you undoubtedly carefully examined the minutes and records of your 
 company in relation to this important transaction, before making the 
 charge of fraudulent misrepresentation, and yet you deliberately put 
 yourself on record as stating that no information was communicated 
 to the Erie Company, except the false and fraudulent statements com- 
 plained of. I trust for the honor of the gentlemen who then com- 
 posed the Erie Board of Directors, that this part of your statement is 
 susceptible of explanation. 
 
 Indeed, you hint at a possible explanation by using the words “ so 
 far as I was advised of any information having been communicated to 
 this Company.” But this explanation, if offered, could hardly be con- 
 sidered satisfactory. With the records before you, with your own 
 Board of Directors to refer to, after months of the profoundest con- 
 sideration of all the points of law and of fact involved in this lease, 
 before deciding whether to accept or reject it, it would be childish to 
 assert that you trusted to any one’s “ advice ” on a subject of so much 
 importance. Besides, even if ill-advised or ill-informed, you would 
 only be justified in repeating the precise nature of your advices or 
 information. Whereas, in making or implying accusations of so 
 
8 
 
 much gravity, you become responsible for the sources of your informa- 
 tion. And who, pray, so advised you ? 
 
 The Atlantic & Great Western Railroad Company prepares every 
 month a tabular statement upon a printed blank form showing in 
 detail the income, the ordinary operating expenses and the balance to 
 credit of income. Upon the same sheet and upon the same side of the 
 sheet, and right next below the words ‘‘balance to credit of income,” 
 there follow in detail the “deductions from income,” of which the 
 first item is : “ Use of foreign cars and engines ,” followed by rental of 
 leased lines, general expenses, taxes, etc., etc. This tabular statement 
 or blank is inclosed within a printed framework of lines of various 
 colors, and could not be mutilated without attracting immediate at- 
 tention. It bears furthermore inside the ruled lines, the heading : 
 “ Statement showing the Comparative Earnings, Expenses, Deductions 
 from Income, and Net Available Income for Dividends in each Month.” 
 Copies of this statement up to the date of delivery, together with copies 
 of every other statement prepared in the Auditor’s Department (which 
 is not excelled by the Audit Department of any road in the country), 
 were placed by me personally in the hands of Mr. P. H. Watson, then 
 President of the Erie Railway Company, some days prior to his de- 
 parture for Europe, in September, 1873, and were accompanied by a 
 further summarised statement in my own handwriting of the debt of 
 the company in all its forms, with the interest accruing thereon. 
 
 These statements, furnished to the President of the Erie Railway 
 Company, were and are honest, truthful, comprehensive, explicit and 
 decisive. There was nothing “ apparent” about them, nothing requir- 
 ing a “ careful examination” to “ test its accuracy” or “ determine its 
 correctness.” They left no occasion to refer to the auditor of the State 
 of Pennsylvania, or to the auditor of the Atlantic & Great Western 
 Railroad Company, or to the Report of the United States Rolling 
 Stock Company, nor to have the statements of any or either of these 
 verified by the auditor or president of any State, or any company. The 
 statements gave the exact figures (only for eleven months) now given 
 by you (for the entire year), as obtained from your careful examina- 
 tion and inquiry, both for the amounts expended for car-hire or rolling 
 stock, $586,164.30, and taxes, $91,529.29, and for materials charged or 
 chargeable to Construction, $671,302.22. 
 
 These statements which, with a few trifling corrections (not vary- 
 ing the result $10,000), are printed in the Atlantic & Great Western 
 R.R. Co.’s Annual Report, are the official statements furnished by the 
 Atlantic & Great Western R.R. Co. to the Erie Railway Co., and no 
 
9 
 
 other official statements were officially furnished to that Company 
 during my connection with the Atlantic Company, or up to the nego- 
 tiation of the lease. Upon these truthful , comprehensive and explicit 
 statements the lease of the Atlantic Road to the Erie Company was 
 based , so far as the Atlantic & Great Western Railroad Company or 
 its officers are aware or are concerned. If any other statements than 
 these, or any statements different from these, were furnished to the 
 Erie Railway Company, I call upon you to produce and publish them ; 
 and if you cannot produce them, but continue to be “ advised” that 
 such other or different statements have been or were furnished, I call 
 upon you so state who so “ advises” you, and who, “ in so far as you 
 were advised,” made, presented or submitted such statements to the 
 Erie Railway Company. 
 
 That statements similar to those false statements to which you refer 
 have been published elsewhere I am well aware. Mr. James McHenry, 
 of London, whose name is also mentioned in your statement in con- 
 nection with the Second Consolidated Mortgage Bonds of the Erie 
 Company, has recently addressed a circular to the proprietors of the 
 Atlantic & Great Western Railroad, in which occurs the following : 
 
 “ The business of the Company has been, I believe, admirably con- 
 “ ducted by Mr. J. H. Devereux, who succeeded Gen. McClellan, and 
 “ in the year 1873, the net profits applicable to interest and dividend , 
 “ were $1,920,732.” 
 
 Mr. McHenry, in publishing anew this pitiful falsehood, has not 
 even your slight excuse, “ so far as he was advised,” for the same state- 
 ment having been once before published in almost identical terms in 
 an English newspaper, the Board of Directors of the Atlantic & Great 
 Western R.R. Co., on motion of Mr. Abram S. Hewitt, on the 22d day 
 of January, 1874, adopted the following resolutions : 
 
 “ Whereas , In the statements of the business of the Company for the 
 fiscal year ending September 30, 1873, forwarded by the Vice President 
 to Mr. James McHenry, there was a statement showing that the total 
 receipts of the road amounted to $5,315,489.15, and that the cost of 
 operating the road amounted to $3,479,532.03, showing an apparent 
 surplus of income over operating expenses amounting to $1,835,957.10 ; 
 and 
 
 “ Whereas , By another part of the said statement it was shown that 
 the rent of leased lines, rental of rolling stock and other expenses 
 properly chargeable to income account, or to be deducted therefrom,. 
 
10 
 
 exclusive of interest, amounted to $1,791,569.95, whereby the surplus 
 of income account applicable to interest account was reduced to 
 $44,387.17; and 
 
 “ Whereas, In the printed report now submitted to this Board by the 
 President, as received from Mr. James McHenry, the latter part of said 
 table is omitted, whereby there appears to be a surplus of income ap- 
 plicable to interest, which has, however, in fact been already applied 
 to the payment of the just charges above specified; therefore 
 
 “ Resolved , That this Board does not approve of, and cannot consent 
 to, the publication of any report which does not include all the tables 
 and statements of business forwarded by the President to Mr. James 
 McHenry, and particularly all those which state the lawful charges 
 and expenditures properly chargeable upon, and paid out, of the income 
 of the Company.” 
 
 A copy of these resolutions was forwarded to Mr. James McHenry, 
 and acknowledged by him ; and this publication and its repudiation 
 were promptly brought to the notice of the President of the Erie Rail- 
 way Company. It is scarcely possible that you have been “ advised ” 
 that an unauthorized and repudiated newspaper statement not even 
 published in this country, was the basis upon which the Board of 
 Directors and the shareholders of the Erie Railway Company author- 
 ized and made the lease of the Atlantic & Great Western Railroad. 
 
 It may be well to state in this connection that the lease of the At- 
 lantic road was not advocated by the directors of that company. The 
 magnificent programme of Mr. P. H. Watson on his accession to the 
 presidency of the Erie Railway Company in July, 1872, assumed it as 
 a settled fact that the Atlantic road was to be leased by the Erie. For 
 nearly two years it was an open secret to all the world, including the 
 directors of the Erie Railway Company, and from that time until to- 
 day the Erie Railway Company has controlled the internal and exter- 
 nal policy of the Atlantic & Great Western Railroad Company, has 
 practically appointed and removed its managers, has done a large share 
 of the Erie’s own business with that much decried rolling stock which 
 the Atlantic leased, which the Erie for two years used, but which 
 neither of them paid for, and which you, sir, now put forward as one 
 of the reasons, suddenly discovered by your “ thorough investigation,” 
 and not “ so far as you are advised,” previously known to the Erie 
 Railway Company, for not carrying into effect the lease of the Atlantic 
 road. 
 
11 
 
 Many of the acts of the Atlantic & Great Western Railroad Com- 
 pany which precipitated, if not actually caused, its bankruptcy, were 
 forced upon it hy the Erie Railway Company. The Erie, in the spring 
 of 1873, forced the Atlantic into the ruinous purchase of its so-called 
 Second Leased Lines, on the ground that the success of the Erie’s 
 plans depended upon it. The preposterous purchase of the Cleveland, 
 Columbus, Cincinnati & Indianapolis shares was first suggested, urged, 
 demanded and finally actually carried out by the Erie; the poor 
 Atlantic yielding a most reluctant consent to the use of its name under 
 the threats of the Erie, which was supposed to already practically 
 own the road, while it was in reality merely using it to snatch the Erie 
 chestnuts from the fire. The United States Rolling Stock Company 
 for months was prevented from putting the Atlantic Company into 
 bankruptcy merely by the representation that the bankruptcy of the 
 Atlantic would destroy the Erie, and that the lease of the Atlantic 
 road by the Erie would make the Rolling Stock Company whole. And 
 now when the insane management of the Erie has bankrupted itself 
 us well as the Atlantic, and has done its level best to bankrupt the 
 Rolling Stock Company likewise, it is rather trying to see the unfor- 
 tunate shareholders of both companies put off the scent by the cry of 
 stop thief, in the direction of the Atlantic & Great Western, and to 
 find the Erie’s refusal to carry out a lease made and dictated by itself, 
 excused on the ground of the sudden discovery by you that the lease 
 was based upon statements “ so far as you were advised of any in- 
 formation “having been communicated to the company, ’’which proved 
 false. 
 
 I call upon you, sir, to boldly avow, to justify and to prove the 
 damaging insinuations contained in your statement, or else to acknowl- 
 edge their injustice and withdraw them. 
 
 JAS. B. HODGSKIN. 
 
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