a 
 
 % • • • 
 
 Central Pacific Railroad Company 
 
 FACTS REGARDING 
 
 ITS PAST AND PRESENT MANAGEMENT 
 
 BY 
 
 A STOCKHOLDER AMD FORMER EMPLOYEE 
 
 ■ 
 
 RoL^-tT S . Q/cJve. rr\ 
 

 T, So*B*Fitl S'* Graham, of the City and County of San Francisco, Stale 
 of California, do hereby certify as follows : 
 
 I am a stockholder in the Central Pacific Railroad Company, and have 
 been in the employ of said Company (and the Southern Pacific Company 
 of Kentucky, as its lessee), in the office of the Secretary, as clerk, durin g 
 the past ten years. I am familiar with the past official acts of the Boards 
 of Directors of both companies, having kept the books in which the pro 
 ceedings thereof are recorded. 
 
 I resigned from such position, freely and voluntarily, on April IS, 188f>, 
 in anticipation of a suit against Stanford & Co., as Directors, by certai 
 subscribers and stockholders of the Central Pacific Railroad Company of 
 California, for an accounting of funds. I have knowledge of the corrup¬ 
 tion and fraud practised in the management of the above roads by the 
 Directors, and believe that such a suit would lead to the exposure of their 
 present methods as well as past acts. Obstacles in the way at the tirne 
 temporarily delayed the necessary action to be taken; but recently a su 
 has been instituted with the above object in view. 
 
 I believe that the controlling power of the present Board of Directors 
 is so corrupt as to demand, in the interest of the stockholders and tl < 
 United States Government, that the above roads be placed in better hands 
 for operation, before it becomes too late, said Directors, by their mismaiji- 
 agement, being already heavily indebted to the roads. 
 
 The evidence contained in the following pages is true and correct 
 copies of the originals; and I acknowledge the statements made by nte 
 to be my best judgment and belief. 
 
 In witness whereof, I hereunto affix my hand and seal, this eleventh 
 day of November, A. D. 1889. 
 
 Robert S. Graham, [seal] 
 
 Subscribed and sworn to before me by the ) 
 said Robert S. Graham, this eleventh day > 
 of November, A. D. 1889. ) 
 
 Lincoln Sonntag, 
 
 Notary Public , [seal] 
 
 In and for the City and County of San Francisco, State of California 
 
PREFACE. 
 
 This publication will better acquaint the stockholders and the United 
 States Government with the methods of Stanford and his associates in 
 their past and present management of the Central Pacific and other roads 
 now being operated under lease by the Southern Pacific Company of Ken¬ 
 tucky. As Congress is about to consider the best plan for collecting the 
 debt from the Central Pacific Railroad Company, I have included herein 
 facts relative to the earlier history of the management; much of the infor¬ 
 mation, however, is presented for the first time, and will, I hope, influence 
 the Government in reaching a proper solution of the present difficulties. 
 
 It is necessary in order to do this to give some inside facts as to the 
 practices of the principal directors. I propose to show why these men 
 should not be treated as public benefactors, and that the intention of the 
 Government to insist upon a strict fulfilment of their obligations to it is 
 but just and proper. To this end 1 have made use of some of the infor¬ 
 mation elicited through the recent investigation by the late United States 
 Pacific Railway Commission. In such I have confined my quotations, 
 however, to the report of the Majority Commission, as I understand that 
 the President of the Company complains that the sweeping charges and 
 denunciations submitted in the report of the Minority Commission by 
 Chairman Pattison are unjust. Although I have read that portion of 
 both reports which relates to the Central Pacific, I cannot recall a single 
 paragraph containing a favorable criticism of the management of the road. 
 Notwithstanding this, shortly after the Investigation Commission had 
 been appointed by President Cleveland, Mr. Stanford remarked to the 
 writer: “Ido not fear the people ; they cannot hang a man unless a 
 murder has been committed, and in this case there has been no murder.” 
 When the Commission reached San Francisco, he expressed to them his 
 pleasure at being allowed the opportunity of setting himself aright before 
 the public. He promised them every assistance, and pretended to welcome 
 a full and impartial investigation of his management. 
 
 The manner in which he succeeded in forcing the investigation to an 
 abrupt termination is still fresh in the minds of the people. Through his 
 refusal to answer a particular question, he practically admitted that money 
 belonging to the Company, in the aggregate $4,818,355.67, was squandered 
 by himself and associates. The expenditures are shown by vouchers con¬ 
 taining no information as to what purpose the money was applied. “It 
 appears from the books of the Company,” state the Commission, “ that 
 from the very inception of the enterprise down to the present time, it has 
 been the constant practice of the Directors of this Company to permit the 
 expenditures of very large sums of money without requiring any sufficient 
 vouchers disclosing the purposes to which they are applied.” (Report 
 Majority Commission, page 84.) 
 
 r Z-53£3 
 
4 
 
 PREFACE. 
 
 I have shown elsewhere a copy of correspondence which throws doubts 
 on the probability that the books and records of the Contract and Finance 
 Company have been destroyed; and I invite the reader’s attention thereto. 
 I can furnish the Honorable {Senate Committee on Pacific Railroads with 
 the name of the party who “ borrowed ” the important contract with the 
 above Company, and can contradict some testimony given by a certain 
 official of the Central Pacific before the late Commission regarding this 
 subject. Furthermore, I will furnish the Committee with a copy of what 
 I am satisfied was the agreement with the Contract and Finance Com¬ 
 pany for the construction of the road East of the California State line. I 
 have not shown it here, as it is rather lengthy, but I expect to be able to 
 fully establish its genuineness. I have extracts of other contracts besides, 
 made by the Directors, which were recorded in the book of “ Record of Cor¬ 
 poration Debts,” referred to herein. I intend to be in Washington during 
 the coming session of Congress, and will be pleased to personally verify 
 and explain what I have written. 
 
 In these pages I wish to show, to those interested, the feasibility as well 
 as the necessity of placing the Central Pacific and its auxiliary lines in 
 other hands; that the Directors have no regard for the rights of others, 
 but have always operated the roads for their individual gain ; and that 
 they are also in the habit of taking unusual precautions to protect them¬ 
 selves and their estates from liability for their misdeeds—precautions such 
 as are only necessary when trusts are being violated. 
 
 By their rascality and deception, practised against the stockholders, 
 they have up to the present time prevented justice being dealt out to them 
 through the courts. Their day of reckoning with the Government is now 
 close at hand, and they should be held strictly to account; otherwise the 
 Government will have no trouble in finding reliable parties willing to pay 
 the debt and operate the road for the benefit of all interested. 
 
CENTRAL PACIFIC RAILROAD. 
 
 When the Central Pacific Railroad Company of California was organized, 
 on June 27, 1861, under the Act of the Legislature of California, dated 
 May 20, 1861, it had nine Directors, as follows: 
 
 Leland Stanford T. D. Judah, Mark Hopkins, 
 
 Charles Crocker, L. A. Booth, D. W. Strong, 
 
 James Bailey, C. P. Huntington, Charles Marsh. 
 
 By one way or another, all but four of these were soon dropped, and 
 Messrs. Stanford, Huntington, Hopkins, and Crocker thereby secured ex¬ 
 clusive control in the management of the Company’s affairs ; they having 
 shortly afterward reduced the requisite number of Directors from nine to 
 seven. 
 
 The four mentioned had subscribed for 150 shares each of the capital 
 stock, but their combined means were very small. It was owing, in fact, to 
 the liberal and timely assistance of the United States Government that the 
 construction of both the Central and Union Pacific roads progressed 
 rapidly, and their early completion insured, resulting as it did in a saving 
 of seven years of the time allowed by the Act granting the aid. The 
 connection was made in May, 1869. Thus the Companies received the 
 benefit of seven years’ additional earnings ; besides which the Government 
 promptly issued its bonds as sections of the road were finished, taking as 
 security a second lien on the property, and allowing the Companies to issue 
 first mortgage bonds of their own. 
 
 The following report of the earnings of the Central Pacific up to 1884 
 is of interest : 
 
 The operation of the Company appears to have been successful from its very in¬ 
 ception. During the earlier years the Company was entirely free from competition and 
 charged very high rates, both for freight and passengers. The result of this is shown 
 in the percentage of operating expenses as compared with the gross earnings, which, 
 during the early period of the Company, were as low as 23£ per centum per annum, 
 
 and at no time prior to 1875 exceeded 40 per centum per annum. 
 
 From 1863 to the 31st of December, 1869: 
 
 The gross earnings were. $10,807,508.76 
 
 Operating expenses. 4,700,624.56 
 
 Leaving net earnings. 6,106,884.20 
 
 Other credits. 374,045.63 
 
 6,480,929.83 
 
 Interest and taxes paid, and Government requirements... 4,053,396.03 
 
 Leaving absolute net. 2,427,533 80 
 
 From the 1st of January, 1870, to the 31st of December, 1873, in 
 which latter year the first dividend was paid : 
 
 The gross earnings were. 41,128,618.21 
 
 Operating expenses. 17,485,371.69 
 
 Leaving net earnings. 23,643,246.52 
 
 Other credits. 2,167,318.29 
 
 it: 25,810,564.81 
 
 Interest and taxes paid, and Government requirements. 19,235,045.49 
 
 Leaving absolute net. 6,575,519732 
 
6 
 
 CENTRAL PACIFIC RAILROAD. 
 
 Fx’cm tti3 1st of January, 1874, until the 1st of January, 1884, which 
 was'tlfe end qf the dividend-paying period of the Company : 
 
 The gross darning's ^were.... .*1 .$194,126,239.24 
 
 OperaLihg^expenses. .. 108,431,267.78 
 
 Leaving net'eaWdiigs. 85,694,971.46 
 
 Other credits.‘. 8.191,532.17 
 
 93,8-6,503.63 
 
 Interest and taxes paid, and Government requirements. 41,349,586.64 
 
 Leaving absolute net . 52,536,916.99 
 
 During the period last mentioned the Central Pacific Railroad Company distributed 
 to its stockholders in dividends the sum of $84,308,055. (See volume 5, page 2547.) 
 But little stock was sold by Stanford, Huntington, Hopkins, and Crocker until 1880. 
 Between 1873 and 1877 they were substantially the only stockholders of the Central 
 Pacific Railroad. Nearly the entire amount of dividends declared during these yeais 
 was therefore received by those four persons. 
 
 Tested by the simple question of earnings, it is true that all of the above-mentioned 
 dividends appear by the income account of the Company to have been earned. But the 
 distribution of this vast sum of money to these four persons, whose stock represented 
 no contribution whatever to the actual value of the railroad, was most improvident, 
 and was in plain disregard of the obligations incurred by the Company to the United 
 States. The Company had agreed to repay the debt and interest at the expiration of 
 thirty years. How could it be possible, if the stock represented no actual contributions 
 to the earning power of the Company, and the earnings themselves were divided up 
 among the stockholders, that adequate security could be found for the debt due to the 
 United States, increased by the vast amount of its deferred interest, at the maturity 
 of the debt? 
 
 The actual amounts put into the enterprise were the proceeds of the first mortgage 
 bonds and of the United States loan ; in all, about forty millions of dol ! ars. By what 
 magic was it expected that this property, after the wear and tear of thirty years’ use, 
 could afford any sufficient security for the repayment of its extravagant cost, increased 
 by the interest accruing on a large portion of its debt, if all its current earnings were 
 distributed to its stockholders, without making provision for the constantly increas¬ 
 ing obligation? The ordinary dictates of prudent and honest management should 
 have impelled the Directors of this Company to make suitable provision out of the 
 large earnings, during the profitable years of its operation, to cover this impending 
 debt. (Report Majority Commission, p. 87.) 
 
 Under the laws of the State of California, stockholders are liable for 
 the debts of the Company. It was not until after Congress voted the aid 
 that Stanford & Co., on Oct. 22, 1862, each subscribed for an additional 
 five hundred shares. They paid no money for the stock, however, but 
 voted large sums to themselves as Directors, for “ extra services,” salaries, 
 etc., and credited a portion thereof on account of their subscriptions. At 
 no time did they risk any of their private means in the enterprise, and 
 from the very first charged the Company liberally for their services. 
 
 In contrast to this it may be stated that there are to-day several original 
 subscribers who still hold their certificates of stock, having paid cash 
 therefor in full ; and although they were liable for the Company 's debts, 
 up to the present time they have never received a cent of its profits. They 
 properly refused to exchange their original holdings, share for share, for 
 the capital stock when increased from $8,500,000 to $100,000,000, and 
 are so denied the dividends since declared. 
 
 The first contract for the building of sections of the road was let to 
 Charles Crocker, who thereupon resigned from the board, his brother, E. 
 B. Crocker, taking his seat as Director. 
 
 “ C. Crocker & Co.,” as he styled himself, then submitted a proposition 
 to the Directors to construct the road from the foot of K Street, in Sacra¬ 
 mento, to the line of the California Central Railroad Company, known as 
 Roseville Junction, a distance of eighteen miles, for $400,000; terms. 
 $250,000 in cash, $100,000 in Company’s bonds, and $50,000 in capital 
 
CENTRAL PACIFIC RAILROAD. 
 
 7 
 
 stock. * The second and third contracts were also let to 0. Crocker & Co. 
 None of them were ever submitted to the stockholders for approval. 
 
 The following extracts from the Company’s by-laws of 1862 will give 
 an idea of the powers of the Chief Engineer, Mr. T. D. Judah, who was 
 also a director : 
 
 Section 14. All subordinate officers and agents of the Company shall be appointed 
 or employed by the Board of Directors or Chief Engineer. 
 
 Section 15. ; and the President, or Chief Engineer, may remove at 
 
 pleasure any subordinate officer or agent. . . .” 
 
 On September 12, 1863, C. Crocker presented the following bill against 
 the Company, showing Mr. Judah’s allowance of same : 
 
 CENTRAL PACIFIC RAILROAD COMPANY OF CALIFORNIA. 
 
 To C. Crocker & Co., Dr. 
 
 3 wooden piers, American River Bridge. $6,000 00 
 
 30 extra piers. “ “ . 540 00 
 
 300 c. yds. cobbles, “ “ $12 . 3,600 00 
 
 Extra bents “ **' trestling.. 500 00 
 
 Curves and levees on I Street route. 10,000 00 
 
 Interest upon advances. . 1,230 00 
 
 7,500 extra ties, delivered, at $70. 5,250 00 
 
 Total . $27,120 00 
 
 Sacramento, September 12, 1863. 
 
 Approved to the extent of $25,500. 
 
 Theo. D. Judah, Chief Engineer C. P. B. B. Co 
 
 It will be seen that Mr. Crocker was not modest in his charges at this 
 time. But as his bills passed through Mr. Judah’s hands before payment, 
 it proved to be an obstacle to Crocker, preventing the payment of his 
 future bills at his own prices. For no other known motive than to gain the 
 good will of the Chief Engineer, on September 19, 1863, he entered into 
 an agreement with that officer, of which the following is a copy: 
 
 For value received I hereby agree and bind myself that I will, upon the comple¬ 
 tion of fifty miles of the Central Pacific Railroad of California, from the foot of K 
 Street in the City of Sacramento, eastwardly, so that a train of cars can run through 
 oil the same, deliver or cause to be delivered to T. D. Judah, his heirs, executors, or 
 administrators, fifty of the First Mortgage Bonds of the Central Pacific Railroad Com¬ 
 pany of California, for one thousand dollars each, with all the interest coupons 
 attached thereto which are not then due ; said bonds to be of the first issue of mort¬ 
 gage bonds of said Company, bearing date December 1, 1862, of which Eugene 
 Kelly and David S. Dodge are trustees. This agreement not to be assigned or trans¬ 
 ferred to any person without my written consent endorsed thereon. 
 
 (Signed) C. Crocker. 
 
 Sacramento, September 19,1863. 
 
 This agreement was made when Mr. Crocker was not a Director of the 
 Company, but simply a contractor. Nevertheless, he could give away 
 fifty thousand dollars of the Company’s bonds, while the uhief Engineer 
 accepted his written promise as a sufficient hold on the Company. In 
 other words, Crocker was still a power in the Company. 
 
 To one not familiar with the allowances the Directors voted to them¬ 
 selves, not only as salaries but for “ extra services,” it would appear that 
 during the early construction they experienced great hardships, and, 
 according to the statements of some of them, were frequently penniless, 
 having spent their private means in the enterprise. The Company’s rec¬ 
 ords prove this to be false. Resolution of Directors July 1, 1863, shows: 
 
 For services as President and for furtherance of the interest of the Company other¬ 
 wise, Leland Stauford is allowed $10,000 per year from the 28th day of June, 1861, to 
 
8 
 
 CENTRAL PACIFIC RAILROAD. 
 
 the present time ; T. D. Judah, $10,000 as salary from the organization of the Com¬ 
 pany ; “ also $25,000 for services as agent in furthering the interest of this Company 
 in the Atlantic States, and for services prior to the organization of this Company ; ” 
 James Bailey (the Secretary) allowed $25,000 “ for services in the Atlantic States and 
 California during the past two and one-half years;” C. P. Huntington, $25,000 for 
 services since June 28, 1861, to date ; also $10,000 a year salary. 
 
 Resolution of September 5, 1864, allows: 
 
 Leland Stanford, $10,000 for salary; Mark Hopkins, $10,000; C. P. Huntington, 
 $25,000; A. P. Stanford, $5,000; C. Crocker, $10,000; E. B. Crocker, $5,000; also 
 $18,000 for additional back services; C. P. Huntington, $25,000 “ as compensation for 
 his financial services, agent and attorney, for attending to business and rendering ser¬ 
 vices in Washington and New York for the year ending July 1, 1864.” 
 
 The above are samples of the resolutions passed annually. Up to 
 July 1, 1864, over $250,000 was thus voted to themselves, part payment 
 being made in cash and part in capital stock. C. Crocker, it will be 
 noticed, was allowed a salary in the second resolution. A couple of 
 months prior to the resolution of September 5 he was appointed Gen¬ 
 eral Superintendent of the road, while still engaged as contractor, while 
 the salary covered the past year. 
 
 At a Directors’ meeting held in June, 1865, at which were present 
 Leland Stanford, E. B. Crocker, Mark Hopkins, and E. H. Miller, Jr., 
 many of the prices in the Crocker contract were advanced. In the report 
 of the Majority Commission, page 70, reference is made to these prices as 
 giving an idea of the cost of the construction to the Central Pacific. It 
 should be remembered, however, that they were only allowed iu the 
 Crocker contracts, in which the other Directors were equally interested. 
 On this point the Commission conclude as follows : 
 
 The Commission endeavored, by the examination of numerous witnesses, to ascer¬ 
 tain the cost of this construction to Charles Crocker & Co. (see evidence of Strow- 
 bridge. vol. 6, pp. 3103 to 3111, and 3147 ; Arthur Brown, vol. 6, pp. 3602 to 3605 ; 
 Clement, vol. 6, pp. 3202 to 3233). 
 
 The rates appearing on the face of the estimates above referred to are largely in 
 excess of the rates fixed by those Witnesses as the usual rates at the time of construc¬ 
 tion (see evidence of Clement, vol. 6, pp. 3206 to 3210). 
 
 The persons mentioned by the Commission, Messrs. Strowbridge, 
 Brown and Clement, superintended different portions of the construction 
 of the road. 
 
 Let us take for example the single item of grubbing. It had, up to 
 the time the prices were changed, been done by C. Crocker & Co., and also 
 by outside parties, for $200 per section. At the above meeting the price 
 was advanced to $2,000 per section. The Secretary of the Company, E. II. 
 Miller, Jr., was one of the four Directors present; but when Mr. "Crocker 
 put in his next bill against the Company, rather than dare assume the 
 responsibility of allowing such a ridiculous price for the grubbing, the 
 Secretary wrote out a notice to himself and had Mr. Stanford sign it. 
 The following is a copy, the original of which is in the Secretary’s hand¬ 
 writing : 
 
 Office C. P. R. R. Co., 
 Sacramento, March 6, 1866. 
 
 E. H. Miller, Jr., Secretary: 
 
 I hereby notify you that pursuant to and in accordance with an order of the 
 Board of Directors, passed at the meeting held June 6, 1865, the price for grubbing 
 and clearing Section No. 50 and beyond has been agreed upon, between Charles 
 Crocker and myself as President of the Company, at two thousand dollars ($2,000) per 
 section. 
 
 Leland Stanford, President. 
 
CENTRAL PACIFIC RAILROAD. 
 
 9 
 
 As an instance of the loose manner in which the Directors dealt with 
 Crocker & Co., I will cite the following : 
 
 A resolution adopted September 5, 1864, refers to the communication 
 from C. Crocker & Co., of September 1, 1864. After cancelling the con¬ 
 tract, as requested in the communication, the resolution continues : 
 
 also to settle with said C. Crocker at the same prices and in tlie same manner for the 
 work done and materials furnished in constructing the railroad of tie Company, until 
 tie further order of tie Board of Directors, or until further arrangements shall be 
 made for tie construction of said railroad. 
 
 Thus was Crocker released from his contract without any apparent 
 reason, or stating even what was due or paid to him from the $400,000 
 mentioned in the contract. It seems to have escaped the notice of the 
 Commission while investigating, that, from the time of passing the above 
 resolution until the formation of the Contract and Finance Company, the 
 Directors allowed Mr. Crocker to go on with the work of construction 
 without any contract. Consequently, when they (the Commissioners) were 
 endeavoring to learn something about the missing Crocker contract, they 
 evidently supposed that it covered the construction as far as the State line 
 of California; whereas the only contract made with C. Crocker & Co. was 
 the one referred to heretofore, covering the first eighteen miles of the 
 road. It is true that Crocker carried on the work to the State line, but 
 not under contract; the Company’s minutes will show this. 
 
 Deferring to the construction by Crocker, the Commission, page 71 of 
 their report, state : 
 
 Leland Stanford testified that Charles Crocker had no partners ; but it appears 
 from his own evidence (vol. 5, p. 2637) that all the stock received by Claries Crocker 
 under these contracts was turned over to the corporation known as the Contract and 
 Finance Company, in which Stanford, Huntington, Hopkins, and Crocker, were sub¬ 
 stantially the sole stockholders. The amount of stock so turned over was about 
 $14,000,000. (See evidence of Stanford, vol. 5, pp. 2648 and 2649.) It is clearly estab¬ 
 lished by the evidence that tliese four gentlemen were at all times equally interested 
 in the results of these contracts, and that whether the formal relation of partner 
 existed between them or not, it was understood and agreed between them that they 
 should share equally in all the profits of the enterprise. 
 
 The Crocker contracts were awarded to C. Crocker & Co. by the votes of Stanford, 
 Huntington, Hopkins, and Crocker. The profits arising out of these contracts were 
 divided among these four persons ; and this same singular feature will be found to 
 pervade all contracts for construction, for repairs, for branch lines, for leases of the 
 auxiliary lines, for the express business, for the sale of material, and for the sale of 
 coal, as to all of which, through the intervention of construction companies, or devel¬ 
 opment companies (in all of which these four persons were substantially the only 
 stockholders), all of the contracts lave been awarded by the votes of Stanford, Hun¬ 
 tington, Hopkins, and Crocker. (Stanford’s Evidence, vol. 5, p. 2789.) In all of these 
 cases the profits resulting therefrom lave been divided between them. In some excep¬ 
 tional cases there has been a fifth party in interest,—either Mr. E. B. Crocker, the 
 brother of Charles Crocker, or Mr. David M. Colton,—in which cases the profits have 
 been divided by fifths instead of by fourths. 
 
 In the opinion of the Commission, the course pursued in this respect is wholly 
 indefensible. The agreement of the Company, when it received the munificent aid 
 extended by the United States, was to repay the loan and so much of the interest as 
 had not been repaid by transportation or percentages of net earnings at the expiration 
 of thirty years. The course pursued by Stanford, Huntington, Hopkins, and Crocker 
 was necessarily absolutely destructive of any possible security. . . . 
 
 Following are some of the resolutions allowing bills of 0. Crocker & Co. 
 for extra work. Since there was no contract defining what would consti¬ 
 tute “ extra work,” the Directors were at liberty to include anything they 
 cared to. 
 
 Charles Crocker presented a bill for extra work for months of January and February 
 1 * 
 
10 
 
 CENTRAL PACIFIC RAILROAD. 
 
 amounting to $115,250.05, which, on motion of Mark Hopkins, was allowed and ordered 
 paid. (Resolution, March 22, 1866.) 
 
 The President reported on bills for extra work, presented by C. Crocker & Co. for 
 the months of March, April, and May, amounting in the aggregate to $133,586.93 ; that 
 the same were correct and reasonable and should be allowed ; when, on motion of 
 Mark Hopkins, the same were allowed, and the President and Secretary directed to 
 draw their warrant on the Treasurer for the amount. (Resolution, June 27, 1866.) 
 
 President S an ford presented a bill from C. Crocker & Co. for work done and 
 materials furnished on line of road, and stated that the same had been examined and 
 found correct; the same was allowed, and the President and Secretary was ordered to 
 draw their warrant on the Treasurer for the amount of said bill, to wit : $296,504.22.” 
 (Resolution, May 10, 1867.) 
 
 Leland Stanford, President, presented C. Crocker’s bill for extra work, amounting 
 to $173,785.27, and reported that he had examined the same and found it to be correct, 
 and, on motion, the bill was audited and allowed aud ordered paid. (Resolution, 
 January 3, 1868.) 
 
 Similar resolutions were passed, approving bills of the Contract and 
 Finance Company for extraordinary amounts. One resolution allowed 
 payment to that Company, amounting to $11,038,630.13, “ for final pay¬ 
 ment on contract.” After taking into consideration that the four principal 
 Directors had an understanding as to the division of the profits between 
 them, the reader will at least assume that the Central Pacific owed the 
 men nothing after paying such bills for the work. And yet they have since 
 pictured the hardships they underwent at the time; whereas the scanty 
 records found in their minute-books, which happily were not 4 ‘lost,” show 
 how they fared. One is forced to agree with the Majority Commission, i.e., 
 that their course alone prevented the road from keeping its part of the 
 agreement with the Government. 
 
 The Directors let a contract, dated September 26, 1863, to Collins & 
 Bro. of Stockton, Cal., to build sections Nos. 19 and 20 of the road, at 
 fixed prices. Mr. Crocker induced them to assign their contract to the 
 Central Pacific Railroad Company of California. The following is a copy 
 of the assignment appearing on the back of Collins’ contract: 
 
 For a valuable consideration we hereby release and surrender the within contract 
 to the Central Pacific Railroad Company of California, and hereby authorize the said 
 Company to take immediate possession of the work herein described. December 23, 
 1863. C. Collins & Bro. 
 
 No mention of such an assignment appears in the Directors’ minutes 
 so that Mr. Crocker must have represented the Company on this occasion 
 also. However, he finished the work at an additional cost to the Company 
 of over $4,300, as follows: 
 
 To cost, as per contract with Collins & Bro.: 
 
 85 % cash. $11,180.05 
 
 15 % stock. 1,972.95 
 
 Total cost sections 19 and 20. $13,153.00 
 
 Allowed Crocker & Co., as per final estimates : 
 
 Section 19. $1,438.17 
 
 Section 20. 16,037.13 
 
 Actual cost sections 19 and 20. $17,475.30 
 
 Before passing from the subject of construction work done by C. 
 Crocker & Co., I will present to the reader copies of two reports submitted 
 by the Company’s Chief Engineer. The information given therein is very 
 important in the absence of the books showing the cost of construction. 
 The reports include some of the heaviest work encountered on the line ; and 
 no one was better qualified to estimate the probable cost to the Company 
 than Mr. Judah. The only real difficult construction was in crossing the 
 
CENTRAL PACIFIC RAILROAD. 
 
 11 
 
 Sierra Nevada mountains; on either side the course is principally over 
 plains, and it was a common feature for the workmen engaged in laying 
 the rails to try to exceed each day the distance covered on the previous 
 one. Mr. Judah had a high reputation as a civil engineer, was thoroughly 
 acquainted with the route surveyed, and understood the cost for the neces¬ 
 sary material and labor used in construction. One of the reports, it will 
 be observed, is not dated. As it contains a reference to sections 19 and 20, 
 which were awarded under contract to Collins & Bro. as above, on Sep¬ 
 tember 26, 1863, the report was evidently made after September 19, 
 1863, the elate of Mr. Crocker’s present to Mr. Judah. Whether this in¬ 
 fluenced the Chief Engineer in fixing his estimates as shown, at over 
 $500,000 above his previous allowance, cannot of course be known. Mr. 
 Judah’s death occurred in November, 1863. The reports follow : 
 
 First Division. 
 
 The First Division of fifty miles will extend from the foot of K Street, City of Sacra¬ 
 mento, to what is termed Applegate Summit, about twelve miles via Railroad beyond 
 Auburn, and about eight miles below lllinoistown. 
 
 It will embrace about thirty miles of moderately light work, while the upper 
 twenty miles may be fairly considered as heavy work, requiring at least one year as 
 the shortest time in which the grading can be completed. 
 
 The grading, masonry, bridging, ties and track laying of the first eighteen miles, 
 or to the line of California Central Railroad, is under sub-contract, to be completed 
 by August 15, 1863, and is progressing with satisfactory rapidity. 
 
 The iron chairs and spikes and equipment for same should be shipped during the 
 months of March anfl April, 1863, in order to arrive here in time to be laid down with¬ 
 out delay. 
 
 The grading, masonry, etc., upon the next twelve miles, or to the Auburn Station, 
 upon present Sacramento, Placer, and Nevada Railroad, by working a heavy force, can 
 be completed in about four months, although it would be much safer to allow six 
 months’ time for its completion. 
 
 In order to complete it so that the work of track laying can go on uninterruptedly, 
 it should be placed under contract by June 1, and completed by November 1, 1863. 
 The ties should be contracted to be delivered during the months of September and 
 October. The iron chairs and spikes should be shipped from New York in May and 
 June, 1863. 
 
 The upper twenty miles of road will require at least a year to build. 
 
 Allowing three months for track laying, and it will require to be placed under con¬ 
 tract by September 1, 1863. The iron chairs and spikes and balance of equipment 
 should be shipped from New York during the months of March and April, 1864. 
 
 I estimate the entire cost of this division at $2,500,000. 
 
 Second Division. 
 
 The second division of fifty miles will extend to about twenty-eight miles above 
 Dutch Flat, or within about ten miles of the Summit. 
 
 This division is required to be completed by December 1, 1865, or say in two years 
 and eight months, and should be placed under contract by November, 1863. 
 
 Some of the heaviest work on the whole line will be found on the first twenty-five 
 miles of this division, which reaches to about four miles above Dutch Flat, or to the 
 snow line, comprising the heavy work on Long Ravine, Secrettown, and probably four 
 tunnels. 
 
 The upper twenty-five miles comprises the heavy work upon Bear River, Side Hills, 
 and the South Yuba, extending up to what is known as Wilson’s Cutoff, on the South 
 Yuba. 
 
 The iron chairs and spikes for this division should be shipped from New York by 
 February, March and April and May of 1864, at the rate of about 1,200 tons per 
 month, and the equipment at about the same times. 
 
 It will take about six months to lay the track. The ties for the lower half of this 
 division will probably require to be of redwood, and should be contracted to be deliv¬ 
 ered in May, June, and July, 1864. 
 
 The upper twenty-five miles of this division (as also the next twenty-five miles of 
 the third division) will embrace what is known as the snow line, and cannot be 
 
12 
 
 CENTRAL PACIFIC RAILROAD. 
 
 worked with the same facility or at the same rate of progress as the lower divisions 
 of this road. 
 
 Eight months of the year, from April to November, is the utmost length of season 
 that can be counted on for working. I regard it, therefore, as absolutely necessary 
 that there should be at least two seasons allowed for performing the grading of this 
 (second) division, and that upon the upper twenty-five miles all the lighter portions of 
 the grading be performed in the summer time. 
 
 I estimate the entire cost of this division in round numbers at $5,000,000. 
 
 Third Division. 
 
 The third division extends from a point about ten miles westerly of the Summit 
 to a point near Stott’s Crossing of the Truckee. 
 
 The first ten miles to the Summit will not contain so great a proportion of rock 
 cutting as exists upon the middle division. 
 
 The next three miles, from the Summit easterly, will he very heavy and difficult; 
 and ten miles further, of pretty heavy work, carries us to the Truckee River, at about 
 123 miles from Sacramento, and at the foot of the heavy grade. 
 
 This division will require at least two years to complete, and should be placed 
 under contract by November 1, 1864. 
 
 I think that the heaviest rock cuttings upon this division can be worked in the 
 winter time. 
 
 The ties for the entire division can be'procured along the line. 
 
 Its cost will not fall short of $5,000,000. 
 
 Very respectfully, 
 
 (Signed) Theo. D. Judah, 
 
 Chief Engineer C. P. R. R. Co. 
 
 March 24, 1863. 
 
 Thus, it will be learned, with the third division ends the heavy grade, 
 the part which the Directors have since laid so much stress upon as to 
 the expense, which Mr. Judah considered to cost about $5,000,000. The 
 Government will do well to take note of this. The other report, without 
 date, is as follows: 
 
 COPY. 
 
 Hon. Leland Stanford, President C. P. R. R. Co. 
 
 Dear Sir: Herewith accompanying please find approximate estimates of cost of 
 Sections 19 to 68 inclusive, as per your request; also the relative proportions of cash, 
 stock, and bonds. 
 
 The summary will be found on the last page. 
 
 Very truly yours, 
 
 (Signed) Theo. D. Judah, 
 
 Chief Engineer C. P. R. R. Co. 
 
 Approximate estimates of the amounts of cash and stock, accruing under contracts, 
 Sectious 19 to 31, inclusive. 
 
 Sections. 
 
 19 and 20, C. Collins. 
 
 21, 22, 23, 24, Turton, Ryan & Knox.. 
 
 25, 26, 27, Chas. Bates. 
 
 28 and 29, S. D. Smith. 
 
 30 and 31, C. Crocker & Co. 
 
 Totals. 
 
 85 per cent. 
 Cash. 
 
 15 per cent. 
 Stock. 
 
 Total. 
 
 . .$11,180.05 
 
 $1,972.95 
 
 $13,153 
 
 .. 23,171.85 
 
 4,089.15 
 
 27,261 
 
 .. 30,648.05 
 
 6,584.05 
 
 37,233 
 
 
 8,842.00 
 
 58,950 
 
 .. 87,576.35 
 
 15,454.65 
 
 103,031 
 
 .$202,684.30 
 
 $36,944.00 
 
 $239,628 
 
 The above estimates are from approximate quantities at the contract prices at 
 which the above sections were awarded. They are intended to be liberal, and the final 
 estimates should come within the above figures. 
 
 (Signed) Theo. D. Judah, 
 
 Chief Eng'r C. P. R. R. 
 
 Approximate estimate of the cost of Sections 32 to 50, inclusive, at the following 
 prices • 
 
CENTRAL PACIFIC RAILROAD. 
 
 13 
 
 687,500 cubic yards earth excavation, at $0.38 
 
 180,000 “ cement “ “ 0.75 
 
 222,500 
 
 ii 
 
 semi-solid rock excavation, 
 
 
 1.35 
 
 173,500 
 
 
 solid rock excavation, 
 
 i i 
 
 2.00 
 
 5,000 
 
 ii 
 
 tunnelling, 
 
 l i 
 
 7.50 
 
 4,125 
 
 ii 
 
 exc. foundation, 
 
 
 1.00 
 
 5,666 
 
 ii 
 
 culvert masonry, 
 
 ii 
 
 15.00 
 
 1,555 
 
 ii 
 
 rubble bridge masonry, 
 
 ii 
 
 20.00 
 
 2,835 
 
 ii 
 
 cement mortar, 
 
 €t 
 
 5.00 
 
 191,500 
 
 feet B. M. 
 
 timber in structures, 
 
 ii 
 
 65.00 
 
 15,200 
 
 < 6 
 
 plank, 
 
 ii 
 
 50.00 
 
 14,300 
 
 lbs. 
 
 iron, 
 
 ii 
 
 0.12 
 
 88,000 
 
 
 cross ties, 
 
 a 
 
 0.80 
 
 33 
 
 miles 
 
 track laid, 
 
 
 800.00 
 
 Total cash cost at above prices 
 
 $261,250 
 
 138,000 
 
 300,375 
 
 347,000 
 
 37,500 
 
 4,125 
 
 84,990 
 
 31.100 
 
 14,175 
 
 12,447 
 
 760 
 
 1,716 
 
 70.400 
 
 26.400 
 
 $1,330,238 
 
 In the proportion of \ cash, f stock at 50 cents on the dollar, and £ bonds at 60 
 cents on the dollar, the amounts will be as follows : 
 
 i cash. $669,080 
 
 f stock at 50 cents on the dollar. 1,003,620 
 
 i bonds at 60 “ “ . 278,783 
 
 Or a total of.$1,951,463 
 
 The above estimate of quantities is liberal. 
 
 (Signed) T. D. Judah, 
 
 Chief Eng'r C. P. R. R. 
 
 Approximate estimate of the cost of Sections 51 to 56, inclusive, at the following 
 prices : 
 
 185,000 cubic yards earth excavations, 
 
 63,000 “ cement “ 
 
 at 
 
 $0.38 
 
 $70,300 
 
 “ 
 
 0.75 
 
 51,000 
 
 42,000 
 
 ii 
 
 semi-solid rock excavation, 
 
 
 1.50 
 
 63,000 
 
 31,159 
 
 ii 
 
 solid rock excavation, 
 
 << 
 
 2.00 
 
 63,318 
 
 2,000 
 
 
 foundation, 
 
 <( 
 
 0.38 
 
 760 
 
 5,000 
 
 a 
 
 tunnelling, 
 
 tt 
 
 7.50 
 
 37,500 
 
 2,500 
 
 “ 
 
 culvert masonry, 
 
 “ 
 
 15.00 
 
 37,500 
 
 850 
 
 t % i 
 
 rubble bridge masonry, 
 
 
 20.00 
 
 17,000 
 
 1,500 
 
 a 
 
 cement mortar, 
 
 it 
 
 5.00 
 
 7,500 
 
 70,000 
 
 feet B. M. 
 
 timber in structures, 
 
 tt 
 
 65.00 
 
 4,750 
 
 10,000 
 
 it 
 
 plank, 
 
 “ 
 
 50.00 
 
 500 
 
 5,000 
 
 lbs. 
 
 iron, 
 
 “ 
 
 0.12 
 
 600 
 
 14,400 
 
 
 cross ties, 
 
 “ 
 
 0.80 
 
 11,520 
 
 6 
 
 miles 
 
 track laid, 
 
 tt 
 
 800.00 
 
 4,800 
 
 Total cost at above prices.$396,048 
 
 In the above proportion of | cash, f stock at 50 cents on the dollar, and j bonds at 
 60 cents on the dollar, the amounts will be as follows : 
 
 ^ cash.$198,024 
 
 | stock at 50 cents on the dollar. 297,036 
 
 i bonds at 60 “ “ 82,510 
 
 Or a total of.$577,570 
 
 (Signed) Theo. D. Judah, 
 
 Chief Eng’r C. P. R. R. 
 
 Approximate estimate of cost of Sections 57 to 68, inclusive. Tlie quantities upon 
 final location of this portion of the work not yet having been calculated, the cost of this 
 division of twelve miles has been taken from the approximate estimate in report of 
 the Chief Engineer, date of October 22, 1862, as follows : 
 
 Long Ravine to Gravel Ridge, 9 miles, at $110,000.$990,000 
 
 Gravel Ridge to Dutch Flat, 3 “ “ 85,000. 255,000 
 
 $1,245,000 
 
14 
 
 CENTRAL PACIFIC RAILROAD. 
 
 If this work is let at tlie prices of preceding subdivision, in the proportion of | cash, 
 f stock at 50 cents on the dollar, and £ bonds at 60 cents on the dollar, the amount 
 will be as follows: 
 
 j cash.$622,500 
 
 | stock. 933,750 
 
 £ bonds. 259,375 
 
 A total of.$1,815,625 
 
 The above estimate contemplates permanent embankments and structures of 
 masonry and one tunnel. 
 
 (Signed) Theo D. Judah. 
 
 Chief Eng'r C. P. It. It. 
 
 Summary of approximate estimate of cost of Sections 19 to 68, inclusive : 
 
 
 Cash, 85#. 
 
 Stock, 15#. 
 
 Bonds. 
 
 Total. 
 
 19 to 31 inc. . 
 
 
 $36,944 
 
 
 $239,628 
 
 
 X Cash. 
 
 % Stock—50c. 
 
 X Bonds—50c. 
 
 31 to 50 “ . 
 
 
 $1,003,620 
 
 $278,783 
 
 $1,951,463 
 
 51 to 56 “ ... 
 
 . 198,024 
 
 297,036 
 
 82,510 
 
 577,570 
 
 57 to 68 “ . 
 
 . 622,500 
 
 933,750 
 
 259,375 
 
 1,815,625 
 
 
 $1,692,288 
 
 $2,271,350 
 
 $620,688 
 
 $4,584,306 
 
 
 E EC APITUL ATION. 
 
 
 
 Cash. 
 
 ..$1,692,288 
 
 Per Mile, 
 
 
 .$33,845 
 
 Stock. 
 
 . 2,271,350 
 
 ii 
 
 
 45,427 
 
 Bonds. 
 
 . 620,688 
 
 t C 
 
 
 12,413 
 
 
 $4,584,306 
 
 
 
 $91,685 
 
 N. B.—Original estimates for same distance, including iron equipment, etc., 
 $4,045,000. 
 
 (Signed) Theo. D. Judah, 
 
 Chief Eng'r C. P. It. B. 
 
 If the Government wishes to arrive at a proper cost to the Company 
 for constructing the entire Central Pacific, the above two reports would 
 furnish a satisfactory basis. They should be accepted instead of the tes¬ 
 timony of the Directors and their employes without the construction 
 books and contracts to verify their statements. 
 
 It was at first the intention of the Directors to continue the work of 
 construction as heretofore, east of the California State line, and the draft 
 of contract (with C. Crocker & Co.) was drawn up by Mr. E. B. Crocker, 
 with the following charges: 
 
 $51,000 in Gold. 
 
 15,000 in Capital Stock of the Company. 
 
 Total, $66,000 per mile to a connection with the Union Pacific, 
 
 These figures were afterwards ruled out and this significant notation was 
 made : “ Leave a whole blank line for each of these two sums.” As has 
 since been learned, the Central Pacific was finally charged just $20,000 
 more per mile than the above, or $86,000 per mile ; a total additional 
 charge of $5,540,000 for the 552 miles yet to be built. 
 
 The fraudulent management by the Directors had begun to assume 
 such proportions that few people had any faith in them, and it looked 
 extremely doubtful if they really intended to finish the road. They evi¬ 
 dently feared that they would soon have to account to the stockholders or 
 the Government for money they had appropriated to themselves. The 
 
CENTRAL PACIFIC RAILROAD. 
 
 15 
 
 enormous profits of the past, and the prospects for the future, prevented 
 them from allowing others to assist in the work. To give the contract 
 the appearance of outside capital being interested therein they changed the 
 title in the above contract from “ 0. Crocker & Co.” to the “ Contract and 
 Finance Company,” adding the additional $20,000 in the charges per mile, 
 otherwise the conditions in the above draft were not materially altered. 
 The Contract and Finance Company was incorporated on December 3, 
 1867, with W. E. Brown, T. J. Millikin, and B. R. Crocker as the stockhold¬ 
 ers : it is hardly necessary to say that they were not the stockholders, but 
 the dummies of Stanford & Co. It was simply an attempt to throw off 
 the yoke of suspicion that the Directors were to be the only beneficiaries 
 under the contract, as heretofore. 
 
 At their Directors’ meeting, held December 3, 1867, Stanford offered 
 the following resolution: 
 
 The President reported that lie had made arrangements for a contract with the 
 “ Contract and Finance Company” for the construction and. equipment of the railroad 
 and telegraph line of this Company, lying east of the eastern boundary line of Califor¬ 
 nia, and presented a draft of such contract; the same having been read and considered, 
 the following resolution and order was unanimously adopted, to wit : 
 
 Resolved and ordered that this Company hereby consents and agrees with the Con¬ 
 tract and Finance Company to the terms, stipulations, and conditions of the articles of 
 agreement submitted by the President to this Board, and the President and Secretary 
 are hereby authorized and directed to execute the said contract on behalf of this Com¬ 
 pany and to attach the corporate seal thereto. 
 
 The false front assumed by Stanford & Co. on the above occasion is 
 precisely their method of to-day, which I will presently expose, in the 
 matter of leasing the Central to the Southern Pacific Company. Although 
 the Contract and Finance Company was composed of the principal 
 Directors, it is doubtful if the Central could have fared any worse at the 
 hands of persons with no interest in the road. By their operation 
 of this private Company they hopelessly burdened the road and darkened 
 its future; and yet to-day finds them still in control, enormously enriched 
 by their misdeeds, and fighting down every measure calculated to either 
 collect the debt, or reasonably extending its time of payment. Even this 
 much might have been overlooked by an indulgent public had the 
 Directors reformed in their management of the roads to-day. 
 
 The operations by the Contract and Finance Company are too well 
 known to need any special mention; I will pass it in silence, quoting first 
 an extract from the report of the Majority Commission, page 72 : 
 
 Under this contract (Contract and Finance Company) the road was constructed 
 between the points indicated, a total of 552 miles, at a cost of $23,726,000 in stock, 
 and $23,726,000 in gold. It is a noticeable fact that Mr. Miller testifies that at the 
 time he voted for this contract, and at the time he voted for the Crocker contract and 
 its extension, he was not informed that the Directors of the Central Pacific were also 
 beneficiaries under the contracts. (See evidence of E. H. Miller, Jr., vol. 5, p. 3061, 
 3062.) The Commission have made diligent effort to ascertain the actual cost of con¬ 
 struction of the railroad to the Contract and Finance Company, and, in their opinion, 
 have arrived at a conclusion which cannot be far from the truth. An accurate answer 
 to this question would be shown by the books of Charles Crocker & Co., and of the 
 Contract and Finance Company. These books were not produced, and, in the opinion 
 of the Commission, were purposely destroyed by direction of Stanford, Huntington, 
 Hopkins, and Crocker. The evidence on this point appears to be conclusive. 
 
 To this I can add a chapter regarding the destruction of a State record- 
 book which the Directors also considered objectionable. Neither the In¬ 
 vestigation Commission, the stockholders, nor the State authorities have 
 up to the present time ascertained that such a book, once in existence, was 
 also “suppressed.” 
 
16 
 
 CENTRAL PACIFIC RAILROAD. 
 
 Section 10 of the Act of the Legislature of California, dated May 20, 
 1861, and under which the Company was incorporated, reads as follows: 
 
 Section 10. Tlie Directors shall also cause to be kept a hook, to be called “ Record 
 of Corporation Debts,” in which the Secretary shall record all written contracts of the 
 Directors, and a succinct statement of the debts of the Company, the amount thereof, 
 and with whom made, which book shall at all times be open to the inspection of any 
 stockholder, or party in interest. When any contract or debt shall be paid, or dis¬ 
 charged, the Secretary shall make a memorandum thereof, in the margin, or in some 
 convenient place in the record, where the same is recorded. No contract shall be 
 binding upon the Company unless made in writing. 
 
 As may be inferred from the foregoing, this book, if produced, would 
 throw considerable light on the cost of the road; should, therefore, a 
 former stockholder of the Central Pacific of California, or the Government, 
 demand of Stanford & Co. the production of this book, their answer can 
 only be surmised. It is not “missing” as in the case of the Construction 
 Companies’ books, but was kept as required until the management became 
 altogether indifferent as to the consequences, so complete were their 
 entanglement. When they decided to make way with the construction 
 books and papers, they cut out the leaves of the State book containing 
 entries, pages 48 to 111, inclusive, and also scratched out the labelling 
 appearing on the back. In this mutilated condition the book was stored 
 away in the Secretary’s back office. The Commission evidently did not 
 read over the requirements of the Act of 1861, for I am certain they did 
 not learn of the above facts. Notwithstanding its present condition, I 
 possess ample evidence to prove the facts as I have stated them. Such a 
 method of concealing their dishonesty reminds me of the habit of the 
 ostrich, on being run down, burying its head in the sand to escape dis¬ 
 covery. 
 
 During the entire construction of the road the Directors put as little 
 information as possible on record when writing their proceedings in the 
 minute-book; considering their acts at the time, however, it is not sur¬ 
 prising. An example is furnished in the resolution of February 18, 1869, 
 as follows : 
 
 Resolved and Ordered , That the President and Secretary are authorized to exe¬ 
 cute and deliver to the Contract and Finance Company the promissory notes of this 
 Company for the amount of cash due said Company, in such sums as said Company may 
 require, payable one year from date to said Company, or bearer, with interest, at ten 
 per cent, per annum, payable quarterly, principal and interest payable in United States 
 gold coin. 
 
 It would be well if the Government should now hold the Directors as 
 strictly to their agreement as they treated the Central in all of its transac¬ 
 tions with the Contract and Finance Company. Because, by their heavy 
 charges, they had cleaned out the money on hand in the Central Pacific 
 treasury, it did not prevent Stanford & Co. from exacting ten per cent, 
 interest on the balance to be paid. The amount of indebtedness does not 
 appear, but it is safe to assume that it represented all of the road’s profits 
 for the year to which the debt was extended. 
 
 It has always been the custom of the Directors to loan the Central’s 
 surplus to their private Construction Companies, including the money set 
 apart for the redemption of the Company’s bonds. The practice was 
 religiously followed during the time of the Contract and Finance Company ; 
 the only security the road received was its note and capital stock, issued 
 on account of construction. As far as I could learn, the money thus bor¬ 
 rowed was not returned. Neither have I ever succeeded in satisfying 
 myself that Stanford, Huntington, and Hopkins redeemed their personal 
 
CENTRAL PACIFIC RAILROAD. 
 
 17 
 
 notes they gave to the Central when the Contract and Finance Company 
 dissolved partnership, with a debt owing to the former amounting to 
 $5,700,000. The Central Pacific resolution reads as follows, dated Septem¬ 
 ber 9, 1873 : 
 
 W. E. Brown presented the following, which was unanimously adopted, to wit: 
 
 Resolved, That the Secretary be directed to receive from the Contract and Finance 
 Company the notes of Leland Stanford, Mark Hopkins, and C. P. Huntington, amount¬ 
 ing to $5,700,000, endorsed by said Contract and Finance Company, on settlement of 
 its indebtedness to this Company, and credit the amount of same to the account of 
 said Contract and Finance Company. 
 
 That such a Construction Company as this could have failed, when 
 it existed for no other purpose than to make and turn over to the 
 Directors of the Company the profits from building the road, is impos¬ 
 sible,—unless the Directors, too, became involved. The fact that they 
 started in with comparatively nothing, and now gave their notes on behalf 
 of the embarrassed concern, answers the question. Why did not the Con¬ 
 struction Company meet its own obligation, instead of the Directors divid¬ 
 ing between themselves the millions of dollars which passed into its 
 hands ? 
 
 The amount was charged on the Central Pacific books to “ bills receiv¬ 
 able. ” From this account it gradually disappears, though an effort by the 
 writer to trace the same was unsuccessful. Allowance has to be made for 
 the Secretary’s peculiar style of bookkeeping, which Accountant Stevens 
 reported, as the Government’s expert, the worst he had ever seen. I know 
 it to be the custom of the Directors, whenever they charge themselves with 
 certain duties, placing the same in resolution form in the minute-book, to 
 offset such by a second resolution, upon discharging the duty; and there 
 is certainly no such resolution subsequent to the above one, as doubtless 
 would have been the case had the Central been actually paid the money cov¬ 
 ered by the notes. It was, in my opinion, systematically charged off to “ profit 
 and loss,” or a portion of it. I will show, by correspondence herewith 
 given, that the Contract and Finance Company, at the time it dissolved, had 
 still a balance undivided, and which was transferred to the successor Com¬ 
 pany, the “ S. H. H. & C. Co.,” and credited to “profit and loss ” account; 
 amounting to $2,608,292.29. Mr. Stanford himself, notwithstanding his 
 habit of avoiding damaging admissions when testifying, acknowledged to 
 the Commission that stock to the value of over $50,000,000 was divided as 
 a profit. (See evidence of Stanford, vol. 5, page 2669 ; and W. E. Brown, 
 vol. 5, page 2979.) As such became a matter of record when transferred 
 to their own names, it would have been useless to have denied it; large 
 sums of money also went to them. 
 
 One of the principal excuses for the enormous cost of construction, 
 stated by the Directors, was that of excessive freight rates charged by ship¬ 
 pers around Cape Horn, in addition to the very high cost of the material 
 purchased in the East. 
 
 Before Mr. Huntington started East to contract for the purchase of 
 rails and rolling-stock and the shipment thereof, he entered into an agree¬ 
 ment with Mr. Jas. P. Flint, in December, 1862, to pay the latter $25,000 
 to accompany him and use his influence towards securing the most favor¬ 
 able terms and lowest prices. Mr. Flint was paid $30,000 for the fulfil¬ 
 ment of his agreement. Mr. Huntington contracted with several Eastern 
 firms for the supply of material, and on terms which showed him to have 
 been a very good buyer at the time, securing every concession possible. 
 For example, the following letter, written by Mr. Huntington himself, to 
 Secretary Miller, regarding charges on freight, will explain: 
 
 1** 
 
18 
 
 CENTRAL PACIFIC BATLROAD. 
 
 New York, March 9, 1865. 
 
 E. H. Miller, Esq., Sacramento. 
 
 Dear Sir : . As to the insurance charged by Lambard on iron per Ellen 
 
 Sears, I will have him pay it back. . . . 
 
 Enclosed with this you should find five B/L for goods shipped on ship Ne Plus 
 Ultra. They did not have the weight or measure of the goods on the B/L for the 
 reason, as I was told by the shippers, that as the price was so much lower than any 
 other freight that they had on the ship that they did not want to have the price appear 
 on the manifest, and so I had them give me the weight and measure on a separate 
 piece of paper, which I have pasted on each B/L. 
 
 (Signed) C. P. Huntington. 
 
 Also, I have it on the best of authority, personal recollections of gentle¬ 
 men engaged in railroad material business in San Francisco at that time, 
 and who verified their statements by showing their books, showing that the 
 rate on that class of goods via Cape Horn was then between $3 and $4 per 
 ton. A member of one of the houses still dealing in that material asserted 
 positively that the freight on iron seldom reached and never exceeded 
 $6 a ton. This maximum figure, he allowed, might have been charged 
 occasionally when there happened to be a scarcity of vessels in the harbors 
 of Hew York or Boston, but, as a rule, ship-owners were glad to take the 
 iron at almost any rate, in place of stone ballast, which otherwise would 
 have to be taken, most of the cargoes consisting usually of light material. 
 Furthermore, one of the contracts by Mr. Huntington arranged with 
 Messrs. (Hidden & Williams, under date of March 14, 1863, for the latter 
 to attend to all of his shipping for one year from date, allowing Hunting- 
 ton the privilege of obtaining lower rates during that period, if possible. 
 Freight was generally shipped by sailing vessel, but in a few instances, 
 when there was an urgent need for a locomotive or car, it would be sent in 
 pieces via the Isthmus of Panama, regardless of expense. The writer 
 remembers a statement which was gotten up by one of the Company’s 
 officers, showing freight charges paid by the Company at that time, wherein 
 such a case as just cited was given as a basis of cost for transportation of 
 rolling-stock to California. Of course owners of steamships would charge 
 considerable more than sailing vessels, having had as much business as 
 they could well attend to in transporting passengers en route to Cali¬ 
 fornia, and in which there was more profit than in handling freight. 
 
 By the terms of most of Mr. Huntington’s contracts above referred to, 
 the consideration was principally the Company’s first mortgage bonds and 
 also capital stock. Therefore, if the Company suffered any disadvantages 
 in the matter of prices charged for material, it arose from that cause. Had 
 the Directors used cash in such purchases, instead of reserving it for them¬ 
 selves when retailing the material to the road, the result would be differ¬ 
 ent. As it was, they were finally obliged to use money, and I have not 
 the least doubt but that they obtained all the benefits and considera¬ 
 tions they could reasonably ask for. The price paid by the Directors for 
 iron rail, as shown by Mr. Huntington’s contracts, even when payment 
 was made in bonds and capital stock, was about equal to the cost of 
 sixty pound steel rail of to-day; that is, placing the same valuation on 
 the bonds and stock as when issuing such to C. Crocker & Co., and 
 the Contract and Finance Company, on account of construction. As the 
 bonds and stock represented a road yet to be constructed, and on account 
 of the rumors which were spread soon after its commencement regarding 
 the Directors’ management, it could hardly be expected that merchants in 
 the East would accept its paper at any figure. A popular name given 
 the enterprise in those days was “The Dutch Flat Swindle,” and the 
 prejudice against it was almost universal. The assistance which the 
 
CENTRAL PACIFIC RAILROAD. 
 
 19 
 
 Government gave it alone carried it through, for the Directors were in 
 no position to ask or even expect credit elsewhere. "Tkat^’th^ ^en'eral 
 suspicion east at the time was well founded, regarding^ the. hUegrijty 5 # of' 
 these men, is now apparent, and the Government as, at .present ;at,^ logs 
 to know how to get back its loan. * ; : - ' , : - 
 
 The wages paid to laborers engaged in the construction Were less than- 
 those paid by the Company to-day. Chinese workmen Were preferred, tft 
 to white men and the Directors have since stated that pruyed * 
 
 to be well fitted for the work, and that it was partly due to their industry 
 that the work progressed so rapidly. The Construction Companies adver¬ 
 tised for their help, and a copy of such advertisement will explain it¬ 
 self : 
 
 Central Pacific Railroad. 10,000 more Chinese laborers wanted to work on the 
 Central Pacific Railroad. Thirty-one dollars per month, of twenty.six working days, 
 will be paid in gold coin to each man. The wages will be paid promptly every month. 
 Parties of twenty or more going to work will be carried over the railroad from Sacra¬ 
 mento to the end of the road free. 
 
 Charles Crocker & Co. 
 
 Sacramento, January 7, 1867. 
 
 According to the reports of the Chief Engineer, heretofore shown, on 
 the probable cost of constructing the heaviest part of the road, the Major¬ 
 ity Commission allowed the Directors a very liberal margin when they 
 came to the following conclusions on the subject: 
 
 In estimating, therefore, the actual cost of construction of the Central Pacific Rail¬ 
 road, of any branches which were constructed through contracts with the Contract and 
 Finance Company, of any repairs done by that Company, or supplies furnished by it, 
 we feel compelled to accept the rule of law which applies to all cases of suppressed 
 evidence, and which raises against the party implicated in the suppression the very 
 strongest presumption that the suppressed evidence, if produced, would testify against 
 the party suppressing the same. 
 
 It is our judgment that the actual cost of construction of the Central Pacific Rail¬ 
 road from Sacramento to Promontory Point, and the purchase from the Union Pacific 
 Railroad Company of forty-seven and one-half miles, a total distance of 737.50 miles, 
 did not exceed the sum of $36,000,000. 
 
 We base this conclusion on the examination of many witnesses as to the actual 
 cost of railroad building and material during the years of construction, on the evidence 
 taken of the character of the country, on the agreed price paid by the Central Pacific 
 to the Union Pacific for forty-seven and one-half miles of the road between Promon¬ 
 tory Point and a point five miles west of Ogden; and in reaching this conclusion, we 
 have made, in our judgment, full allowance for all that appears in the evidence re¬ 
 lating to the peculiar and difficult character of the work, to the excessive cost of build¬ 
 ing the road over the Sierra Nevadas, to the impediments offered by snow and stormy 
 weather, to the unusual item of cost arising out of the construction of snow-sheds, and 
 to the increased cost resulting from the rapidity with which the work was carried on 
 and the necessity of expensive and unusual transportation of all material required for 
 the construction of the read. 
 
 As this investigation is not in the nature of an accounting, it seems unnecessary to 
 detail the facts and the figures. Mr. Stanford’s admission is that the $54,000,000 of 
 stock distributed by the Contract and Finance Company was substantially a net profit, 
 subject only to the liquidation of an indebtedness of the Contract and Finance Company 
 not exceeding $3,000,000. (See evidence Stanford, vol. 5, p. 2669; William E. Brown, 
 vol. 5, p. 2979.) Report Majority Committee, pp. 74-5. 
 
 When the Company incorporated its capital stock was fixed at $8,500,- 
 000. In October, 1864, it was increased to $20,000,000, and again in July, 
 1868, to $100,000,000. The reason assigned for the last named increase 
 being u to complete the line to connect with the Union Pacific.” Up to this 
 time—1868—Leland Stanford had but 680 shares of stoqk standing in his 
 name and which he voted in favor of the increase; C. P. Huntington had 
 and voted 565 shares; while C. Crocker cast 39,475 shares, and the Con- 
 
20 
 
 CENTRAL PACIFIC RAILROAD. 
 
 tract and Fiippice Company, by C. Crocker proxy, voted 102,100 shares 
 for, the.resointibn. The total number of shares voted at the meeting for 
 .the increase of stock to $100,000,000 was 151,520 shares, of which it will 
 be s^on \Over 141,5Q0 shares were controlled by C. Crocker and the Con- 
 stir action Company. The real object of the increase was to issue it to the 
 Directors on account of construction. Their holdings, it may be said 
 >hei\efQijSyIcpsjf them nothing, while to many of the other stockholders and 
 subscribers to the road this second increase was a severe blow. They had 
 paid $100 cash per share for their stock, yet by such additional stock which 
 Stanford & Co. received, their loss was now complete. They had actually 
 risked their private means,—some of them their all,—but their assistance, 
 given at a time when most needed, was no longer required, since the Gov¬ 
 ernment’s loan had placed millions of dollars at the disposal of the Direct¬ 
 ors. The investment by these people of small means, which at one time 
 seemed to promise so well, came to nothing. Shortly after the connection 
 with the Union Pacific had been effected, the Directors decided upon a 
 general “house cleaning,” consolidated the Central Pacific of California, 
 with other lines, which they had already purchased with the profits from the 
 former, and named it the “ Central Pacific Railroad Company.” They 
 issued new certificates of stock and succeeded in inducing many (of the 
 stockholders) to exchange their original stock share for share for that of 
 the new, which of course had little or no value, while the stock of the Central 
 Pacific of California, remaining outstanding, represented an important 
 claim against Stanford & Co., arising from their crooked management. 
 With the hope of securing all of the old stock, the payment of dividends 
 shortly to be declared (on the new stock) was withheld from those refusing 
 to exchange. This caused others to part with the stock to obtain what 
 little was coming to them. The few shares still outstanding consequently 
 possess great value, to be determined only by a suit for an accounting. 
 
 The first official notice of the charges made against them, which the 
 Directors took, was a resolution inserted at the stockholders’ meeting in 
 August, 1871, as follows : 
 
 Resolved, That the management of the Directors and officers of this Company,from 
 its incorporation to the present time, has been in all respects satisfactory to us, the 
 stockholders of said Company, and that we hereby fully approve and endorse the 
 same. 
 
 The names of the “ stockholders ” voting are not displayed with the 
 resolution, and it is needless to state who they were. 
 
 A suit was finally brought against the Directors, in the names of Sam¬ 
 uel Brannan and others, and the County of Placer, California, which occa¬ 
 sioned a series of resolutions by the Directors, denying the charges, and 
 they were also given a place in the stockholders’ minutes. Out of the 
 625,640 shares voted, nearly all was controlled by the accused parties. The 
 resolutions were then printed in the Company’s annual report to the stock¬ 
 holders for 1873, with a view of restoring quiet among them. So general 
 was their denial of any wrongdoing, that I will give the resolutions as pub¬ 
 lished, and will then quote the opinion of the Majority Commission, in 
 order that the reader may draw his own conclusions therefrom. The suit 
 was compromised, of course, thus saving the Directors from exposure. 
 
 Whereas , Much lias been said in the public press, upon the stump, in the legisla¬ 
 tive halls, and other places, in relation to the course of the President and Directors of 
 this Company, in the construction and operation of its road, in which the plan adopted 
 by them to secure a speedy completion thereof has been denounced as unjust and 
 fraudulent towards the Government of the United States and the stockholders of the 
 Company; and 
 
CENTRAL PACIFIC RAILROAD. 
 
 21 
 
 Whereas , Suits in equity have been brought by Samuel Brannan and the County of 
 Placer, which suits are now pending in the courts of the State of California, on behalf 
 of themselves and such other stockholders as may desire to unite with them, against 
 the President and Board of Directors of this Company,charging them with an abuse of 
 their powers in the making of alleged fraudulent contracts with Charles Crocker & Co., 
 and the Contract and Finance Company, for the construction of the road of the Com¬ 
 pany, whereby, as alleged,the funds and means of the Company have been misapplied and 
 wasted, to the prejudice of the Government of the United States and the stockholders 
 of the Company, and asking that the President and Directors maybe required to render 
 an account of their doings in and about the construction of said road, and to account 
 for and pay over to the Company all moneys so as aforesaid misapplied and wasted ; 
 and 
 
 Whereas , In view of the matters aforesaid, we have considered it incumbent upon 
 us, for our own security and 'the security of all others having any claims upon or 
 against the Company, to inquire into these alleged abuses ; and 
 
 Whereas . We have investigated and now fully know and understand all the trans¬ 
 actions of the President and Directors of the Company in and about the construction 
 of said road, and the general management of the affairs of the Company, and are fully 
 satisfied therewith ; and 
 
 Whereas , It is just to them that our opinion of their administration of the affairs of 
 the Company should be formally and publicly expressed ; now, therefore, 
 
 Resolved, That we do hereby, with full knowledge of the matters hereinbefore 
 referred to, approve and endorse the plan, measures, and contracts adopted and made 
 by our President and Directors in relation to the construction of said road as affording, 
 in our judgment, the only practicable and available mode, under the embarrassing and 
 trying circumstances in which they were placed, and as being more expeditious and 
 equally as economical as any other course that could have been adopted. 
 
 Resolved , further, That we approve the action of the President and Directors in 
 guaranteeing the payment of sixteen hundred of the twenty-year six per cent, mort¬ 
 gage bonds for $1,000 each, of the California Pacific Railroad Company, as being 
 highly advantageous to the financial interests of the Company. 
 
 Resolved, further, That we wholly condemn and disapprove the course pursued by 
 Samuel Brannan and the County of Placer in instituting the suits hereinbefore 
 referred to. 
 
 The following is taken from the report of the Majority Commission, 
 pages 73 and 74. It is impartial, and it is substantially so well supported 
 by facts that it deserves to be noticed. 
 
 (1.) In 1870 suits were brought or threatened by Charles A. Lambard, Samuel 
 Brannan, and others, against Stanford, Huntington, Hopkins, and Crocker, as owners 
 of stock of the Central Pacific Railroad Company, alleging that those persons had 
 been guilty of many violations of their duties as Directors, and that they had voted 
 profitable contracts to themselves ; th^it by means of these contracts they had procured 
 possession of substantially all of the assets of the Company remaining after the 
 expenditure of the actual cost of construction. The Commission do not mean to inti¬ 
 mate that all of the charges contained in these complaints are sustained by the evi¬ 
 dence; but it does appear that the four persons named did vote contracts to them¬ 
 selves, under which large profits were made and divided. The allegations contained 
 in these complaints were such as would compel men of honor, if these allegations 
 were false, to defend themselves at any cost. It appears from the evidence that all 
 these suits were settled, and that the stock owned by the plaintiffs were bought at 
 rates varying from $400 a share to $1,000 a share. (See evidence of Stanford, vol. 5, 
 p. 2641; vol. 6, pp. 2775, 2779.) 
 
 The evidence on which the successful prosecution of such suits would necessarily 
 depend was contained in the books of Crocker & Co. and of the Contract and Finance 
 Company, because the actual cost of construction to these Companies, compared with 
 the actual payments made by the Central Pacific Railroad Company, would disclose 
 the profits divided between Stanford, Huntington, Hopkins, and Crocker. They, and 
 they alone, were interested in the suppression of this evidence. 
 
 (2.) In 1873 the disclosures made by the examinations conducted by the Wilson 
 Committee excited much public attention and indignation with reference to similar 
 practices affecting the Union Pacific Railroad Company, through the intervention of 
 the Credit Mobilier. Comparatively little attention was given by that Committee to 
 the affairs of the Central Pacific Railroad Company. Mr. Huntington, however, was 
 examined as a witness. He was examined as to the profits resulting from the con¬ 
 struction of the Central Pacific Road. He described them as being confined to the 
 
22 
 
 CENTRAL PACIFIC RAILROAD. 
 
 stock of the Company, and that the share received by him amounted to $1,000,000 of 
 this stock. (See report of the Wilson Committee, evidence of Huntington, p. 703.) 
 This evidence was given more than two years after the completion of the Central 
 Pacific Railroad, and Mr. Stanford has testified that each of these parties in interest 
 received $13,000,000 of the stock of the Company as his share of the profits. (See evi¬ 
 dence of Stanford, vol. 5, pp.'2655 and 2656.) 
 
 Mr. Huntington must, therefore, have known, when he was testifying before the 
 Wilson Committee, that his statement was not a true one. 
 
 The report made by the Wilson Committee concerning the Central Pacific Rail¬ 
 road was that they were unable to obtain the facts and figures they desired, because 
 the persons and books to be examined were in California, and they had not at their 
 command the time necessary for reaching them. The recommendations of this Com¬ 
 mittee in regard to the Union Pacific, which afterwards was enacted into the Act of 
 March 3, 1873, directed the Attorney-General to prosecute the offending officers of the 
 Union Pacific Railroad Company. This circumstance, and the danger that similar dis¬ 
 closures would lead to a similar result as to the officers of the Central Pacific, formed 
 another strong inducement for the suppression of the books of Charles Crocker & Co., 
 and of the Contract and Finance Company. 
 
 (3.) The books in question are identified by John Miller, William E. Brown, Daniel 
 Z. Yost, and others as large journals and ledgers containing several hundred pages 
 each, numbering, in .all, from twelve to fifteen volumes, and their disappearance by 
 accident or inadvertence is simply impossible. Mr. Yost testifies that the last he saw 
 of them Hopkins was personally engaged in packing them in boxes. (See evidence of 
 Yost, vol. 5, p. 2712.) 
 
 These books had been kept for several years by William E. Brown. He was suc¬ 
 ceeded in 1873 by John Miller, who acted as Secretary and bookkeeper of the Contract 
 and Finance Company, after Mr. Brown ceased to act in 1873. Both Mr. Brown and 
 Mr. Miller testified that before Miller took charge of the books, William E. Brown 
 prepared a complete and new set, consisting of day book, journal, and ledger, into 
 which set of books he personally transcribed all the balances of the unclosed 
 accounts contained in the books of the Contract and Finance Company. These books 
 have since been produced before the Commission, and the fact is as stated. 
 
 John Miller testified that he saw the books, both of the Contract and Finance Com¬ 
 pany and of Charles Crocker & Co., in their usual place in the rooms occupied by the 
 Contract and Finance Company ; that he was personally in charge of the room during 
 the day on which they disappeared; that he left the room for a short time, at the 
 lunch hour, leaving Mr. Brown there, and that on his return the books had disap¬ 
 peared. (See evidence of John Miller, vol. 5, p. 2879.) William E. Brown denies any 
 knowledge of their whereabouts, or of the circumstances of their disappearance. 
 (See vol. 5, p. 2990.) Mr. Crocker gives it as his opinion that the books were destroyed 
 by Mark Hopkins, as having no value. (See evidence of Crocker, vol. 7, p. 3665.) 
 
 Putting all these facts together,—the existence of a strong motive on the part of 
 Stanford, Huntington, Hopkins, and Crocker to suppress the books; the impossibility 
 of accounting for their disappearance except in pursuance of the act or direction of 
 one of these four persons; the evidence of Yost that he saw Hopkins engaged in 
 packing the books in boxes; the evidence of John Miller of their sudden disappear¬ 
 ance, and the statement of Mr. Crocker connecting their disappearance with Mark 
 Hopkins,—it is impossible to avoid the conclusion that the suppression of these books 
 has been intentional and willful. 
 
 After reading the evidence of the Commission, regarding the suppression 
 of the important books, it requires but a spark of intelligence to reach a 
 conclusion as to the guilt of the four Directors,—their attempt at self¬ 
 acquittal by publishing the foregoing resolutions notwithstanding. 
 
 Before passing to subjects of the more recent mismanagement by Stan¬ 
 ford & Co., I wish to satisfy the reader beyond a doubt as to the habit of 
 these men, when occasion requires, of inserting resolutions of their own in 
 the minutes of stockholders, and purporting to have come from them—the 
 general stockholders; whereas they take no part in them whatever,—as 
 in the case of the Brannan suit resolutions heretofore shown. 
 
 At the stockholders’ meeting of July 11, 1876, the Directors again put 
 a set of resolutions in the minutes (this time made necessary by another 
 suit brought against them, called the Robinson suit), in which they 
 denounced the stockholders as blackmailers, etc., and exonerated them- 
 
CENTRAL PACIFIC RAILROAD. 
 
 23 
 
 selves in the former manner; this suit was also likewise compromised. 
 The total number of shares voted was 539,601. On this occasion the 
 Directors put large blocks of their stock in the names of employes of the 
 Company, and which they voted for the resolutions. On the minute-book 
 these names appear as the stockholders and are scattered through the 
 bona-fide names ; so that it is impossible for any one to discover the impo¬ 
 sition unless these parties were known to him. Following I give some of 
 the heaviest of such voters ; excepting the Directors shown, nearly all of 
 the others are personally known to me as employes who never at any time 
 owned stock in the Company, as the books will show : 
 
 Leland Stanford, 43,848 ; D. D. Colton, 20,024 ; A. N. Towne, 6,197; John Corning, 
 7,000 ; C. H. Cummings, 10,829 ; Jerome Madden, 6,500 ; A. D. W. McCullough, 5,000 ; 
 C. J. Torbert, 1,500 ; E. S. Miller, 7,000; S. T. Gage, 4,500 ; Robert Robinson, 10,010 ; 
 Charles Crocker, 94,394; E. B. Crocker (C. Crocker trustee), 103,851; E. H. Pardee, 
 1,255 ; J. T. Tracy, 84,312 ; I. E. Gates, 300 ; R. J. Phillips, 1,200 ; Mark Hopkins, 53,- 
 106 ; Benj. Welch, 1,000 ; D. T. Phillips, 3,686 ; E. W. Hopkins, 2,500; W. E. Brown, 
 1,721; Moses Hopkins, 2,500; W. R. S. Foye, 4,514 ; A. R. Preece, 5,000 ; J. R. Watson, 
 1,500 ; C. P. Huntington, 9,606 ; Albert Gallatin, 4,505. 
 
 It cost the Central Pacific a round amount to compromise this suit, as 
 besides purchasing the stock represented, the attorney for the stockholders, 
 the late Mr. Cohen, who persuaded them to accept the terms of settle¬ 
 ment, was taken into the Company’s employ on a large salary; while sev¬ 
 eral law firms assisting in the prosecution also had to be satisfied at heavy 
 expense ; some were permanently engaged by the Company. 
 
 The charter of the Southern Pacific Company of Kentucky was obtained 
 by the aid of a special Act of the Legislature of that Commonwealth in 
 1884. The Directors have never had any interest or property of any kind 
 within that State, so that their object in incorporating under its laws can 
 be attributed to the purpose of preventing the Government and stock¬ 
 holders from inquiring into the future management of the Central Pacific 
 and other roads, by leasing them to their private Company. Although the 
 Company was formed for the purpose, the Directors leased the Central to 
 it without the knowledge or consent of the stockholders; the Government, 
 too, notwithstanding its large interest therein, was completely ignored. As 
 is known to everybody, Stanford & Co. had vainly endeavored in the past 
 to prevent the interference of Congress in their management of the Central, 
 on the strength of its having obtained its charter from the State of Cal¬ 
 ifornia. They well knew that the stockholders would not consent to the 
 leasing of their roadjfco such a Company, so they carried out their purpose 
 under cover. 
 
 William E. Brown, who figured so prominently in Contract and Finance 
 Company affairs, was appointed by Stanford & Co. as President of the 
 Southern Pacific Company, and H. C. Nash, private secretary to Mr. Stan¬ 
 ford, as its Secretary. Shortly thereafter an agreement was secretly drawn 
 up, couched in terms best calculated to deceive and quiet the non-consulted 
 stockholder, and it was then entered into by the Directors at an ordinary 
 Board meeting on January 14, 1885. It was signed by the above-named 
 “officials” on behalf of the Southern Pacific Company, and by Mr. Stan¬ 
 ford, as President of the Central Pacific, and E. H. Miller, Jr., the Sec¬ 
 retary, thus placing the latter Company under private management for 
 ninety-nine years. 
 
 Immediately after the execution of the lease, the two dummies of the 
 Southern Pacific Company resigned, and Stanford and Miller were elected 
 to the respective offices of President and Secretary, continuing to serve the 
 
24 
 
 CENTRAL PACIFIC RAILROAD. 
 
 Central in the same capacities. How little the Directors cared for the rights 
 of either the stockholders or the Government may be seen from the fact 
 that they allowed over three years to elapse before acquainting the outside 
 stockholders with the conditions of the lease, it having been first published 
 in the annual report for the year ending December 31, 1887, issued in the 
 spring of the following year. As it is entirely an agreement by the Di¬ 
 rectors, it is not worth publishing in full herewith, nor is it entitled to the 
 serious consideration which it would otherwise receive. I will therefore 
 allude to one or two clauses in order to show how deceptive and mislead¬ 
 ing it is. The following is assigned as the reason for the lease : 
 
 That whereas, part of tlie through business heretofore done by the Central Pacific 
 Railroad Company’s line from Ogden to the waters of the Pacific has been diverted by 
 the Northern Pacific, Atlantic and Pacific, and Atchison, Topeka and Santa Fe rail¬ 
 roads ; and 
 
 Whereas , The Union Pacific Railroad Company has secured the control of the road 
 known as the Oregon Short Line, and thereby secured an outlet to the Pacific other 
 than over the Central Pacific; and 
 
 Whereas, It now appears that the through business hitherto done by the Central 
 Pacific Railroad will thereby be further diverted, and that it is not only to the best 
 interest of, but absolutely necessary that the Central Pacific Railroad Company, in 
 order to maintain itself against these diversions, should be operated in connection with 
 a friendly through line to the waters of the Atlantic ; and 
 
 Whereas, The said Southern Pacific Company has a line of railroad under its control 
 for a period of ninety-nine years, extending continuously from the Pacific Ocean to 
 the Atlantic Ocean ; and 
 
 Whereas, The lines of each Company are doing a large local traffic, and it is impor¬ 
 tant to both that the same should be conducted in harmony ; . . . 
 
 The “friendly through line” referred to, although owned and con¬ 
 ducted by Stanford & Co. for some time past, had just been leased to the 
 Southern Pacific Company a month previous to the leasing of the Central, 
 the latter’s commencing from April 1, 1885, while all of the other roads’ 
 lease being dated March 1. Therefore, the excuse of operating the Cen¬ 
 tral with a friendly through line is simply bosh. 
 
 The other clause to which I wish to direct attention is : 
 
 The said Southern Pacific Company agrees to and with the said Central Pacific 
 Railroad Company that it will maintain and keep the property hereby leased in good 
 order, condition, and repair ; operate, maintain, add to, and better the same at its own 
 expense; pay all taxes legally assessed against or levied thereon, and will at the ter¬ 
 mination of this lease return the same to the said Central Pacific Railroad Company or 
 to its successors or assigns (with additions and betterments), in as good condition and 
 repair as the same was at the date hereof. 
 
 If the Government imagines that this condition in the lease is being 
 fulfilled, or that the Central will receive even its own property back, it is 
 badly deceived. Any one who has passed over the various lines under lease 
 will notice improvements going on everywhere excepting on the lines of 
 the Central, and this simply because the Directors anticipate that Congress 
 will take the road, or what is left, in lieu of the debt. Furthermore, let 
 not the stockholder imagine that the construction which the Directors put 
 upon the above paragraph is in the least advantageous to their road. In 
 other words, Stanford & Co. attend to the betterments and additions either 
 through the Southern Pacific Company or the Pacific Improvement Com¬ 
 pany, and various items of expense are improperly included in the account 
 known as “Betterments and Additions.” These, with any valuation 
 which Stanford & Co. place upon them, are charged up against the Central. 
 In fact, the heavier the road’s expenses are shown to be, the more apt are 
 the stockholders to remain contented under lease and receive the charitable 
 donation from its lessee as guaranteed rental. The fact seems to be lost 
 
CENTRAL PACIFIC RAILROAD. 
 
 25 
 
 .sight of, that under favorable management the Central could not only earn 
 this rental guaranteed by the Southern Pacific Company, but a great deal 
 more ; and the mere fact that Stanford & Co. agree to make good any deficit 
 there may be, is proof in itself that they receive the profit through another 
 channel, and at the expense of the Central. Let us glance at the notice 
 which the Directors give to the stockholders in the annual report for 1888: 
 
 The net profit was less than the guaranteed rental by the amount in 1887, of $113,- 
 266.69, and in 1888, of $397,170.16. The Southern Pacific Company has thus been re¬ 
 quired to make up in these two years a deficit of $510,436.85. The chief cause of the 
 deficit shown for 1888 was the large expenditures made for betterments and addi¬ 
 tions. . . . 
 
 Whatever figure, therefore, the Directors succeed in reducing the net 
 earnings to, below the guaranteed income, either by charges to “ Better¬ 
 ments and Additions,” diverting traffic, or otherwise, it seemingly places 
 the stockholder under obligations to the Southern Pacific Company to that 
 amount; and the net earnings will continue to show a falling off, pending 
 the arrangement by Congress for the future payment of the debt. 
 
 The second transcontinental line also under lease was unquestionably 
 built and acquired through the profits of the Central Pacific, and both 
 have a common entrance into San Francisco, while the branch lines or 
 feeders in California, which used to supply the Central with business ex¬ 
 clusively, now contribute to both lines. Does any one suppose that the 
 latter road, heavily burdened with the Government’s claim, and required by 
 the Thurman Act to pay over to the Government a percentage of its earn¬ 
 ings, is given anything like the proportion of traffic it would otherwise 
 receive under proper management ? This is best answered by pointing to 
 the increase of the debt, which the above Act was expected to wipe out 
 entirely. The bill was passed in 1878, and the earnings at the time war¬ 
 ranted Congress in assuming that a fixed annual percentage thereof would 
 amply provide for the payment of the debt at maturity. Soon thereafter 
 the Directors began to divert the business to its own line, and the Union 
 Pacific, unable to stand the large falling off in the traffic heretofore han¬ 
 dled by the Central, retaliated by constructing what is called the Oregon 
 Short Line. The effect of both these deals on the Central Pacific is not 
 necessary to point out. 
 
 When, in 1878, it became apparent that the Government meant to 
 secure the payment of the debt when due, the Directors offered to make 
 its own provisions therefor. Congress might have known that these men 
 would defeat any plans it would make upon its refusal to leave the matter 
 to them and should have appointed a representative in the Central Pacific 
 Board, instead of trusting to them. In the annual report for 1888, page 
 107, Mr. Stanford says: 
 
 The provision for the payment of the debt to the United States has, by the Tlmrman 
 Act, been tqken from the Company’s hands and assumed by the Government. This 
 has been clearly set before Congress, and the recent consideration by that body of a 
 final adjustment of the debt indicates that it recognizes the importance of an early 
 settlement. The longer the delay in this matter, the longer are the current payments 
 kept below an adequate amount. As the Government owes the present condition of this 
 debt to the evil results of its own management of the matter, and as an early settlement 
 cannot be enforced, but must be in the nature of a compromise, it is believed that a 
 measure will be adopted which will at once recognize the rights of the Company and pro¬ 
 vide for a payment not beyond the earning capacity of the aided road. Owing to the 
 continued aggressiveness of other lines, and the reduction of rates, it would not, in 
 the opinion of your Directors, be prudent to accept any proposition requiring a larger 
 annual payment than $1,000,000. 
 
 The evident object of Mr. Stanford is to draw the attention of both 
 
26 
 
 CENTBAL PACIFIC RAILEOAD. 
 
 stockholder and Government from the real issue, and the one he most fears 
 —of collecting the debt when due. To one, he declares his unwillingness 
 to pay a larger amount than $1,000,000, thus preparing the stockholder 
 for a possible extension to fifty years of a debt which himself and asso¬ 
 ciates inflicted. To the other, he assumes a different front and keeps 
 alluding to his so-called €t equities,” which the Investigation Commission 
 state do not exist, but claim that the Government received no benefit result¬ 
 ing from the construction of the road, at the expense of the Directors. 
 This seems to be the verdict of all who are familiar with the past situation; 
 so that Mr. Stanford merely wastes time when assuming that the Govern¬ 
 ment will act upon either course. To insist on the payment of the debt 
 when due would demonstrate the real value of the road to the Directors, 
 and doubtless a .method would be found to comply with the demand. 
 When the causes which led to the failure of the Thurman Bill are con¬ 
 sidered, Mr. Stanford should be the last man to ask the present and 
 future stockholders to fulfill his promise to the Government, or to 
 dictate to the Government the terms of settlement. Both propositions are 
 as unreasonable as was his attempt to collect a bill amounting to about 
 $100,000 against the United States,—representing the total expenses 
 alleged to have been incurred by the visit of the Investigation Committee to 
 San Francisco. The bill was gotten up in the Secretary’s office when it 
 was learned that the Commission reported unfavorably, and included 
 charges for everything imaginable,—not even excepting a high valuation 
 of the services of the Company’s officers, for time spent in the company of 
 the Commission. It caused much merriment among those having it in 
 charge, and altogether was regarded as a huge joke. Of course the Gov¬ 
 ernment refused payment. 
 
 The most important step which Congress should first take is that of 
 cancelling the Central’s lease to the Southern Pacific Company of Ken¬ 
 tucky. In addition to the fact that it was a.lease by the Directors, there 
 was not even a full Board present at the meeting, while four out of the six 
 present were dummies of Stanford & Co., holding but a few shares of stock 
 necessary to qualify them to serve as Directors. As stated before, the 
 President and Secretary signing the lease on behalf of the Southern Pacific 
 Company were also dummies; indeed, it was a lease hy the Directors to 
 themselves. There was no mention made in the published notice of the 
 Central Pacific stockholders’ annual meeting following the action of the 
 Board, that business of unusual importance was to come up for con¬ 
 sideration. Such stockholders’ meeting took place in April, 1885, closely 
 following the aforesaid Directors’ meeting. For these two reasons, out of 
 the entire 680,000 shares of stock outstanding there were but 358,895 
 shares represented at the meeting, or a little over one-half of the total 
 issue. Nearly all such stock belonged to Stanford & Co., and was put 
 in the names of clerks in Mr. Huntington’s New York office. Of these, the 
 following maybe cited : 20,096 shares was voted in the name of I. E. Gates; 
 S. A. Blend, 16,320 shares; E. H. Pardee, 14,950 shares; J. J. Coyne, 
 40,190 shares; J. B. Hawes, 28,210 shares; R. J. Phillips, 10,905 shares; 
 D. A. Rose, 40,640 shares; besides many others of smaller amounts. 
 Leland Stanford voted 5,029 shares; C. P. Huntington only 300 shares, and 
 Mrs. Hopkins (representing the Hopkins estate) but 336 shares. 
 
 The re-marking of the rolling-stock was at once begun, and Messrs. 
 Stanford and Miller were “ elected ” by the Southern Pacific Company to 
 the offices of President and Secretary respectively, vice the private book¬ 
 keeper and private secretary resigned. The whole thing was nothing less 
 than a bold design originating entirely with Stanford & Co. to suit their 
 
CENTRAL PACIFIC RAILROAD. 
 
 27 
 
 own interests, and in which the Central Pacific stockholders at large took 
 no part whatever. 
 
 For some time after the Government had learned of the lease it refused 
 to recognize it ; but through liberally advertising the Southern Pacific 
 Company as lessee of the Central, together with the changes occurring in 
 the administration at Washington, etc., soon enabled Stanford & Co. to 
 force the new Company upon the Government’s notice, and secured it the 
 privilege of transacting the business of the Central Pacific. 
 
 Prior to the lease the Central Pacific held in its own name the leases 
 of several valuable feeders in California, but which, on October 21, 1886, 
 was cancelled by the Directors and new leases made directly to the Southern 
 Pacific Company. Even this important act was not first submitted for 
 consideration of the stockholders; in fact it was not until April, 1888,— 
 stockholders’annual meeting,—that it was shuffled through as having been 
 approved by them. The method resorted to on this occasion was much the 
 same as that employed in 1885. The simplicity of the resolution voted on 
 may be seen : 
 
 Whereas , This Company, by order of its Board of Directors, duly made and entered 
 of record on the 21st day of October, 1886, did execute an agreement in the words and 
 figures following, to wit : 
 
 (Follows agreement between the C. P. R. R. Co. and S. P. Co. cancelling leases of 
 the Cal. Pac. R. R., Am. Br. R. R., Berk. Br. R. R., S. P. & T. R. R., and Nor. Ry.) 
 
 Now, therefore, we, the stockholders of the Central Pacific Railroad Company, do 
 hereby approve, ratify, and confirm the said agreement and all the covenants, provis¬ 
 ions, and stipulations therein contained, and all and singular the Acts of the Board of 
 Directors and officers of this Company done and performed in relation thereto. 
 
 Messrs. Stanford, Huntington, and Crocker absented themselves from 
 the meeting, and their stock was voted in the names of clerks, as before. 
 A proxy representing over 77,000 shares had in the meantime been secured 
 from a European stockholder and was voted at the meeting. This fact 
 made it unnecessary for Stanford & Co. to cast the full number of shares 
 they control, so they voted much less than usual. Their motive in so 
 doing will be better appreciated when I say that the agreement between 
 the Southern Pacific Company and the Pacific Improvement Company to 
 extend the line of the California and Oregon Division of the Central 
 (presently noted) was also submitted for approval at this meeting. 
 
 The Government will understand the significance attached to the can¬ 
 cellation of the above leases should the Directors wish to reject its terms 
 of settlement. With the facts herewith given, however, Congress will 
 have no trouble in restoring the leases to the Central, should it be decided 
 to take the management of the road out of the Directors’ hands. With 
 control of these lines the Central would be wholly independent and prove 
 very profitable to any one to operate. The total earnings of the aided 
 portion of the Central alone (860.66 miles), from November 6, 1869, to 
 June 30, 1878, 
 
 Amounted to.$85,878,514.83 
 
 Total expenses, including taxes, to.. 48,449,905.90 
 
 Leaving a total net earnings of.$37,428,608.93 
 
 The fact that Stanford & Co. acquired possession of these branch lines 
 through the Government’s aid and the profits of the Central, as above,— 
 which should have been applied towards extinguishing the debt,—makes 
 the Government, or the Central Pacific, if it has to pay the loan out of its 
 future earnings, all the more entitled to the feeders. In any event, the 
 Government will shortly be called upon to redeem its liberal issue of 
 
28 
 
 CENTRAL PACIFIC RAILROAD. 
 
 bonds, requiring an enormous outlay of the public money; while the pres¬ 
 ent security is but a second lien on the property, and scant property at 
 that. In contrast to this I may remind the reader that the combined 
 wealth of the four principal Directors is to-day estimated at about $250,- 
 000,000. They have never been engaged in any business besides managing 
 railroads, so that their colossal fortunes were made directly out of the 
 Central Pacific. 
 
 The Directors made the Central pay roundly for the leases while it held 
 them, it is true, but the control of them is the vital point. As the Major¬ 
 ity Commission state, page 80, in many instances the rental which the 
 Central had to pay was fixed by the Directors, at a figure which permitted 
 the declaration of dividends on the stock of such leased road, in addition 
 to the payment of the interest on its bonds. 
 
 Should Congress not cancel the lease to the Southern Pacific Company, 
 and permit the present managers to operate the Central through that Com¬ 
 pany, the Directors might at any future time decline to operate the road 
 and turn it over to the Government. In all probability within the next 
 two years other transcontinental lines will have secured independent 
 entrance into California, and over more feasible routes since discovered, 
 and less expensive to operate than the Central. The fierce competition 
 following would give the Directors all they could do to supply their own 
 Southern Pacific line with business, and they would then abandon the 
 Central Pacific, retaining the feeders. Under such circumstances no one 
 would care to operate the road, with its heavy debt still unpaid, and the 
 Government would be forced to hold it as a monument to one of the worst 
 swindles ever accomplished against it. The irresponsible methods 
 which Stanford & Co. employed in consummating the leases, together 
 with the releases they issue to themselves (presently shown), are calcu¬ 
 lated to protect their estates from attachment, and their heirs and suc¬ 
 cessors in interest can defy collection of the debt. Since the lease, the 
 meetings of the Central Pacific Directors have not been regular, at least, if 
 held, their proceedings are not recorded in the book kept for that purpose. 
 The minutes show intervals of months between dates of meeting, and yet 
 scarcely a week passes without important matters coming up and are acted 
 upon, in which the Central is directly concerned. This is contrary to the 
 Company’s By-laws, Section 5 of which provides that regular weekly 
 meetings shall be held by the Directors ; and they were so held prior to 
 the lease. Now, however, its affairs are managed by the Southern Pacific 
 Company of Kentucky, and there is little to indicate how it fares at its 
 hands. 
 
 When the Directors fixed the amount of guaranteed rental to be 
 allowed the Central under lease, the Southern Pacific Company had 
 assumed a “floating debt” against the road, and to which the Directors 
 intended applying such rental,—just as the United States is at present 
 applying the amounts allowed for transportation on non-aided lines, to 
 which the Directors so vigorously object. In the former case, however, 
 the annual rental was all that the stockholders could look to for dividends, 
 but the Directors had hoped to withhold such until the above floating 
 debt was satisfied, amounting to $12,873,945.61. They had actually 
 applied two or three of such annual rentals before the stockholders in 
 Europe realized their intention. So loud did the protests become, that 
 the plan was abandoned, and the money was thenceforth paid out in regu¬ 
 lar semi-annual dividends of one per cent. The Directors were not long 
 in finding another way of collecting the debt from the Central, but set to 
 work mortgaging its property and issued bonds to the Southern Pacific 
 
CENTRAL PACIFIC RAILROAD. 
 
 29 
 
 Company to satisfy the claim. In the following annual report to the 
 stockholders (1887), Mr. Stanford informs the stockholders, in his usual 
 smooth language, how he managed to get even, and at the same time 
 meet their demand. He says: 
 
 On January 1, 1885, just prior to tlie lease to the Southern Pacific Company, there 
 was a net floating debt of $12,873,945.61. This has been reduced each year, till, on 
 December 31, 1887, the floating debt was wiped out and there remained a surplus of 
 $1,970,194.65. This result has been chiefly accomplished by the sale of supplies and 
 materials on hand to the Southern Pacific Company at the commencement of the lease, 
 by the non-payment of dividends for the period, and by the issue of bonds. 
 
 The floating debt now being provided for, and there being no other present obstacle 
 to the payment of dividends, your Board of Directors has declared a dividend (No. 18) 
 of one per cent., or $1.00 per share, payable on the capital stock of the Company, on 
 and after February 1, 1888. 
 
 It would be interesting to know just how much of the property belong¬ 
 ing to the Central, on which the Government had a lien, was included in 
 this “sale of supplies and material on hand to the Southern Pacific Com¬ 
 pany/’ and the amount paid therefor, if any. There is not much doubt 
 that such property has been put beyond reach of the Government, but a 
 complete inventory would have to be taken by it in order to determine to 
 what extent it has been practised. Of course Stanford & Co. hardly expect 
 this step; but should it be done, and the Government finds that its security 
 has greatly diminished, the Directors will doubtless attribute it to “ deteri¬ 
 oration,” “worn out and not renewed,” or “replaced by property pur¬ 
 chased and owned by the Southern Pacific Company.” These are common, 
 every-day terms used by the officers of the Company when accounting for 
 the disappearance of rolling-stock or other property belonging to a par¬ 
 ticular road, the Central included. 
 
 There is a provision in the lease providing that the Southern Pacific Com¬ 
 pany may change the terms thereof, in the event that the action taken by 
 the Government regarding annual payments to it towards the debt should 
 prove unfavorable. In announcing the decision to declare dividends as 
 above, it will be noticed that the stockholders are informed that there are 
 at present no obstacles. Since the Directors find that they are now 
 expected to pay out the guaranteed rental in regular dividends, they will 
 on the slightest pretense change the terms in the lease, either so as to 
 reduce the rental, or specify a “percentage” to be paid from the yearly 
 net earnings ; and in the latter event they will have no trouble in regulat¬ 
 ing the net earnings, any more than when they defeated the purpose of 
 the Thurman Act. Had the stockholders known at the time how Stanford 
 & Co. effected the lease, it is doubtful if they would have contented them¬ 
 selves with such a paltry dividend in the form of a donation; for many of 
 the stockholders paid as high as $70 for their stock per share. 
 
 In case there is any one who still thinks that Stanford & Co. are man¬ 
 aging the roads under their control in the interest of the stockholders, I 
 propose to furnish conclusive evidence to the contrary, and which ought 
 to discourage even the most hopeful. 
 
 The Morgan Louisiana and Texas Railroad and Steamship Line is also 
 operated by the Southern Pacific Company, under the lease of March 1, 1885. 
 When preparing statements for publication in the annual report of the 
 Southern Pacific Company to the stockholders for the year 1888, of the 
 financial condition of the roads operated, the Secretary of the Southern 
 Pacific Company wrote the following letter to Mr. Crocker, which explains 
 itself: 
 
30 
 
 CENTRAL PACIFIC RAILROAD. 
 
 San Francisco, October 10, 1888. 
 
 Col. C. F. Crocker, Vice-President S. P. Go. 
 
 Dear Sir : The Southern Pacific Company is indebted to the Morgan’s La. & Texas 
 R. R. & S. S. Co. to the amount of about $1,000,000. As there are other assets available 
 also of the Morgan Company, which more than offset its floating debt, this $1,000,000, 
 if collected, would be available as a dividend. If the capital stock of the Morgan Com¬ 
 pany amounts to $5,000,000, it would make a dividend of 20 per cent. This balance 
 represents accumulations of the Morgan Company up to date, which have not been 
 used. Under the lease the rental which it is currently receiving would probably be 
 about offset by the new equipment and construction charges, which, as betterments 
 and additions, are chargeable to the railroad Company. 
 
 In view of this present surplus, which I suppose it will be necessary to show in the 
 next annual report of the Company, I would call your attention to the outstanding 
 stock of the Morgan Company, the disposition of the capital, so far as I have any 
 information, being as follows : 
 
 SHARES. 
 
 Owned by Southern Pacific Company. 40,627 
 
 “ “ Morgan Company. 60 
 
 Other ownership. 9,313 
 
 Total. 50,000 
 
 (If the outside ownership is represented by this 9,313 shares, those stockholders 
 could reasonably demand a dividend upon an exhibit of the Company’s affairs.) 
 
 The above is for your information. 
 
 (Signed) G. L. Lansing, Sec’y and Gontr. 
 
 The last paragraph, shown in parenthesis, was written and afterwards 
 stricken out, being understood as a matter of course. Notwithstanding 
 that the Directors themselves are heavy stockholders in the lines they oper¬ 
 ate, they would rather keep a surplus and loan it to the Southern Pacific 
 Company for their own use. Before this property was sold to the Southern 
 Development Company (Stanford & Co.), regular dividends were declared 
 on its stock, which had a very high market value. This may be inferred 
 from the fact that Stanford & Co., when turning over the stock to the 
 Southern Pacific Company, exchanged it at the rate of $450 per share ; in 
 other words, they issued to themselves four and one-half shares of 
 Southern Pacific Company stock, having a par value of $100, for one share 
 of the Morgan. This information is of interest to the outside stockholders 
 in the Morgan Company, as it entitles them to a similar rate of exchange, 
 a fact worth remembering should their stock, through the Southern Pacific 
 Company’s management of the road, cease to be of value. There had been 
 no dividends declared on the stock since Stanford & Co. first took posses¬ 
 sion, up to the date of the above letter, the 20 per cent, referred to cover¬ 
 ing a period of over four years. The Southern Pacific Company owned 
 40,000 out of the 50,000 shares outstanding, and had the use of the road’s 
 profits during all that time. One could hardly imagine that the Directors 
 would begrudge paying it out in dividends at the last moment; yet the 
 General Manager of the Company’s Atlantic System, in which system the 
 Morgan lines are included, referring to the proposed dividend, telegraphed 
 in cipher from New Orleans on December 27, 18S8, that “the attorneys 
 here say it will not be necessary to advertise it.” 
 
 If these Directors are so reluctant to declare dividends on stock, when 
 there is a legitimate surplus on hand, surely the Government need not 
 expect them to faithfully live up to any future agreement regarding the 
 payment of its claim, unless it is clearly to their interest to do so. 
 
 When Stanford & Co. incorporated the Southern Pacific Company, its 
 capital stock authorized was fixed at $1,000,000. It had no property of 
 any kind, it being given out that its purpose was merely to lease and oper¬ 
 ate roads. The main object of its promoters, however, was to secure to 
 
CENTRAL PACIFIC RAILROAD. 
 
 31 
 
 the Southern Pacific Company the valuable stock of the roads leased, by 
 exchanging its own therefor. For this purpose the Directors soon after 
 increased the authorized issue from $1,000,000 to $100,000,000, it still 
 having little or no property of its own. They now began a wholesale 
 exchange of the stock, which soon exhausted the supply. Some plausible 
 excuse had to be invented for still further increasing the capital stock, so 
 the Directors consolidated several branch lines in California. On the 
 strength of this they again increased the capital stock from $100,000,000 
 to $150,000,000 ; but it was not for the purpose of “ acquiring the propri¬ 
 etorship of additional lines,” as given out by Stanford & Co., for they 
 already possessed the roads they referred to , and they were then being oper¬ 
 ated under lease. 
 
 President Stanford touches upon the matter very lightly in the annual 
 report to the stockholders for 1888. He says : 
 
 The capital stock fixed by the Charter was $1,000,000, with power to 
 increase the amount from time to time, as might be determined by the Board of 
 Directors with the approval of at least-two-thirds in interest of the stockholders. In 
 1884 the original amount of $1,000,000 was paid in cash and the authorized capital 
 was increased to $100,000,000. With the issue of $87,076,200 of this new stock the 
 greater part of the capital stock was acquired in the proprietary lines included in the 
 Omnibus lease. For the purpose of acquiring the proprietorship of additional lines 
 the authorized capital was fixed in 1888 at $150,000,000. 
 
 In the face of this I will show a few of the names of parties holding 
 that Company’s stock, and voted at the stockholders’ meeting in 1889: 
 
 Western Development Company, 80,171 ; Southern Development Company, 153,- 
 109 ; Pacific Improvement Company, 140,081 ; LelanA Stanford, 157,389 ; C. Crocker 
 (estate), 136,879 ; M. F. S. Searles (Hopkins), 134,904.* 
 
 These are among the largest holders ; there were 1,059,387 shares cast 
 and controlled by the principals, under names of employes in many 
 instances. 
 
 An officer of the Southern Pacific Company called the attention of the 
 Investigation Commission to the fact that the Directors were paid a smaller 
 salary than was paid by any other Company of similar importance in the 
 United States. This was as an argument that their management was an 
 economical one. I will go further and state that Stanford & Co. pay sev¬ 
 eral of the Company’s officers more than twice the amount of salary they 
 allow themselves. And why is this ? From my personal knowledge I can 
 say that there is not one of these high-salaried officers, nor an individual 
 in the employ of the Company, who would seriously oppose any transaction 
 which they knew to be in the interest of Stanford & Co., though mani¬ 
 festly injurious to the stockholders. They are wholly governed by these 
 men and receive their orders from them. Stanford & (Jo. are the exclusive 
 owners of the several private corporations which exist and feast upon the 
 profits of the roads under control; and in the possession of the Pacific 
 Improvement, Western Development, and Southern Development Com¬ 
 panies are the funds belonging to the various railroads, including bonds 
 and other valuable assets. 
 
 It is the custom of the Directors when they wish to get possession of 
 any surplus belonging to one of the roads, to appoint themselves a “ Com¬ 
 mittee” to “ invest” such surplus, and then invariably loan it to the 
 Pacific Improvement Company. For instance : at the Central Pacific 
 Directors’ meeting on August 26, 1886, a Sinking Fund Committee was 
 appointed “to loan or invest the money standing in the various sinking 
 funds of the Company.” At their meeting, held September 30, the Com¬ 
 mittee reported as follows: 
 
32 
 
 CENTRAL PACIFIC RAILROAD. 
 
 San Francisco, Sept. 30, 1886. 
 
 To the Board of Directors, Central Pacific B. B. Co. 
 
 Gentlemen : We, the undersigned Committee, appointed for the purpose of 
 investing the money in the sinking funds of this Company, respectfully report as fol¬ 
 lows : No suitable investment presenting itself at present, we have, pursuant to the 
 resolution of your Board, dated August 26, 1886, loaned the amount in the sinking 
 funds, namely, $3,032,410.33,to the Pacific Improvement Company on thirty days’ call, 
 at three per cent., taking as collateral G. H. & 8. A. first mortgage five percent, bonds 
 at ninety cents. Yours respectfully, Timothy Hopkins, 
 
 C. F. Crocker, 
 
 W. Y. Huntington. 
 
 It would require but a slight idea of the general custom of the Direct¬ 
 ors to understand that this was a cut-and-dried affair, and that no other 
 investment was even thought of. Nor was the money ever returned to 
 the Central Pacific, but, instead, a “ proposition ” was received by the Di¬ 
 rectors, at their meeting on May 2, 1887, from the Pacific Improvement 
 Company, to pay its above note in Central Pacific Fifty-year Bonds, dated 
 October 1, 1886. Of course the proposition was accepted and the bonds 
 placed in the sinking funds. They had only lately been issued to the Pa¬ 
 cific Improvement Company in part payment on its contract with the 
 Central, for the construction of the California and Oregon road northward 
 to Oregon. What right have Stanford & Co. to use accumulated funds of 
 a road to privately redeem their own bonds held by the Pacific Improve¬ 
 ment Company ? Why not purchase therewith the outstanding bonds of 
 the Company, and for which the sinking funds were established? The 
 Trustees are appointed by Stanford & Co.; the active one of the two so 
 appointed is invariably an employe, and, of course, takes his instructions 
 from the Directors ; the other is usually a figure-head chosen on account 
 of his prominence, and frequently a resident of the East. The Central 
 has always had to contend with just such transactions as these, and in 
 almost every case is the victim : the reader has but to recall the loans to 
 the Contract and Finance Company, aggregating $5,700,000, which it 
 failed to return. 
 
 Since the above transaction with the Pacific Improvement Company, 
 the Directors again relieved the Central Pacific of the accumulations in the 
 sinking funds, this time by purchasing therewith another lot of these 
 Central Pacific Fifty-year Bonds, issuing one thousand of them for that 
 purpose. They were also placed to the credit of the sinking funds. The 
 idea of the Central Pacific thus purchasing a series of its own bonds with 
 its profits and placed to its own credit, bearing interest against itself at 
 the rate of six per cent., may seem a proper transaction, but only to the 
 Directors who get the money. 
 
 The Southern Pacific Company, as lessee, contracted with the Pacific 
 Improvement Company for the latter to build a second track from Oak¬ 
 land to Port Costa, Cal., a distance of about twenty-six miles. Aside 
 from the material supplied, the work necessary amounted to but little 
 more than laying the rails over a course already in use, yet the Pacific Im¬ 
 provement Company was allowed $25,000 per mile, or a total cost of $650,- 
 000 for the twenty-six miles. 
 
 The Directors are almost as unmerciful to-day towards the interest of 
 the Central Pacific, when fixing the charges of the Pacific Improvement 
 Company for work done, as in the days of the Contract and Finance Com¬ 
 pany. Their terms in the contract for the extension of the California and 
 Oregon line were simply outrageous. The severe criticisms of the Major¬ 
 ity Commission regarding the extortionate charges will suffice to give an 
 idea of its magnitude. 
 
CENTRAL PACIFIC RAILROAD. 
 
 33 
 
 The actual cash value then paid to the Pacific Improvement Company for the con¬ 
 struction from Delta to the State line, and for the equipment, was: 
 
 In stock.$3,840,000 
 
 In bonds . 4,500,000 
 
 Total.$8,340,000 
 
 The books of the Pacific Improvement Company, showing the actual cost of this 
 construction and of the equipment, were examined by Mr. Stevens, and this cost, exclu¬ 
 sive of the unfinished work, which Mr. Douty (the Secretary of the Pacific Improve¬ 
 ment Company) testified would not exceed the $317,000 of bonds which had been 
 retained, was $3,138,609.32. (See evidence of Stevens, vol. 6, p. 3528.) The ac¬ 
 curacy of the conclusions reached by Mr. Stevens was conceded by the counsel for 
 the Central Pacific road. (S*-e Hay mend’s statement, vol. 6, p. 3534.) 
 
 In the statement of cost of construction contained in the table at page 3531, the 
 retained $317,000 bonds have been added to the above figure, making the total cost of 
 the completed road and equipment $3,505,609.32. As compensation for this expendi¬ 
 ture, Stanford, Huntington, and Crocker have voted to themselves stock and bonds of the 
 value, as above stated, of $8,340,000. And this extraordinary transaction is being con¬ 
 summated to-day in the face of this investigation and in violation of every duty which 
 these Directors owe to the stockholders of that Company and to the Government as its 
 chief creditor. 
 
 It has been remarked before that the conclusion reached in the case of the United 
 States against the Union Pacific Railroad Company, to recover misappropriated assets 
 from the Directors, that no such suit could be sustained until after the maturity of 
 the debt, was unfortunate. The application of this principle to the transaction now 
 under discussion presents the results of this decision with peculiar force. 
 
 The United States cannot sue, because the debt is not due. The corporation will 
 not sue, because it is controlled by the wrong-doers. The stockholders dare not sue, 
 because, under the laws of California, they are personally liable for the obligations of 
 the Company. (See Bergin’s statement, vol. 5, p. 2670.) Report Majority Commission, 
 pp. 79 and 80. 
 
 I can add nothing to the above, except to say that as long as Stan¬ 
 ford & Oo. have the power of loaning money to themselves through their 
 private firms, contracting with themselves on behalf of the roads, etc., just 
 so long will they be found willing to manage the various properties, and 
 for a less salary than is paid to Directors of other railroads, who serve the 
 stockholders for the salary alone. 
 
 If there is anything lacking to prove the total unfitness of "Stanford & 
 Co. to manage the roads in the interest of the stockholders, and that they 
 are undeserving of the further confidence of the Government, I can fur¬ 
 nish such proof by showing a most extraordinary measure of self-protec¬ 
 tion taken by these principal Directors against liability for their wrong¬ 
 doings. Furthermore, I call upon anyone to name a road in the country 
 whose stockholders ever voted to their Directors resolutions in the form 
 of annual releases; and there is not a bona fide stockholder of the Central 
 Pacific, excepting the above principals, who is even aware of the practice, 
 much less favoring it. 
 
 The following form of release is the same which is “adopted” annually 
 at the meeting of stockholders of both the Central Pacific and Southern 
 Pacific Companies, and on at least one occasion they were even passed at 
 ordinary Board meetings of the Directors of those two Companies,—on 
 October 7 and 8 respectively, when they voted the contract for the exten¬ 
 sion of the California and Oregon line to the Pacific Improvement Com¬ 
 pany: 
 
 Whereas, The President of this Company, Leland Stanford; the First Vice-President 
 of this Company, Collis P. Huntington; the Second Vice-President of this Company, 
 Char’es F. Crocker, and the Treasurer of this Company, Timothy Hopkins, have done 
 various acts and things in the interest of and for the benefit of tLis Company, and 
 have made various payments of money, for which vouchers have not been received 
 from the parties to whom payments were made ; and 
 
34 
 
 CENTRAL PACIFIC RAILROAD. 
 
 Whereas, The nature of such acts and things, and the amount of such payments 
 have been exhibited and fully made known and explained to us ; now, therefore^ 
 
 liesolved, That the stockholders of this Company do hereby ratify and approve all 
 such acts and doings and payments made by said persons, and do hereby expressly 
 waive the production or filing of vouchers therefor ; and the President or a Vice-Presi¬ 
 dent and the Secretary of this Company be and they are hereby authorized and 
 directed to execute fuil and complete releases, under the seal of the Company, to 
 said Stanford, Huntington, Crocker, and Hopkins, and deliver the same to the respec¬ 
 tive .parties ; which releases shall be in substantially the following form, to wit : 
 
 Whereas, .has been and is the.of this, the Central Pacific 
 
 Railroad Company, and has, under and by virtue of the power and authority conferred 
 
 upon him as such.done certain acts and performed certain services for 
 
 said Company, both in the City and County of San Francisco, State of California, and 
 in the City of New York and elsewhere, and has collected and received certain moneys 
 of the Company, and has paid, laid out, and expended certain moneys for the uses and 
 purposes and for the benefit of said Company, and in its name, place, and stead, and 
 on its behalf, has made and endorsed its checks, notes, drafts, and bills of exchange, 
 and has executed and delivered contracts, agreements, and instruments of various 
 kinds, has borrowed money for said Company, and has pledged and hypothecated 
 stock, bonds, and other securities of the Company as collateral for money borrowed, 
 has made purchases for said Company, has paid, laid out, and expended moneys for 
 interest, freight, loans, insurance, commissions, purchases, and for other obligations 
 and purposes of said Company, and has employed clerks, agents, counsel, attorneys, 
 and others, in and about the business of the Company, in its service and for its benefit, 
 and has paid salaries, wages, expenses, and compensation to persons so employed, and 
 has compromised, settled, and adjusted claims due and owing to and by said Com¬ 
 pany, and has done and performed various acts and things, and has attended to and 
 managed generally the affairs and business of said Company in the State of New 
 York and in the State of California and elsewhere, and has, from time to time, ren¬ 
 dered accounts and'reported his acts and duties to said Company, which said accounts 
 and reports have been examined, audited, found correct, and approved by said Com¬ 
 pany, about and of all which this Company has full advice and knowledge ; 
 
 Now, Therefore, the said Central Pacific Railroad Company, with a full 
 knowledge of all of the facts and circumstances relating to said transactions, and each 
 of them, in consideration of the premises and of the payments of moneys for the benefit 
 
 of said Company by the said.and for and in consideration of the 
 
 further sum of one dollar, lawful money of the United States of America, to it in hand 
 
 paid by said.. hath ratified, confirmed, and adopted, and doth hereby 
 
 ratify, confirm, and adopt all the acts and deeds of said .... in the pre¬ 
 
 mises as its own acts and deeds, and hath remised, released, and forever discharged, 
 and by these presents for itself and its successors, doth remise, release, and forever 
 
 discharge the said.., his heirs, executors, and administrators of and 
 
 from all manner of action and actions, cause of action and causes of action, suit's 
 debts, dues, reckonings, bonds, bills, specialties, covenants, contracts, controversies, 
 agreements, promises, variances, trespasses, damages, judgments, executions, claims, 
 and demands whatsoever in law or in equity which against him the said Company 
 ever had, now hath, or which it or its successors shall, can, or may have, for, upon, or 
 by reason of any matter, acts, or things whatsoever done in and about the premises 
 from the beginning of the world to the date of these premises, and particularly for all 
 acts done by him as.of said Company or individually or otherwise. 
 
 In Witness Whereof, the said Central Pacific Railroad Company hath 
 caused these presents to be signed in its name by its . ... Vice-President, and its cor¬ 
 porate seal attested by its Secretary, to be hereunto affixed this... day 
 
 of.,188 . 
 
 The wording of such an unconditional release as the above, it need 
 hardly be said, is neither the language nor the will of the legitimate 
 stockholder. It was gotten up in the Company’s law department in 
 San Francisco, and because the learned attorneys well understand that 
 Stanford & Co. are constantly transgressing on the rights of the stock¬ 
 holders, and that the abuse of the powers of their offices renders such a 
 precaution advisable. The statement therein that explanations are made, 
 and their doings explained, even to the dummy stockholders present at 
 the meeting, is likewise absolutely false. The stockholders of the Central 
 Pacific are scattered throughout the Eastern States and Europe, and are 
 
CENTRAL PACIFIC RAILROAD. 
 
 35 
 
 totally ignorant of the proceedings of their Directors at the annual meet¬ 
 ings. The powers which Stanford & Co. exercise could not be more com¬ 
 plete if theyvwere the sole owners of the property : in fact, having built the 
 Central through the Government’s credit, and thereby acquired control of 
 other roads, they now regard themselves as owners of them all, and treat 
 the rights and interests of others as secondary to their own. They would 
 rather give up a road than submit to any restrictions being placed 
 upon their selfish policy, for from that moment the road would cease to be 
 profitable to them. Let a stockholder or the Government attempt to locate 
 the surplus earnings of a line, and show in the annual report, and they 
 will doubtless find that either the Pacific Improvement Company or the 
 Southern Pacific Company has borrowed it, and perhaps paid it back in 
 bonds which formerly were owned by Stanford & Co. The Investigation 
 Commission, on coming across one of the above releases spread in full on 
 the Central’s minutes, could not help expressing astonishment, and they 
 tried to learn the object,—if the parties to whom they were issued were 
 afraid to answer for their acts. Only the principal Directors are favored 
 with them, the others serve them,—not the stockholders. This may be 
 clearly seen by the following brief reference to the parties serving in the 
 capacity of subordinate Directors: 
 
 The Southern Pacific Company’s Board is composed of eleven Direc¬ 
 tors. Besides the principals, there are the following: F. S. Douty, who 
 is also Secretary of the Pacific Improvement Company and other private 
 concerns owned by Stanford & Co.; S. T. Gage, recently appointed by 
 Stanford as assistant to the President; William E. Brown, of Contract and 
 Finance Company fame, etc., also employed as the private bookkeeper for 
 Stanford & Co.; Ariel Lathrop, brother-in-law to Stanford ; W. V. Hunt¬ 
 ington, nephew of C. P. Huntington ; E. H. Miller, Jr., the Secretary 
 and a Director of the Central; A. N. Towne, General Manager and third 
 Vice-President, and holding similar positions in the Central; also T. E. 
 Stillman, of New York, who lately succeeded Timothy Hopkins as a Direc¬ 
 tor, representing the Hopkins estate; he holds ten shares in his name to 
 qualify him as such. 
 
 In the Central Pacific Board there are seven Directors. In addition 
 to Stanford & Co., we have A. N. Towne, recently instated, also nomi¬ 
 nally serving as third Vice-President; it may be remarked that in this 
 capacity he is not allowed a release for his acts, having no interest in the 
 road save the positions he fills by the grace of Stanford & Co.; E. H. 
 Miller, Jr., also Secretary of the Company; he is better acquainted with 
 the acts of his superiors than any one else, having been associated with 
 them almost from their start, and served continuously as a Director and 
 Secretary of the Company : as the latter, he had the custody of the 
 missing” contract with the Contract and Finance Company, the Record 
 of Corporation Debts, and other important books and documents de¬ 
 stroyed. The seventh Director, Mr. C. E. Bretherton, resides in Eng¬ 
 land, and was recently appointed to the place at the instance of Mr. 
 Huntington as a compromise with the dissatisfied stockholders in Europe, 
 and who protested against using the Central’s guaranteed rental towards 
 reducing the floating debt. Mr. Bretherton takes no part in the pro¬ 
 ceedings of the home Directors, and, excepting to occasionally voting an 
 objection to the adoption of injurious measures, he is powerless to pro¬ 
 tect the Central. His chief aim is to see that the annual report is suffi¬ 
 ciently elaborate in detail to satisfy the stockholders he represents; to 
 him is also due the credit of requiring the payment of the Central’s 
 rental to the stockholders in regular dividends. 
 
36 
 
 CENTRAL PACIFIC RAILROAD. 
 
 Having shown the material which surrounds Stanford & Co. in either 
 Board, and which is supposed to act in the interest of all stockholders, I 
 now invite attention to the copies of correspondence given herewith. 
 There is a reference in one of them to the missing Contract and Finance 
 Company’s books, indicating that the writer, the Secretary of the Central 
 Pacific, knows something of their whereabouts. Congress will remember 
 that no one could be found who would testify before the late Commission 
 regarding the destruction of these books, while all professed ignorance as 
 to their hiding-place. As to the correspondence herewith, it will be 
 observed that it was written shortly after the passage of the bill by Con¬ 
 gress, authorizing the appointment of the Investigation Commission, and 
 was doubtless instigated by it. 
 
 ]Sew York, January 10, 1887. 
 
 Friend Miller : As you probably know, the account known as “ S. H. H. & C.” 
 shows exceedingly large figures, which we propose now to cut down, since there are 
 no assets to represent any such figures as these, which seem to show large amounts 
 to be distributed. I don’t understand this account myself, do not know much about 
 it, in fact, and Mr. Crocker does not know any more. 1 know it is asking considera¬ 
 ble, but I would like to have you look over these accounts, asters, and everything con¬ 
 nected therewith so as to verify them, and then send me a statement. I have great 
 confidence, as you know, in Wm. E. Brown; but all men are liable to mistakes and I 
 would like to have you take this matter up and attend to it, as we propose to charge 
 off to profit and loss enough to bring the figures down to the actual assets on hand. 
 It is possible Willard can help you in this matter, if you call on him to do so. Mr. 
 Brown will of course do all he can. 
 
 Yours very truly, 
 
 C. P. Huntington. 
 
 San Francisco, January 25, 1887. 
 
 C. P. Huntington, Esq., Vice-President, New York. 
 
 Hear Sir: Yours of 10th inst. duly received. 1 have looked into the matter of 
 the very large balances to the credit of the individual accounts of Lelaud Stanford, 
 C. P. Huntington, Charles Crocker, and estate of Mark Hopkins, on the books of S. H. 
 H. & C., amounting to over $35,300,000. These large balances arise from the follow¬ 
 ing causes : 
 
 As appears by the books, there has been distributed or divided at various times 
 sundry properties, which have been currently charged to “ Dividend Account,” 
 amounting to $9,250,520.21 ; and various collections have been credited to s ime 
 account, for dividends and interest received on stocks, etc., amounting to $655,533.53, 
 —the debt balance being $8,594,986.68. Among the items charged to “ Dividend 
 Account,” the larger ones are : in June, 1877, “ S. P. Bonds, divided,” $2,880,000.00; 
 in 1878. Oakland Water Front Stock, divided, $474,601.39; Central Pacific R. R. Co. 
 stock (E. B. C.), $5,192,550.00. 
 
 Since 1875, interest accounts have been made up yearly in favor of, and the 
 amounts credited to the personal accounts of, Leland Stanford, C. P. Huntington, 
 Charles Crocker, Mark Hopkins, and estate of Mark Hopkins, and charged to “ Interest 
 Account,” amounting in the aggregate, in round numbers, to $20,000,000. This was all 
 right and proper, because the amount of capital contributed by each was unequal ; and 
 by making up interest on the full amount of credit balance of each from time to time, 
 each got in effect a credit tojwhich he was entitled for interest on the excess he had in 
 the Company. This matter of equalizing the interest, however, led to the very 
 large amount of debit which now appears in “Interest Account.” This debit repre¬ 
 sents no assets, it being really a Company loss, and might have been legitimately 
 charged to “ Profit and Loss.” 
 
 Besides these large items of interest credited to the individuals, S. H. H. 
 
 & C., above, there were large items of interest both received 
 
 and paid, leaving the balance of debit in “ Interest Account ”.$20,826,789 49 
 
 There also appears on the books a debit balance to “ Profit and Loss” 
 
 acc ount of. 1,187,215 33 
 
 The main items to credit of this account is “ Balance transferred from 
 
 Contract and Finance Company”. 2,608,292 29 
 
 A few of the larger items to debit of same account are : 
 
 “Transfer Market St. RR.” . 212,893 01 ‘ 
 
 “lone property stock issued and divided”. 229,065 60 
 
CENTRAL PACIFIC RAILROAD. 
 
 37 
 
 “ Rolling Stock furnished S. P. R. R. Co., for account of C. & F. Co.”.. $236,681 92 
 
 “Estate of E. B. Crocker, amount of note given to E. B. Crocker, 
 
 March 24, 1871, by Stanford, Huntington and Hopkins”. 1,298,140 00 
 
 “ Amount due on contract of S. P. R. R. Co., for rolling-stock not fur¬ 
 nished”. 548,435 29 
 
 There are many other entries ; the above are stated merely to give you some idea 
 
 of the account. Now, these items to debit of 
 
 “ Dividend Account,” say... $8,594,986 68 
 
 “ Interest Account,” “ . 20,826,789 49 
 
 “ Profit and Loss, “ . 1,187,215 33 
 
 Amounting in aggregate to.$30,608,991 50 
 
 are properly aud legitimately chargeable to the individual accounts of the parties 
 S., H., H. & C., in equal amounts, one-fourtli to each. 
 
 This would reduce the amounts now standing to their credits, as follows : 
 
 Present credits, aggregate in lound numbers, say.$35,300,000 
 
 Charges as above. 30,600,000 
 
 Leaves to their credit.$4,700,000 
 
 Something like the amount of the actual assets. 
 
 In the above are stated the amounts as they appear for December 31, 1885, the 
 accounts of S., H., H. & C. are, as you are aware, inactive, and Mr. Brown has not yet 
 posted them up for 1886, but will do so as soon as your statements for December, 1886, 
 are to hand. 
 
 The interest accounts for Leland Stanford, C. P. Huntington, etc., for 1886, will, 
 when made up and credited, of course vary the amounts of their accounts; but you will, 
 I think, be able to get from the above sufficient general facts to enable you to under¬ 
 stand how it comes that such large amounts appear to credit of L. S., C. P. H., C. C., 
 and estate of M. H., while the assets are so much less. 
 
 Mr. Hopkins makes a suggestion to Mr. Brown, in which Mr. Brown concurs,—and 
 which I think would be well to carry out,—that is, that since S., H., H. & C. are now 
 the only parties in interest in the Pacific Improvement Company, that the books of 3., 
 H., H. & C. be written up, the accounts of “ Dividend,” “ Interest,” “ Profit and Lots,” 
 etc., be charged off as suggested, aud the books balanced and turned over with the 
 balances and assets to the P. I. Co.; the P. I. Co. to transfer the balances of 3., H., H. 
 & C. books to the P. I. Co. books; and thus have only one set of books for the 
 accounts of the parties, S., H., H. & C. 
 
 Trusting the above will be satisfactory, I am, 
 
 Yours very truly, 
 
 E. H. Miller, Jr. 
 
 San Francisco, January 25, 1887. 
 
 C. P. Huntington, Esq , Vice-President, New York : 
 
 Dear Sir : I received your letter of 10th in relation to examining the books of S., H., 
 H. & C., and have written you to-day in explanation of the large balances to the credit 
 of L. S., C. P. H., C. C., and estate of M. H. 
 
 I have gone over the books as much in detail as is possible in the time I have had 
 to devote to them since the receipt of your letter, and I find them correct so far as I 
 have examined them. I had no difficulty in tracing out every item which I looked up. 
 It will be impossible for me personally to make a critical expert examination of the 
 books. There were many items brought forward or transferred from old C. & F. Co. 
 accounts, and a thorough and exhaustive examination would require to go back to the 
 old books of the C. & F. Co. to see that they had been properly kept, and the balances 
 properly transferred to the books of S., H., H. & C. But assuming that the balances 
 brought from books of C. & F. Co. are correct, as they doubtless are, the accounts in 
 books of S., H., H. & C. date back to 1873 ; and it will be a work taking considerable 
 time—more than I could possibly devote to it, to undertake to verify them. 
 
 The suggestion in my other letter that the books be written up, and, with the 
 assets, turned over to P. I. Co., will, if carried out, enable the P. I. Co. to have the 
 books in hand, and an examination can be made under the direction of Mr. Douty, 
 tak'ng all the time that might be required. 
 
 It is not necessary for me to say or assure you that I would or will personally give 
 to Mr. Douty all the assistance and advice in my power in his making any examina¬ 
 tion that may be determined on. My knowledge of and recollection as to some of the 
 
38 
 
 CENTRAL PACIFIC RAILROAD. 
 
 accounts which have a connection with the Central Pacific Company may be of ser¬ 
 vice in such examination. 
 
 Very truly yours, 
 
 E. H. Miller, Jr. 
 
 The foregoing letters will give some idea to the stockholders and 
 Government of the purposes for which these private Companies exist. 
 To credit Stanford & Co. direct with the enormous profits they get from 
 the roads they operate, would be stating the fact too plainly, so instead 
 such titles as 44 Southern Development Company,” 44 Pacific Improve¬ 
 ment Company,” 44 Western Development Company,” etc., are used. 
 One has only to read the report of the Majority Commission on the contract 
 with the Pacific Improvement Company, extending the California and Ore¬ 
 gon road, heretofore quoted, and he will cease to wonder why Stanford & 
 Co. do not allow themselves more than $10,000 per year as salary. 
 
 It is to be hoped that the Court of Claims will see the folly in recom¬ 
 mending the payment into the hands of these men of amounts withheld 
 by the Government for transportation service performed on non-aided 
 lines of the Central. During the operation of the road by Stanford & Co. 
 the United States will have enough trouble in collecting the amount 
 already owing, and it would be an injustice to the stockholders to fur¬ 
 ther increase its claim. The Treasury Department at Washington seems 
 to understand its position in the matter, and I believe can be relied upon 
 to resist payment to the last. Had Stanford & Co. honest intention of 
 even eventually paying back the debt, they would not object, in the inter¬ 
 est of the stockholders and the road they have ruined, to allow the credits 
 referred to to apply bn the debt. But instead, they clamor for its payment 
 over to them, caring little as to whether the road ever succeeds in disen¬ 
 tangling itself from its present difficulties. 
 
 All of the officers of the Union Pacific Railway [state the Majority Commission, 
 page 19 of their report] have declared that if such amount be fixed so as to be within 
 the limits of their financial ability to pay, they will accept it, and agree to make the 
 payments required. 
 
 The second consideration which has impressed us with much force is the necessity 
 of divorcing, as far as possible, the Government and the Railroad Company. It is not 
 seemly that the sovereign power of the United States should be subjected to the con¬ 
 stant and belittling litigations that have so persistently occurred ever since the issue 
 of these bonds. It is not becoming that in these controversies the United States 
 should be held to have abdicated its s> vereignty, and through its officials be made to 
 contend for petty successes or to suffer defeats in the forum of its own courts. . . . 
 
 If the Government intends to collect the debt, the shortest method is 
 by all means the best; and about the only certain way in which the stock¬ 
 holder can derive a benefit from the money withheld by the Government 
 would be to apply it to that purpose. If paid to the present managers 
 the money would soon find its way into the hands of the Lessee Company 
 or the Pacific Improvement Company. Prompt action by the Government 
 is necessary to protect its rights and those of the stockholders. In the 
 past it has been lavish and lenient with the present managers; let it 
 reflect how little the pledges made to it have been kept. 1 understand 
 that a Senator, who is a member of the present Senate Committee on 
 Pacific Railroads, stated that in his opinion the Central Pacific road was 
 nothing but a bridge. One may search through the reports of the Com¬ 
 pany’s former Chief Engineer, heretofore referred to, without coming 
 across a single reference to the durability of the road to be constructed; 
 their sole object seemed to be to rush the work through to a connection, in 
 order to obtain the munificent aid held out by the Government and given 
 
CE&TR^L PACIFIC RAILROAD. 
 
 39 
 
 U»«*»»>«*••«* 
 
 ibout the fir fc ^^ e ^t C ra t he^ one f 01 - personal gain. Eagerly accepting 
 pnal undertaking, but latnei i , end 0 f thirty years; and 
 
 proffered loan, they agree . o a(jt ar)d the swo llen condition of the 
 
 If one were to judge nom Z d fulfilling; that promise, for to-day 
 
 l H » £tlne^y^ea«u"flated l hold them to it. 
 
 md them figh g ^ader to carefully note the summing up 
 
 ire concluding I wi 1 ask tlie ieauei thei / rel30 rt: 
 
 |e Majority Commission, pages 49-50 ol their report. 
 
 Tfii S Commission finds it impossible tog^at aid 0°^ its credit, in better 
 lentfin making the munificent grant of land t he Wifson Committee to the House of 
 
 February, 1873. The language of that report rs 
 
 5 f allows : 
 
 ' me conclusion 
 
 Si ipaihes everts of ^sffigle ex^^^ 
 
 ;ng ineer of the Commission, is that ed ^ bave b een constantly and persistently 
 
 >f the duties and obligations aho haye contro n e d and directed the construc¬ 
 ts regarded. The result is t " • g bave become possessed of their surplus 
 
 tio a and development ofjhese compan^ ^ of divi( Uds, voted by themselves 
 
 wfelh^gfearcredimr the United Slates'? finds itself substantially without adequate 
 sedurity for the repayment of its loans. ^ gt th0 tbrephold o( this portion 
 
 (■The single exception re f err «^ , j i7e \y ( , ,efer to the administration of the 
 of tl.prenort, to indicate and to empnasize. v> e 
 uiion Pacific Railway Company since the spring of 1884. . . . 
 
 I have appended debJ 
 
 cable; but thetone offered by the^“£^ e £ e “o ne but their own 
 ingly the least desirable, since 1 ) rmhlic sentiment in the 
 
 r swr. 
 
 edkoiT^^ from ^ recent 'issue of that paper, in which w.U 
 
 be found some sensible suggestions. . , 
 
 . . The past history of the Central 
 
 money-making road, and there is ^ d re ^ 0 ° lat J n than it was eight or ten years ago. 
 the State lias increasedwealthrand lg{£\ oad ’ was built ou t of the profits of ihe 
 As everybody knows, the lated immense private fortunes ; a number 
 
 Central Pacific ; the quadinlatera l ^lcm companies-were enriched ; 
 
 of ancillary companies—both ra ’ lr ° aa a + . B w hicli will not bear the light of 
 
 and enormous sums ot money were spent y Central Pacific. Is it 
 
 investigation ; and all this was an even chance ; if traffic 
 
 , not obvious, then, that if the . rollina stock and equipments were kept 
 
 were not 1 lurmted^and persistent effort to wreck it, it 
 
 up properly ; and if there^we e without any increase in rates? . . • 
 
 would be a paying property, and ihat intangible property known 
 
 The Central Pacific owu » ieril Pacific and which are indispensable to 
 
 * “ade that the Central Pacific is practically msol- 
 
 / Ve "kt thireis a way to test this question, andI to** out the^exact 
 
 f of this railroad. Commissioner Patterson ineihods and had the Government 
 
 ' had the road been built and managed upon ho “ e e st de ra c ^ d ^ ividends at the raie of six 
 , loan l.een properly applied, the toad co M d the Government loan, and 
 
 ^rd^^dS e^lent o, $5?,000,000. If these assertions 
 
40 
 
 CENTRAL PACIFIC RA LR^AD. 
 
 -^,0.-“^ -rAUJUJiu ±CA UP'AD. 
 
 ha D d d° s Ub of a rlcel eyare ' £ ^ «■ 
 
 comply with its contracts. Let the receiver Lerate hp^n 0 H * he gr0Und ° f failu 
 to tbe Southern Pacific, but as its business rival for aS a subsidiar J 
 
 keep the road in repair restore tb^ ^n- SS P * or three or four years. Let 
 
 and^vhird/l'f ^fd are two ® atters to which attention should be gJ 
 a d winch, if acted upon, will insure to the Government the fulfilmfr i 
 
 debt ho ^f 10 ^ ? S lfc m ? y impose ’ should ^e time for the payment of 1 
 fhoSonti ten p edj « na ?? ely ’ oaucellill g the Directors’ lease oAhe road : 
 
 Znci’es™ ltS SeCUrUy ’ ° Uen entireTy^Zn^alU 
 
 A SYNOPSIS OF A PLAN FOE COLLECTING THE DEBT FEOi 
 THE CEE TEAL PACIFIC RAILROAD COMPANY. 
 
 Should the Directors decline to either pay or guarantee mvmenf r 
 t e entire debt at maturity, the Government to immediately foreclose it 
 or gage and take possession of the entire road, including the brand 
 
 hne f ; p / ? r 1 ^ hase 1 afc a fair valuation the minority stock outstanding- * th 
 road and branches then to be sold to the highest bidder. 0UtStanCiin ^’ th 
 
 hv + t ,u; ri Up0n le ^ u . sa * as above, let the Government immediately foreclos 
 by taking possession of the stock held by Stanford & Co.—the controlling 
 
 Sy T n lr “»g a Iease of the branch* line 
 upon tavoiable teims, uhe controlling interest of the whole to he thpi 
 
 leased for a term of years to the highest and best biddeT; the ownerS 
 
 of the minority stock to stand as at present. The proceeds from the lens 
 
 +hf ° f th , G „ bra ? 1 cl1 line ® could either be applied on the debt or be paid t< 
 ow neis for the use of them. The total issue of stock is 680 000 shares 
 
 Pro^m^ 
 
 thera?ore W thlVebt^hT h half K° f the ? ad ’ s present indebtedness. When, 
 ernment to selllts stock to StSfyilTSSf $25 ’ 000 ’ 000 ’ the Go -