The San Francisco Call. Newspaper, November 6, 1898, Page 1

- perve as a mask for further thefts. * morning are perhaps of more vital im- into the People’s Bank It must at once .that end in view he planned the organi- + dishonesty of his sons. JOLUME LXXXIV.—NO 159. SAN FRANCISCO, SUNDAY, NOVEMBER 6, FARNUM AND SHERMAN WERE IN COLLUSION TO RUIN THE BANKS Frank Planned the Robbery of Six Hun dred Thou- sand. Securities Secreted Where the Con- spirators Could Steal Them. The Call concludes this morning the | dramatic history of the ruin of the Peo- | ple’s Home Savings Bank as Frank V. | McDonald, one of the leading conspira- | w the inception, the develop- | and the conclusion of the wreck. Frank McDonald w it is se of the great disaster, but s it the public knows for the hat the leading members of y escaped exposure until uding letters of F: Farnum and me nearly two vea iled. They had behind them influence of W. H. H. Hart, en Attorney this nd at least the connivance of one member of the Bank Commission. In the letters published this morning the Call proves that the books of the fic Bank were manipulated just as conspirators pleased. Accounts in | institutions were used to suit the | ience of the schemers. If a loss | e incurred in one disastrous venture ed to whatever account | ors cared to choose. As nce of the two big institu- | rnum and Sher- | , foisted upon n securities that | to be worthl Both con- | knew at that e that at rs of the Bank Com- on were at their command. The ce of relationship and of favor had been exercised to the last degree. | Sherr had worthless bonds to place | and Farnum was in a position to place | them in exchange for the money that | thousands of poor people had intrusted | to his care. The letters that are published this | morning will show that Sherman's| phantom electric railway of neral o Phoenix | offered an excuse for the practical rob- bery of many thousands of dollars from e People's Home Savings Bank. | hese documents will prove that the | anager of t > People’s Home Savings Bank and the crafty manipulator of | Los Angeles were playinz a desperate | game and played with such cleverness | that the inevitabie result was the clos- | ing of both banks. ! In this gigantic scheme W. H. H.| Hart was the willing tool of both con- | epirators, and in his willingness suc- | ceed2d in getting out of the bauk into his own private coffers many thou- sande of dollars. The letters show, by indirection, that the McDonaids, foreed inrte a d e _situation, were com- lled to submit to the commands of | num and Sherman. The deluded | ankers had gone so far that they | could not retreat. They placed | themselves in the power of Sherman, | Farnum, Hart, Dorn and Johns, and | they had to accept the conditions of | financial existence that these men dic- | tated. The result was inevitable. In| order to save the Pacific Bank the Mec- | Donalds had to rob the People’s Bank, | and Frank McDonald became so shameless in his thievery that he out- | lined explicitly to brother how the | s institution was to give up its money to feed the commercial bank and maintain it in its awful plot of tremendous robbery. In this aspect the letters that are published this| portance than any which have hitherto appeared before the public. In one of his letters Frank reaches an awful dignity in crime when he de- clares that as soon as money comes be transferred to the Pacifio for what- ever use that institution may care to put it. Under such pressure and sur- rounded by such influences even the McDonalds saw the end. With the in- stinet of self-preservation Frank Mec- Donald schemed to save an enormous private fortune out of the wreck. With zation of a trust company that was to TUnder his guidance and with the as- sistance of ex-Attorney General Hart a great corporation was to be organ- d and all of the available assets of the Pacific Bank were to be stolen and ced where they could be carried y at a moment’s notice. Frank McDonald estimated these assets to be worth $600,000, and he counseled his brother Richard to place these securi- ties in a secret box that eould be car- ried away whenever the conspirators choose to take it. There is in the his- tory financial dishonesty probably no parallel to this appalling crime. MANIPULATING THE BOOKS TO CONCEAL THE FRAUDS. On April 22, 1893, Frank McDonald outlined further plans by which the Pa- cific Bank was to be robbed, the Bank Commissioners to be deceived, worth- less notes made and Dr. McDonald’s property saved from the legitimate con- sequences of his own negieet and the Frank wrote < as follows: April 22, . My Dear Brother: It 1.;.:;1&}?:“ occurred to me that possibly it might be better when seil the electric light stock of father's to charge his account with five thousand and accrued interest to date and trans- fer to him_personally another 150 shares P. H. S. B. stock and credit the $5000 on that Holder note. It might | word pictur look so much better if you expect an early visit from the Commissioners. It vould show her reduction on that Of ¢ 1 would rather fath- lanc yuld appear as_large as t that overdraft on account o and Toy, but possibly seem better to make another r on the Holder note. udgment in the mat- will be able to sell without breaking the r loving-brother, FRANK. junction with the foregoing let- several names and incidents are ting. Dr. McDonald's overdraft s to a transaction in which Toy, e local 1l estate agent, ahout $40,000 of city real estate for Dr. McDonald, and the latter made the de- positors of the Pacific Bank pay for it. Holder was editor of the Californian Il ated Magazine, another trous venture of Dick McDonald. Hol- der was supposed to act solely in an editorial capacity, but he also was an- other instrument to be used in the va- rious affairs of the McDonalds. THE BANK COMMISSIONERS WiLL WRECK EVERY BANK ON THE COAST. Frank seemed never able to divorce his thoughts from the menace involved in the prospective action of the Bank Commissioners. He emphatically be- lieved that they were wicked, incapa- ble and unjust, and if they did not change their course of action they rs e W In cc | would wreck every bank on the coast. | In a discussion of this subject and in- cidentally of others of Frank wrote as follows: N. Y., April 22, 1893. My Dear Brother: I notice what you say about hurrying in Hill matters. Handling tbis matter is very much importance, more delicate and difficult than you suppose, and the nearer it reache consummation the more questions are to be answered and the lificulties to be overcome. I very much regret the misfortune tnat has come to Donohoe's and ‘Lallant’s banks. They add much to tne general hard lot of bankers, and especially in- tensify the present demoralization ot the market. I think those Commission- ers, it they keep on acting as they have hitherto done, will finish by wrecking every bank on the co They seem to have so little understanding of the true sacredness of their position and have no proper conception of their real scope of duty. I motice what you say about Dyer’s_statement relative to Button note. You must insist upon the payment of every cent of it. We are either to have practically the road and certain profits or to have the note paid and a certain bonus. Now that he is practically giving away the road to the 5. P. people, 1 think to ask the face value of the note, with Interest, will certainly be little énough. Your loving brother, FRANK. FARNUM AND SHERMAN IN CRIM- INAL COLLUSION. A vitally important letter was writ- ten by Frank McDonald on May 1, 1893, when the Pacific Bank had hardly six weeks longer to live. In this epistle Frank McDonald accuses M. H. Sher- man of having involved them and seek- ing still to involve them into anything and everything he could. Frank makes the further serious accusation that J. A. Farnum, manager of the People’s Home Savings Bank, and M. H. Shar- man were in collusion to foist wor! curities upon_the People’s Banl ther, mor: Farnum was a cousin of Sherman and the son-in-law of W. H. Knight, who | was then a Bank Commissioner and an It | ntimately close friend of Sherman. will be remembered that in one of the letters written by Frank months be. fore this the young cashier declared that Sherman had been bled by Dyer for 00. The letter of May 1, 1893, shows how Sherman, through Farnum, made the People’s Home Savings Bank pay that $5000. The document, which is as follo gives a remarkably vivid of the crafty manipula- tor who inveigled the McDonalds into the Los Angeles Electric road: May 1, 1863 My Dear Brother: I have sent you to-day several long telegrams that ex- plain themselves. After much trouble we have gotten the Fitch question where, if we have to fight ultinately, our position will be clear and well de- fended and we think will fully justify our course. We must go very care- fully in dealing with him. He is vis- jonary and unserupulous. We have all along feared trouble from him and we have been anxious to get everything as well defined as possible. The price they talk of offering for those Ralsin bonds is highway robbery, in which are evidently a_number of deals, and the only way I fear is to call the thing off and start over agaln. This mort- gage proposition has knocked every- thing endways and we fear there is either a trap in it to work up a case for a commission or else a big steal netting us not over seventy-five, if that® much, while all along we have been trying to sell at ninety-seven and allow three per cent commission, M. H. is evidently trying to unload on some one. I have telegraphed him for particulars of his new bond issue time and again and he never sends the same. Poor fools, a 5 per cent bond of the kind he proposes could not be sold for 50 cents on the dollar, and his guarantee on it is good for hoth- ing. You will have to watch or he wfix get Farnum to take his things just as Farnum did one of our term certificates issued to Dyer; that Dyer gave M. H. as collateral for his note i exchange for M. H., advancing to Dyer money to pay one of those water company notes when here East. M. . and Dxer both stipulated with me that certificates should never be ask- ed of our institutions for cashing. Yet the first chance M. H. gets M. H. gets Farnum to take It, we never bein; asked about the matter in ary way, &6 not know but that other certifi- cates may have been put in the Peo- ple’s from Dyer in the same way. Those certificates were given them to help here East to get money with, and this {s the way they work. Watch M. H. He will unload on us anything and_ everything he can at big prices, while we sell them with our an- tee at ruinous discounts. I sketc for him while in les a.plan on which we might reconsider a new bought | disas- | 1L o 4l it At B Ay ot K fi - THE STORY OF THE SECRET BOX. ‘When Frank McDonald realized that financial ruin was inevitable he planned the organization of a trust company through which he and his brother and his father would be able to fiich trom the Pacific Bank all the valuable assets that might be seized. e o This company was designed in the first place to disguise schemes of the foolish bankers, and in the second to protect them from the consequences of their old crimes. organization of this company Frank McDonald commanded that a private box be secured and placed in a convenient position where it could be seized and carried away in the event of disaster. remalining valuable assets of the Pacific Bank, aggregating $600,000. There is hardly a parallel in the history of criminal manipulation in this country of a scheme of such gigantic thievery. L alds with an enormous fcrtune was to be hidden in gne of the upper roo ¥ which is produced above shows how Frank McDonald planned his plot and the records of thg Pacific Bank show with what success the scheme was carried to accomplishment. : b e Ja,i%ma pas i 7 AT . the speculative wild-cat In the In this box were to be hidden all the T*‘s secret box which was to provide the McDon- ¥, of the Pacific Bank building. The fac-simile issue of $300,000, but the terms were such that he now seeks to avoid and is trying to work some new scheme out there. Twice I have been here he has never sent me a word of information about the electric road, its earnings, the foreclosure matter nor anything except the vague gener- alities 'T mail you to-day. He never attends to anything in a business-like way, but runs around harum scarum; like a chicken with its head off. Most of the new money spent on his Phoenix electric road is just_for ralls and tmck-h:glng. I think his plant and other things he ractically gets for nothing from the f,os Angéles company from their du- Rncale plant. All his extra seventy- ve thousand dollar outlay you know how far to belleve. His vacillating policy makes it_impossible to do any- thing with_his Valley street bonds at present. No doubt most of his ex- penditures in Phoenix on his railway are unpald_ for, having been bought on time and to be paid for out of the sale of his new bonds at par. Let us be on our guard when the time for ex- changing comes. M. H. and his new plans he worried me with but got no satisfaction, and the other day he telegraphed me to sell Hines' bonds too, but I told him we were not guar- anteeing other ple’s pi , bu he got you to ter. it, and so he thinks you are easier to deal with than me. You see it is nece: for us to keep M. H. and Hines in the wa- ter cumpu{ in _order to protect our interests. It will not do to let them out, for they will throw the whole load on us. Hart has been in several times and I inclose a letter from him. He seems red-hot after the formation of the trust company you propose. He Is with the sales of their unguaranteed stock develop their property. East- land says Hart's claim is in a very different place and is far inferior, but 1 know nothing about the coal proposi- tion and do not care. Our part in it is simply to recave so much money on deposit and to pay 5 per cent on the same and pay it back 2t the rate of §1 per year. We do not care whether we pay it to the Alaska Coal Company or any other company. We do not guarantee the prinei nor have anything to do with express- ing an .opinion of tne enterprise or its merits or anything else concerning now gone to Washington and expects to be back Wednesday. Affectionate- ly, your brother, FRANK. FRANK BOOMS THE PHANTOM MINES OF ALASKA. A letter illustrating Frank McDon- ald’s absolute ignorance of financial af- fairs and banking principles was writ- ten on May 4, when the young banker discussed the Alaska Coal Company. In this epistle Frank promises Dick that the Pacific Bank could not only assare 10 per cent interest on coal stock | it. Of course some may say that our € ranteeing the stock or part of but 50 per cent if necessary. He ad- sm\e e b o p:t o mitted that he was supremely uninter- | ested in the character of the enterprise, thus indicating that he had at least a suspicion that it was worthless. NEW YOI n undertaking; but this need not be a fair inference. Of course the coal company will sell this guaranteed stock at a big premium to certain crack influential purchasers and then will try to sell to others as well as Call 1898—THIRTY-TWO PAGES. rvsul(s of the Pacific Bank and squan- This Paper no to be taken from the Library.++++ PRICE FIVE CENTS. Drag-Net Conspirators For Bankers to was carted away, turned into the dered. The Bank Commissioners had time and again demanded of the Pa- cific Bank to reduce its enormous debt of nearly one million dollars to the People’s Bank. This. tremendous sum of money represented the savings of 13,000 poor people who had trusted their money to the honor of the McDonalds. Not satisfied with having fliched a mil- lion dollars belonging to the poor peos ple of San. Francisco, the McDonalds determined to get more by cheating the | Bank Commissioners, using Attorney | General W. H. H. Hart as their ready tool, and substituting more worthless | securities for the few remaining good | ones in the People’s Bank. The letter is a most remarkable confession of Frank McDonald's rascality, his brother’s dishonesty, his father’'s con- nivance and Hart's support. The epistle is as follows: 7 New York, May 9, 1893. My Dear Brother: What I shall have to say in this letter is largely of a very confidential nature and I think better be destroyed after read- ing. First, from the communication from the B. C. it is evident they in-~ tend to try and head us off from get- ting any more funds out of the Peo- ple’s, and some one with a knowledge of the facts has induced. them to come now and examine us so soon again in order that they might have a pre- text to order us to pay up in such a way as to prevent our securing any relief in that- direction. Now the question is to see how far we can prevent their hurting us in this way. ‘What we want is coin, therefor» if we keep our debt to the People’s station- ary we could by exchanging obliga- tions for such as they can coavert into coin secure that coin they pull in and give them other obligations. But in this of course it Would be necessary to have the assistance of those managing the People’s, and, if necessary. I better_return to take up the cudgel again. Now, I do not know what clause 11 is that McHardisty refers to, and I wish_you would send me the wording of it. But it is manifestly absurd for the B. C. to say a savings bank can have no deposit at all in a commercial bank, and therefore to that extent I do not think we need to worry over their order to cancel tue entire indebtedness, That we will do or not in our own time and way just as we think best for the business of the two institutions’ best interests. But of course ‘we will keep our own council and not dis- cuss this point until driven to it, and then we will take our lawyers and discuss the matter with the Attorney General, not the B. C., who are the ones to settle dis- puted legal questions. Therefore as far as paying back so much a month, that we will do_as our best judgment and our means and circumstances indicate the wisest to do. Of course in time we in- tend to pay the Savings Bank back everything, because there is not suffi- cient profit in it for us, and we do not wish the responsibility of investing. Another thing you can easily see that our guaranteeing things is probabiy going to hurt us. I have tried to be as dis- creet as possible about the guarantee business, but in time it will get out of course, and then borrowing will be much more difficult and possibly practicably impossible. Now, again, the B. C. crowd later, when they examine into the guar- antee question, may try to deny the le- gality of our giving guarantees. I have had to fight all around that question while here, and I think we can do it with perfect legality, yet difficulties may arise, and then I wish to have our Pacific Se- curity Company all in running order, so that if necessary we can offer its guar- antee and thus be able to go on with our plans of raising money. The People’s Bank a Money For the Pacific. ce the Deluded Obey Their Commands. In a few days I will send you full ine structions for the forming of the Surei Company, and then have it all formed, and then we can use it or not, much or little, just as we think best. This is now a timeé when we must be ready for any emergency we can think of and do our best to meet it. I am sorry to say I do not expect any more money from the Phoenix bonds before the sixty days are up. Confidentially 1 was very uneasy; vyes, fairly sick, until the first payment was made, and I did not dare in any way to express an opinion to ‘Hunt on the cost of the works, because his broker would have sued me for breakin; the contract; therefore I told him I did not know the cost, which was true, as I never have learnt, I am very sorry the broker misrepresented to Hunt anymmgl about the works, for I think through him we might have sold many securities in the future. If I had known it I never should have permitted any false statement. Your loving brother, FRANK. FRANK RAISES HIMSELF TO AN AWFUL DIGNITY IN CRIME THE SECRET BOX. There remained but one more step for Frank McDonald, Dick McDonald and their father in their gigantic scheme of looting the People’'s and Pacific banks. That step was to rob the vaults. The Call publishes this morning the abso- lute record of that robbery. In the or- ganization of the Pacific Security Com- pany Frank McDonald, with the as- sistance of Attorney General W. H. H. Hart, formed a corporation through which the remaining valuable assets of the Pacific Bank were to be diverted from the bank and placed where they could be quickly obtained. In a letter of May 10 Frank McDonald instructed Dick how to incorporate this new com- pany. Dick was told to disguise the purposes of the concern from the public as far as possible. . Everything was to be kept secret. Dick was ordered to establish the head- quarters of the company in one of the rooms in the Pacific Bank buillding, known as the Mohawk room, and rep- resenting another crazy venture of which D. S. Dorn was the president and the McDonaids the suppliers of coin. In this room Dick was commanded to place a tin box containing $600,000 in valuable securities of the Pacific Bank and have the box in readiness to steal when the Pacific Bank went down. It i® possible that no such gigantic scheme of barefaced robbery was ever planned, and certainly never has been exposed in San Francisco before. Not satisfled with ruining the Pacific Bank, the brothers determined to take more of the hard earned dollars out of the Peo- ple’s Bank to give to their father, thou- sands of dollars in exchange for prop- erty that was not nearly worth what the old man’s thieving sons intended to demand. This letter, which establishes the guilt of the McDonalds, is as fol- lows: NEW YORK, May 10, 1893 My Dear Brother: I wrote you a lon; letter last night which I hope will reacl you in safety. Time is now so precious and I am deeply worried. I do not see how _we are to get by the 21st in safety for I do not see how I can get in any money. We are all at sea to know what to do or where to turn. I shall try the Park and some of those new banks, but I feel there is no hope with the market as it now stands. I never have felt so utterly without prospects. to ask of other banks for if it our present correspondents will reduce us still more and lose confidence. I send you herewith plans for forming the new trust company and inclose power of attorney from father, Edminster_and myself for you to represent us. Rush this thing ahead and telexrarh me when lete. I will have the company is com stocfi epared here and the seal made and will issue the stock as fast as the assets are turned over to the new com- pany. Have one tin box marked as the property of the Trust Company RK, May 4, 1893. My Dear Brother: I just wish to an- swer a few items in yours of the 28th ult. First in re?rd to the Alaska ou di possibly to the same a certain amount of unguaranteed stock. People will buy the guaranteed stock I suppose Coal Company. o not seem to for investment and the unguaran unders the situation at all and for speculation, but of this I really ovmentlly you have not read the agree- know nothing and do not concern ment. It makes no difference whether elf with it. They claim every- :.:num ra: vtve: plg.y 22" ‘:n 50 per g;l‘:t m: ng 18 ntrnéght mgt, ‘m.tdt}:n? %;vo mon t with us. w% are :;:k’:‘zg!on _togm che . Yous Wit 3 stockhi el; tr:!yteel of the money and X °¥Mm 3 ;tmtg them in ten et}uu lnstanmex):?s’. TOBRE ORI, one-tenth each year for ten years, we B laces, interost. . computid PEOPLE'S BANK. Eomi-annuaily, I believe, We are in no way concerned in the mine, have On May 9, 1893, Frank McDonald nothing to do with It. This arrange- | wrote a letter that reveals how he, his gfl"& e or it {,’1’: brother and his father shamelessly wishes t robbed the People's Bank to save the pany this contidential for you see they ssll_mo: Pacific Bank. The money that poor of their other stock teed and | derpositors pald into the People’s Bank CONSPIRACY OF FARNUM AND SHERMAN. THE SHAMELESS LOOTING OF THE | 1n the history of the ruin of the People’s Bank and the Pacific Bank there is no more significant fact then the collusive combination between J. B. Farnum and M. H. Sherman. Sherman placed Farnum in the People’s Bank as man- ager and then used Farnum to foist upon the People’s Bank the worthless sccurities in which Sherman was interested. The fac simile of a letter writ- ten by Frank V. McDonald illustrates clearly to what purposes Farnum was put and what part he was to play in the conspiracy that ruined the two banks. offer. Farnum would accept for money any security that Sherman chose to