Part 32

Detective Wooldridge, who has examined many of these concerns, desires to place special emphasis upon the crafty use which these companies make of the names and services of reputable "trust" companies. He uses the word "services" because a trust company may execute a "trust" in connection with bonds, stocks, property or securities without really assuming any general financial or moral responsibility for those securities or without becoming a sponsor for them. In a word, the trust company may engage to act as an escrow agent to see that a certain technical transaction is completed, and nothing more. That means this: The trust company consents to hold the stakes between two parties, but without the slightest responsibility as to the value of those stakes or what may be done with them after the stipulations as to the conditions precedent to delivery have been fulfilled.

Because a trust company acts as the trustee of a certain bond issued there is no warrant for a prospective investor to feel that the resources of the trust company are in any sense behind these deeds as a guarantee of values.

Another word of caution: Whenever you see the name of an educator, a pastor or a popular politician, or any other leader having a hold on the sentiment of a community used in connection with an investment offering, look into it carefully and take no step until the person mentioned has been questioned directly by you.

HUGE SWINDLES BARED.

Officers of Four Underwriting and Guarantee Companies Arrested by Detective Clifton R. Wooldridge.

Charges Are Bogus Underwriting and Fraudulent Inspection of Properties.

All the officers of the four biggest underwriting and guarantee companies in the west, with headquarters in Chicago, were arrested. They were charged with having engineered the boldest and most comprehensive swindle ever exposed in this country.

The following are the names of the men arrested for running The Central State Underwriting and Guarantee corporation room 1306, Tribune building:

W. H. Hulbert, H. B. Hudson, Francis Owings, M. J. Roughen, W. H. Todd, were arrested for running a confidence game. W. H. Todd jumped his bond and fled to St. Louis, Mo., where he was apprehended and brought back by Detective Wooldridge.

$300,000,000 CAPITAL.

The book of the Central State Underwriting and Guarantee corporation had promoted 300 corporations and companies which were capitalized at $300,000,000. Stock bonds were issued which was guaranteed by this company. This company further agreed to sell these bonds and stocks to raise the money to financier these companies.

The complaint was made by the Compensating Pipe Organ Company, through C. V. Wisner. The firm is located at Battle Creek, Mich.

W. H. Todd & Co. was employed by the Pipe Organ Company to make a bond issue of $150,000. The brokerage firm, he said, demanded a 1 per cent deposit, amounting to $1,500.

This was paid, according to Wisner's complaint, and Todd & Company undertook to deposit the money with another underwriting company.

Then, he asserts, the bond issue was never made, and Todd & Company failed to repay the $1,500.

The firm conducts a banking, brokerage and underwriting business at room 803, 112 Dearborn street.

DID HEAVY BUSINESS.

Rare oriental rugs, the most costly tables and chairs, and elaborate grandfather clocks, together with an amazing amount of polished brass work and plate glass, were found in each of the imposing offices raided by the deputy marshals.

The Central States Underwriting & Guarantee Company did a business commensurate with the costly environment. The books of the concern show that from February 1, 1903, to August 5, 1906, 643 corporations throughout the United States paid money to the Central States concern, and the aggregate amount paid was $340,000.

Advertisements were placed in all the leading papers throughout the country, circulars were distributed broadcast with propositions that capital could be obtained for corporations and manufacturing enterprises by addressing this company.

The officers of corporations replying to these advertisements would be asked to call at the Chicago offices of the companies.

The brokers acquainted with the scheme would then introduce the corporation officials to alleged capitalists who represented they had available capital to finance business propositions, and would buy the underwritten stock, provided the corporation officers would have them underwritten by responsible guarantee companies.

It is asserted that these alleged capitalists would then advise that the work be done by the Central States Underwriting & Guarantee Company, the American Corporation & Securities Company, or the National Stock & Guarantee Company of San Francisco.

SCHEME OF THE COMPANY.

The brokers in the alleged fraudulent transactions would represent to the proposed victim that they would get no returns for their work unless they actually sold the stocks, and that they would be content with a commission of from one-half to 1 per cent on such stock as they sold. They assured the victims that there could be no doubt that the stock underwritten would be sold, as the capitalists to whom the victims had been introduced would be certain to buy them.

The brokers would then take the men seeking the underwriting to the offices of the guarantee companies and arrange for guaranteeing the bonds on payment of a fee of 1 per cent of the amount of underwriting.

The men arrested never entered into a proposition on which less than $100,000 was involved, and that they, in some cases, obtained $5,000,000 worth of stock to underwrite.

Detective Wooldridge secured proof that the application fee which was paid by the officers of the corporations to the underwriting companies was always divided among those companies and the fraudulent brokers who had sent the corporation's officers to the supposed underwriters.

THE GUARANTEE CO. METHODS.

The Guarantee Company system is a new phase of "promotion" that has come to the surface during the past two years, but which, through police and legal investigation, has about reached its limit.

A strictly legitimate guarantee company is modeled much after the Fidelity and Insurance Bond corporations. They issue secured bonds for all necessary business purposes, and are reputable and responsible. About 1903 a promotion gang in Chicago stole the name "Guarantee," and half a dozen fake guarantee companies were started.

In all the phraseology of tricky finance there is no word so overworked as "guarantee." And this means that experience has proved it to be highly effective in the hooking of "suckers." Depend upon it, that no word or phrase achieves marked popularity in the literature of the "small investments" appeal which has not demonstrated its rare effectiveness as an agency of deception; the phrase that does not draw the money is promptly thrown out by these shrewd fishers of men, who check up their returns as accurately and systematically as the most legitimate mail order business.

If the small investors of this country could reach anything like a fair knowledge of just how much and how little there is in each of these appealing "catch words" in each phrase, the plausibility of which has been scientifically tested, they would be well on the way toward being able to protect themselves against the cleverest and most convincing of these appeals. Perhaps the writer can do the public more service in analyzing a few of these "star phrases" than by any amount of denunciation of the wildcat schemes and schemers which deserve as harsh a characterization as any man can frame.

But, to return to the word "guarantee," which has attained first rank in the terminology of the investment trickster, there is scarcely a circular, folder or advertisement, or any other piece of literature put out by the pot hunters of small savings which does not display the word "guarantee" in big type, and with reiterated emphasis. If this institution chances to be of a financial character itself, rather than a mining, oil or industrial concern, the word "guarantee," or its twin, "security," will be found incorporated in the name chosen for the company.

Get a list of 100 wildcat investment schemes which are dead beyond hope of resurrection, and it is a safe prediction that one-half the names will contain the word "guarantee" or "security." These two words are as common to the eye in the graveyard of fake investment schemes as is that of Smith, Jones or Brown in any country cemetery; they adorn practically every other tombstone in the last resting place of defunct financial frauds.

The question of the value of either of these words in the title of a corporation or concern is disposed of by the statement that there is no legal restriction in the choice of names of companies; the organizers are as free to name their flimsy creation "The Rock of Gibraltar Guarantee Security Company" as the parent is to saddle a weak, under-sized male child with the name of Samson. And, as a rule, there is as much license or propriety in giving the name of the mighty enemy of the Philistines to a stunted boy as there is for applying the name "guarantee" or "security" to a company which is brought into being for the purpose of going out after the savings of the "small investor."

Why? Because the companies which are really warranted in making either of these words a part of their corporate name do not have to go into the highways and hedges and beat the bushes for their business; it comes to them by force of their "financial strength." They have no need to drum it up.

GOOD ADVICE ON "GUARANTEE."

However, scores of oil, mining and investment companies which do not use either of these clever catchwords in their corporate titles cannot be charged with undervaluing the "pulling power" of such phrases; in their literature this kind of bait is employed with the greatest skill and plausibility.

One of the most common ways in which this idea is dressed is this: "We guarantee you, under all conditions and at all times, to get you, without cost to yourself, the highest market price for your holdings." This sounds very assuring; it carries with it a protective and almost paternal atmosphere and seldom fails to inspire in the trusting investor the feeling that there is a strong hand always ready to take the investment off his shoulders the moment it threatens to become a burden.

This particular phrase is especially fortunate and typical, by way of illustration, for the reason that it couples with the word "guarantee" another term which is a warm favorite with the word artists of the get-rich-quick studies. I allude to the phrase, "highest market value."

Wherever either of these clever signals to credulity is displayed the possible investor should invariably remember these points:

=First--A guarantee is never stronger than the guarantor.=

=Second--A security only has a "market value" in the fair and true sense of the term where a large demand for it meets a large supply; there, and there only, exists an active market and a genuine "market value."=

Let these two propositions (which any reputable banker or broker will tell you are axiomatic) be considered separately. There is no virtue in the word "guarantee." If this simple fact could have been firmly fixed in the minds of the small investors of this country they would have been saved the loss of millions of dollars since our present period of wonderful prosperity began. In these days of highly perfected business organization the process of finding out the responsibility of any financial or business concern has been reduced to an exact science and made available to all. Is it reasonable to suppose, under these conditions, that any company or corporation which cannot stand on its own feet can get any responsible concern to guarantee its bonds or other so-called securities? Never! Such a supposition is absurd on the face of it, and an instance where it has been done is not, so far as is known, to be found in actual practice.

Dig down under the "guarantee" of the company which asks you to invest your savings and what do you find? That if you do invest you and your fellow victims are really your own guarantors; that the financial strength of the concern is really the money which you and your associates pour into it; that its only financial life blood comes from the purses of the small investors, and that when the stream of vitality from this source begins to dry up, the services of the financial undertaker are in near and inevitable demand.

Reduced to its last analysis, the blacktype declaration of a "guarantee" in the literature of the "get-rich-quick" concern simply means that it has something to sell you. Generally, it is also an invitation to you to pay in advance for the flowers to adorn your own financial funeral.

As to the other pet phrase, "highest market value," or market value of any kind, for that matter, a very few words will suggest the situation:

Excepting where a very large demand meets an insufficient supply in a free, open and comparatively unmanipulated market, where sales are regularly made of record and those records command the respect and confidence of the legitimate financial public, there is no "market value" save that which is arbitrarily made by the broker. He is the market; he makes the price by the simple process of "thumbs up" or "thumbs down."

The man who is on the "sucker" list of a wildcat concern receives an announcement that "all indications point to the conclusion that next week the stock of the Honor Bright Company will sell at not less than five points advance of the present price."

The next week he gets notice that the prediction of an advance had proved true. If he is unsophisticated enough he receives the announcement with solemn credulity and credits the author of the promotion literature with great acumen and shrewd prophetic powers. He figures up the profits he would have made on the advance and condemns himself for not heeding the "confidential" advice to "buy quick."

What he does not consider is the fact that he is dealing with a fictitious market, where the seller simply makes up his mind how much he will advance the stock in question and then, when the time comes, marks it up and makes the announcement of the "sharp advance." This trick is turned not only for the purpose of getting a larger price per share, but mainly to tickle the cupidity of hesitating investors and making sales which otherwise could not have been made.

In order to understand how these companies operate, the actual experience of one victim will serve to explain the whole system.

A country manufacturer, rated at $50,000, read an advertisement in a financial journal about as follows:

"Capital Supplied--We have the means of furnishing any amount of capital for any meritorious industrial proposition. Address Lock Box XX, Chicago."

The manufacturer wrote he wanted to raise $100,000 to increase his business, and offered to put in all his effects, stock and good will. He received a letter asking him to come to Chicago and visit the firm, which, for convenience, shall be described as "Cold Cash & Co." He did so. Cash received him in an elegant office with open arms. The manufacturer there re-stated his necessities. The affable broker informed him his proposition was a fine one, and said he could have the desired $100,000 within thirty days.

"What would be the broker's fee?" he inquired. Only 5 per cent when $100,000 was in the hands of the manufacturer. Certainly an alluring prospect. But how was the money to be raised? The manufacturer was to incorporate his business for $200,000, and the broker would sell half of its capital stock at par.

As the delighted "sucker" was about to leave the broker's office the latter, in the most off-hand manner, said: "Oh, by the way, Mr. Manufacturer, what arrangements have you made to guarantee your capital stock?" "Guarantee it? I don't understand you," replied the victim.

"Bless you!" said the broker, "modern methods demand that all stock be guaranteed--quite the new order of things. We couldn't sell a share of stock nowadays unless it was guaranteed."

"Explain!"

"I will. You go to some guarantee company and have them agree to guarantee the payment of the principal of each share of stock sold at thirty years. Don't you see that makes your stock as solid as a government bond?

"The guarantee company takes a certain portion of the proceeds of the stock, invests it for thirty years. With interest and compound interest, in 1935 the stock has accumulated its par sum. It is a beautiful system."

DO BOOMING BUSINESS.

"Very plausible, but where are these guarantee companies?"

"Why, there are The National, The States, and The Industrial. We hear The States is doing a booming business. Go and see them. They are at such a number."

The victim went to the richly furnished suite of offices occupied by the guarantee company and met its dignified "president," to whom he explained the purpose of his visit.

"Very good," said that official. "We will accept your risk. We will issue you an option agreeing within one year to issue you bonds against your stock as sold, you to pay us an advance fee of $1,000."

The "sucker" demurred. He had only $500 spare cash. The president suggested that as the broker would make a liberal commission out of the deal he might put up the other $500. The manufacturer 'phoned the broker, who promptly agreed to pay one-half of the fee. The broker gave the victim a worthless check for $500, which he gave, together with $500 of his own good money, into the hands of the "guarantee" company. The company thereupon issued a certificate, or option, for bonds that were never called for because the broker never sold any of the stock.

The victim went home loaded down with promises. The broker "strung" him along for a month or two, but sold no stock. Finally the manufacturer realized he was buncoed. The broker and the "guarantee" company divided the $500, and proceeded to find other suckers.

March 17, 1906, E. C. Talmage, who conducted the National Underwriting & Bond Co., of San Francisco, Cal.; the Pacific Underwriting & Trust Co., of San Francisco, Cal.; the Imperial Bond & Trust Co., of New Jersey City, New Jersey; the International Trust Co., of Philadelphia; the Chicago National Bonding Co., of Chicago, at 52 Dearborn street; E. C. Talmage; E. S. Barnum, 103 Randolph street; and M. J. Carpenter, of the First National bank, were arrested.

George D. Talmage, another member of the firm located at Kansas City, Mo., was afterwards arrested and brought to Chicago, charged with obtaining money under the confidence game. The warrants on which they were arrested were taken out by E. J. Denison and Rev. Peter A. Baart, a Methodist minister of Marshall, Mich., who were officers of the La Vaca mines and mills, of Joplin, Mo.

Rev. Mr. Baart first went to E. C. Talmage.

Talmage sent him to E. S. Barnum to have the stock guaranteed. Barnum charged him a fee of $500 and agreed to sell the bonds, which he failed to do. They just simply divided this fee between them and made no effort to float the bonds.

Among the persons alleged to have suffered losses are the following:

Victoria A. Toole, 396 55th street $500 Dr. C. J. Grey, 103 State street 250 Miss Frances Mason, sister of Hon. W. E. Mason 1,000 A. C. Nelson, 1057 Addison avenue 150 J. W. Wilson, Opera House block 100 G. G. Eustis, Melrose, Ia. 100 Lalorena Gold and Copper Mining Company 100 Wortham Bros. Company 150 Golden Ranch Sugar and Cattle Company 9,000 Frank McCuddy, Clinton, Ia. 7,500 Dr. E. Hall and J. Brown 125

E. C. Talmage, S. D. Talmage and E. S. Barnum were indicted by the Cook county grand jury.

George D. Talmage fled to Kansas City, Mo., where he conducted a branch office in the same business. He was arrested at Kansas City, Mo., on request of the chief of police of Chicago, for operating the confidence game. Extradition papers were secured and Detective Wooldridge brought him back. When his father's office was raided, at 52 Dearborn street, a number of letters was seized, among them were several written from George D. Talmage, at Kansas City, Mo.

The following extracts are taken from George D. Talmage's letter to his father:

"Saw old Blank today. He was easy. Inclosed find his check for $1,000"; and, "When I mentioned bonds to old Tightwad he fell over backwards and swallowed a set of false teeth."

One from a town in Kansas is said to have read: "Nothing doing in this joint. The people here wouldn't buy gold dollars for 90 cents."

One letter which reflected particularly upon the cupidity of our K. C., U. S. A. citizens, runs: "I am giving it to these little Kansas City suckers strong. I expect to be able to send you $1,000 the last of the week."

E. C. Talmage, George D. Talmage and E. S. Barnum were placed on trial before Judge Brentano for swindling the Rev. Peter A. Baart, Marshall, Mo., out of $500.

E. S. Barnum was discharged and the Talmages found guilty.

A new trial was secured for George D. Talmage. His father, E. C. Talmage, on May 10, 1907, was sentenced to an indefinite term in the Joliet penitentiary.

THE SOCIAL EVIL.

The treatment of the social evil is one of the most difficult problems with which society has ever been confronted. Until society is thoroughly regenerated and the consequent purity, both of manhood and womanhood, has become a permanent fact, illicit relationship between man and woman will exist.

The attraction of the sexes is as mighty as it is mysterious. No legislation will weaken its inherent force.

The man who can come forward with a cure for this great curse is, I fear, yet to be born.

In common with other vices the so-called "social evil" is as old as mankind, and it will probably remain as long as vice and sin are found in the human heart. Its complete eradication will, perhaps, never be accomplished solely through the process of law, yet it seems to me that the law and its administrators should not lessen their efforts to destroy this evil.

In Norway, and in Switzerland, are the conditions most favorable to virtue and independence, the absence of extreme wealth and poverty. Both countries are comparatively isolated from the rest of the world. In Switzerland, as well as Norway, there is an absence of large masses pent up together in cities, the population being distributed in small numbers about the country. Sir John Bowring, sent from England to investigate Swiss society, found that "a drunkard is seldom seen, and illegitimate children are rare." As a people these Swiss are a testimonial to the doctrine of equal distribution of wealth and temperate habits as preventive of immorality.

AMERICA FOLLOWS OLD LINES.

The history of the United States is the history of all countries as regards prostitution. The population is made up of all nations, civilized and semi-civilized. In the majority of cases poverty is the greatest incentive to prostitution. Permanent prostitution has a numerical relation to the means of occupation.