The San Francisco Call. Newspaper, December 1, 1898, Page 1

- C0000000000%0000000000000000000000000 ~ < PRSI to be taken This Paper not | the Library.t++* from | D e /\ / ! SAN FRANCISCO, TH SHERMAN IS SU URSDAY, DECEMBER 1, 1898. ED FOR A PRICE FIVE CENTS. QUARTER OF A MILLION Pacific Bank at Last Demands ~ Restitution. ‘A MOST SENSATIONAL SUIT FILED !’_l‘he Great Conspirator Accused of Violating a Sacred Trust as the Agent of the Institution. been kept. CO0000000000C00000C000C0000000 Moses H. Sherman was sued by the Pacific Bank in the Superfor Court of this city yesterday for a quarter of a million dollars. The authorities of the Pacific Bank have at last begun legal actlon to make the great Los Angeles manipulator disgorge some of his ill- gotten gains and to force him to a res- titution of a part of the enormous sum | of money he obtained from the defunct | bank through his unexampled financial khavery. The sensational actlon which was| commenced vesterday in this city will| be prosecuted rapidly to a conclusion. The arch-conspirator who has been made defendant will be forced to.give an accounting of his conduct of the Los Angeles Electric Rallroad. The creditors and depositors of the Pacific Bank, If the suit against Sherman be successful, will recover dollar for dol- lar what had been stolen from them. | The institution of the suit against| Sherman is the direct result of the| startling expose which has been made by The Call. In denouncing the scoundrels who ruined the bank and in exploiting the true history of the conspiracy that brought destruction to the institution, The Call has supplied the evidence upon which the creditors base their legal action for restitution. Through the efforts of The Call the valuable property situated upon Market street in this city was shown to be a posses- sion of Dr. R. H. McDonald, against whom the statute of limitations has not run, and who may still be sued. This property has been seized by the credi- tors of the McDonald bank. The enor- mous landed estates of Dr. McDonald at Norfolk, Va., may also be attached, as The Call has proved that they be- long to Dr. McDonald. It has been shown that other valuable property is gubject to legal execution, and now Mo- ses H. Sherman must show why he shall not give up one quarter of a mil- lion dollars that he received from the bank and which the anthorities of the defunct - instttution how claim right- fully belongs to the creditors. The evi- dence upon which this claim is based has been kept for nearly six years a profound secret. There was a contract entered into be- tween Frank McDonald and Sherman by which the latter became a trustee for the McDonalds in the great Los Angeles Electric Rallroad. The history of this centract and of the measures dishonorably adopted by Sherman to evade the fulfillment of his obligation are of the greatest importance to the creditors. It has been claimed that the statute of limitations operated, but this Is not the fact, as the suit has been brought by attorneys who thor- oughly understand their business and are not engaged in the occupation of bringing useless suits. The action that vas instituted yesterday was brought y Denson, Oatman & Denson, acting for the Pacific Bank. The complaint promised to prove that something mor how property belonging to.the bank might be-discovered and restored to its rightful owners. continue the publication at this time. insftuted and others are threatenad. In keeping its projaisesto she whre property belonging to the institutions might e recoveréd, erty and the Norfolk land of Dr, R.. H. McDonald and the possessions of Moses H. Sherman. The Call has published, as far as justice to the creditors would permit, every detail that was necessary to assist the creditors in regaining their property. The Market street larid has already been attached by creditors of the bank. The Norfolk real estate has been proved.to be un- questionably the possession of Dr. McDonald, but conveniently held in the name of bogus corporations. A sensational suit against Moses H. Sherman has been begun and with the publication of that fact The Call concludes for the present its expose of the ruin of two of the greatest banks that ever existed on the Pacific Coast. was sworn. to and verified by H. G. Meyer, the president of the bank. Sher- man must now defend his ill-gotten gains and explain a remarkable series of incidents that marked his operations in the Los Angeles Electric Railroad. In the complaint of the Pacific Bank the history of the secret agreement be- tween the cashier of the institution and | It will | Sherman is set forth at length. be remembered that the Los Angeles Electric Railroad was incorporated in 1887 under the laws of the Territory of Arizona for $5,000,000. The incorpora- tion was made under these laws for the deliberate purpose of avoiding stock- holders’ liability. Sherman and the Mc- Donalds intended to make great profit out of the cable road in the southern city, and Sherman’s purpose was mnot only to ruin and then possess the cable road, but to bleed the Pacific Bank and every other corporation and individual that could be induced to enter-into his scheme. After the incorporaton of the railroad, B. O. Carr, the brother-in-law of Sher- man, was manager of the People’s Home Savings Bank, and in a variety of ways assisted Sherman to secure franchises from the Los Angeles Coun- cil and prevent the McDonalds from becoming uneasy. In 1889 Frank Mec- Donald, acting not in his individual capacity, but as cashier of the Pacific Bank, entered into an agreement with Sherman to pool 25,500 shares of the capital stock of the railroad. This pool was made in order that Sherman and the McDonalds might retain a control- ing interest in the railroad. The Pacific Rolling Mills had been induced to enter the scheme and Sherman was fearful that in the progress of the affair the control might be wiested from him. He therefore made his agreement with the McDonalds, scheming at that time not only to deceive the Pacific Rolling Mills and the capitalists inter- ested 1n this institution, but ultimately to force out the McDonalds and seize entirely for himself the control of the road. With these thoughts in his mind Sherman made his agreement with the Pacific Bank, and it is upon this agree- ment that H. G. Meyer, the president of the defunct institution, now declares that Sherman has cheated the Pacific Bank out of a quarter of a million dol- lars. When Frank McDonald and Sher- man made their agreement in 1889 they specifically provided that 51 per cent of the capital stock of the Los Angeles Rallroad, or 25,500 shares, should be voted by the representatives of the Pacific Bank and Moses H. Sher- man, under joint instruction from both. In case the two parties to the contract could not agree then the stock was to be voted by the person into whose hands it was placed in such a manner as to retain to Sherman and the Pa- cific Bank a control of the road. The pool was made for ten years and the agreement and the 25,500 shares of stock were placed in the hands of B. 0. Carr, the manager of th= People's Home Savings Brnk, snd the brother- in-law of Moses fi. Sherman. Under When The Call began its expose of the gigantic conspiracy that ruined the Pacific Bank and destroyed the People’s Home Savings Bank, this paper promised to prove that a gang of unscrupu nearly six years escaped publi¢ ‘condemnation and punishment were the real destroyers of the institutions. e substantial than this would be done and that the public would be shown where and The Call has shown that Moses H. Sherman was the head and front and the master spirit of the entire conspiracy. This man has proved himself to be in his own handwriting one of the most unscrupulous and dishonest men who ever operated in this State. He has proved himself to be a corrupter of public officials, a briber of private individuals and a manipulator of the most dangerous character. He has won out of the Pacific Bank and the People’s Home Savings Bank a tremendous fortune, and now the Pacific Bank demands at least a part of this fortune in restitution. The Call has shown the appalling manipulations of the thieving McDonalds, father and sons. The record shows how these sons .plunged into every wild scheme and deliberately robbed the men and women who had been deluded into confi- dence by the hypocrisy of the McDonalds. The association of every scheming sycophant who fed upon the McDonalds has been sufficiently exploited to justify The Call’s promise of exposure. While many of the most important letters written by these men have not been published, enough has been said to warrant the condemnation these parasites have received. In the interests of justice and for the sake of the depositors and creditors of the two ruined banks, The Call will not There is in justification of this course the fact that two very important suits haye been tashe creditors and the deposito-s erence is made particularly to the Market street prop- 0000000000000000000000000000000000000000 © | Carr was to act. There can be no ques- | tion that the agreement was perfectly i legal ~»A bound both parties. One- | half of the stock belonged to the Pacific Bank and, by the consent of that insti- tution, foolishly given, the other half belongs to Sherman. Yet this great manipulator cheated | the bankers out of their half and kept the whole for himself. The history of that financial knavery constitutes the evidence that will be submitted to the | Sunerior Court of this city to compel | Sherman to give up a yuarter of a mil- | lion dollars that the authorities of the bank insist does not belong to him, but to the creditors of the Pacific Bank. | Under the ecircumstances indicated | the Los Angeles Electric Rallroad cor- poration was organized. The Pacific Bank and Sherman having retained | fifty-one per cent of the stock, there remained for other uses forty-nine per | cent, which was distributed in a va- riety of ways and for a variety of rea- sons. There was influence to be bought and stock was given to purchase this influence. When the conspirators went to the Pacific Rolling Mills to demand large concessions thenamesof suchmen as A. N. Towne, R. H. Pratt, Samuel | Miller, J. T. Bass and J. M. C. Marble were shown as stockholders in the electric railroad. These men possessed power and standing, but they paid nothing for their stock. Later in tie development of the scheme it was shown that certain offi- cers of the Pacific Rolling Mills, such as L. B. Benchley, also possessed stock. These men were influential and Sher- man needed them in furthering his scheme. After the organization of the corporation and the issue of the bonds Sherman possessed an absolute control. Even then Frank McDonald vigorously objected to the high-handed proceed- ings of his associate, but his objections were in vain. At one time two boards of directors were in existence and ope- rating, but Sherman always won the| victory. He had the absolute disposition of the funds of the rallroad. He bought the site that the power house now stands on and paid for the purchase in bonds to Easton & Eldridge. In all the affairs, where money. was involved, Sherman was forced to account to no one. He bought land and extra cars and franchises and the reputation of men and he was responsible to no one but himself. After he had gained this tremendous power and had won a for- tune he determined to attack, and if possible ruin, the very men who had assisted him to give him power and money. Late in 1892 he was determined to is- sue new bonds and crowd the McDon- alds out of the road completely. To do this it was necessary for him to obg tain the stock which Frank McDonald as cashier of the Pacific Bank had. pooled with him. He went to New 1 York with the deliberate and dishonest purpose of getting more money out of lous gamblers and unprincipled thieves who had for The Call also Both of these promises have Af ke two anks ous venture in which - the banker had been cau~ht. While g‘e’:fif ing to crowd the McDonalds out alto- gether Sherman schemed also to make $50,000 more out of them, and he went 'to New York and made his cringing plea that more money was absolutely needed and he must obtain it or the road would go down. He represented the condition of affairs as most des- perate, and, as The Call has already described, he procured $50,000 more. He then began his gigantic scheme to keep for himself the money which the Pacific Bank now demands after a perfod of almost six years. In order to cheat Frank McDonald out of the stock that had been pooled Sherman declared that in order for him to continue the operation of the ele®ric railroad it would be necessary to assess the stock. This assertion immediately frightened Frank McDonald, who was doing every- thing in his power, even to the recourse of desperate measures, to retain money and not to give it up. He declared that it would be absolutely impossible for the Pacific Bank to pay such an enor- mous assessment at-that time. Sherman shiugged his shoulders and declared that the young banker could take the cohsequences. Having fright- ened Frank McDonald to the degree he wished, Sherman proposed his two schemes which the Pacific Bank now declares was a most outrageous fraud. Frank was told by Sherman that a wealthy relative had agreed to loan the Los Angeles Electric Railroad Company $150,000 on the sfock. Frank was de- lighted with this proposition, as it seemed to clear the way for the dis- tressed bank. No more money certain- ly would have to be paid out at that time and Frank's only regret was that Sherman could ®ot obtain more money and give some to the bank. As a mat- ter of fact Sherman did not have a lender for any of the stock and did not expect to meet one. He knew of no one who ‘wished to loan money on such se- curity, but he was scheming, craftily, to get from Frank McDonald the 25,500 shares tha} had hoan ~noled by the two great parties to the contract. ‘When Sherman declared that he had a person who would loan this enormous sum of moneyv he added that as a mat- ter of course the stock -would have to be placed iw pledge with the lender of the money. Frank accepted the schem- er’s bait and telegraphed to B. O. Carr to send on to the National Park Bank of New York the fifty-one per cent of the stock which the Pacific Bank and Moses H. Sherman held in joint inter- est. Sherman was progressing with his customary good luck. The stock and the agreement of the pool were sent on to New York and Sherman dis- covered, thgough legal advice, that his title to all of the fifty-one per cent of stock did not belong to him because of the'secret contract that had been made with the Pacific Bank through its cashier, Frank V. McDonald. 5 ooOOOOOOOOQ‘”QOOOOOOOOOOOOOOOOOOOOOOO { i st i M. H. SHERMAN, THE MASTER SPIRIT OF THE CONSPIRACY The sensational and startling expose of the secret history of the Pacific Bank reached a climax yesterday when suit was filed by the Pacific Bank against Moses H. Sherman to recover one-quarter of a million dollars. The Pacific Bank as a corporation and through its president, H. G. Meyer, alleges that Sherman has violated an important trust in which he was to give the Pacific Bank one-half of 51 per cent of stock of the Los Angeles Electric Railroad. It is asserted that Sherman appropriated all of the stock to his own use and now has disposed of it for five hundred thousand dollars. The Pacific Bank, therefore, demands that une-half of this sum belonging to it shall be restored. interest it would be necessary for both of them to sign a joint note and thus commit the bank again. Rather than sign such a note Frank McDonald agreed to turn over all of the 25500 shares to Sherman. When the wily conspirator had carried his point he did not tarry long in New York. He was soon on his way back to California to -complete his arrangements for his new bond deal in which he wisied to force the McDonalds out of the ‘corpo- ration. The McDonalds had not dis- covered a single trick of the great schemer. ‘While Sherman was in New York and was showing Frank McDonald how ab- solutely necessary it was to obtain all ~of the stock that had been pooled the arch-conspirator was . far-seeing. He secured from Frank McDonald a nomi- nal bill of sale for his half of the stock. McDenald gave this bill of sale under several distinct understandings. He bellieved, because Sherman so repre- senged to him, that there was a chance of securing a bona-fide loan with this stock as security. That assertion on the part of Sherman was a falsehood. Frank McDonald then believed that if he did not give a nominal bill of sale he would have to sign his name to a Joint note with Sherman. The young banker protested against this, and Sherman declared that in consideration of the fact that Frank McDonald gave to him this nominal bill of sale ' Sher- man would sign the note himself, pledge the entire 25,500 shares of stock, receive the loan of $150,000 and place the mohey to the advantage of the Los Angeles Electric Railroad. All of these assertions and promises were absolute falsehoods. Sherman's only scheme was to obtain possession of the stock in order that he might make a new bond issue for his road and clean the McDonalds out. This is the gigantic fraud upon which the Pacific Bank will now base its de- mand for restitution of a quarter of a million dollars. The correspondence and the other collateral evidences of Sher- man’s deceit will be produced in evi- dence, and it will be shown that the great schemer received this nominal bill of sale that gave him another great for- tune under the grossest misrepresenta- tion. As already indicated, when he had obtained the 25,500 shares of stock and Frank V. McDonald’s nominal bill of sale, Sherman left New York and hur- ried on his way to this city to complete his plot and issue his new bonds. As usual, he was successful in his machin- ations. 3 A new bond issue was made of $3,000,- 000, ~vith $250,000 on the side, ostensibly for the improvement of the road. The company in this gigantic conspiracy was even to change its name. From being the Los Angeles Consolidated Electric Railroad Company it was to become the Los Angeles Railroad Com- pany. Under the new deal Sherman had a great many influences to control. There was considerable dissatisfaction Sherman informed the young banker ! with his management of the road. It the conditions named in _the agreement, thu_ McDon.ld.' to support the danger- that as each of them possessed & half- a5 sald that he had not acted fairly with the bondholders and there WEEI some 'suggestion of a change of man- agement. Sherman propitiated the va- rious interests and was equal to every emergency that presented itself. He de- clared that he would 'surrender the con- trolling interest in the road and would give .over: for distribution among the bondholders 51 per cent of the stock. If he would do this in good faith the bondholders would then control the | road, elect its directors, choose its man- agers and supervise the expenditure of its funds; but Sherman, as usual, was deceiving. Under the terms of his own agreement he was to retain 49 per cent of the stock and thus be in an apparent minority. As a matter of fact, how- ever, under the terms of this agree- ment, which was accepted, Sherman succeeded in still retaining 51 per cent of the stock, and consequently a control of the railroad. As a stockholder he held 49 per cent of the stock, and as a bondholder he was entitled to 2 per cent on the terms of distribution among bondholders, which he had proposed, and the men with whom he was dealing had accepted. It was not until after the first board of directors was chosen that the shrewd financiers understood the knavery of Moses H. Sherman. When this board of directors was elected it was found that six of the nine members represented the interests of Moses H. Sherman. This was one of the cleverest and craftiest schemes that Sherman ever accomplished in his manipulation of the Los Angeles Electric Railroad, and in its accomplishment he went even further than has already been indi- cated. He received from the men he had duped $40,000 as a bonus for bring- ing ~about the reorganization of the company and for fooling the bond- holders into a belief that he had given up to’'them the control of the road. In outline this is the history of the great scheme by .which theé Pacific Bank now claims that Moses H. Sher- man cheated its creditors out of one- half of 51 per cent of the capital stock of the electric railroad. The bank as- serts that during all these proceedings and in all these transactions Sherman was acting as the trustee of the Pacific Bank and not in his individual capa ity. The president of the bank, in th complaint which was filed yesterday, declares that Sherman has violated this trust and had since disposed of the pooled stock interests for $500,000. The bank therefore sues for an ac counting and for $250,000. The com- plaint in which these various allega- tions are made is an interesting docu- ment and is given in full, as follows: LEGAL SUMMONS FOR SHERMAN TO DISGORGE In the Superior Court of the City and County of San Francisco, State of California. Pacific Bank (a corporation), Plaintift, vs. Moses H. Sherman, Defendant. § o3 | above named defendant this plaintifft avers: That this plaintiff is and at all the times’ hereafter mentfoned or referred to, was a corporation duly organized and existing . under the laws of the State of California, and as such had the legal right to transact business in said State. x 1L That on or about the first day of Oo tober, A. D. 1889, this plaintiff and the sald.defendant were together the equal owners of 25,500 shares of the capital stoek of the Los Angeles Consolidated Electric Rallway-Company, & corpora- tion duly organized and existing under the laws of the Térritory of Arizona, which said 25,500 shares of capital stock was of a par value of $2,550,000 and constituted fifty-one per cent of the whole of the capital stock of sald last named corporation. That for the purpose of securing and maintaining control -and management of the affairs of the said Los Angeles Consolidated Electric Railway Com- pany, this plaintif and said defend- ant made an agreement whereby the said 25,500 shares of said capital stock were placed in the hands of one B. O. Carr, a brother-in-law of said defend- ant, to be by him, the said Carr, held and voted in and for the interests of this plaintiff and said defendant, for & term of ten years. I That on or about the 1st day of No- vember, 1892, and while the said shares of stock were so held, the said defend- ant represented .to the officers and agents of this plaintift that the sald Los Angeles Consolidated Railway Company was in financial distress and required money, although a large in- debtedness of said company had al- ready been created, and bonds there- for had been issued, and although this plaintiff had, prior &3‘ that time, ad- vanced to the sald ilway Company more than $300,000 for the purpose of construeting and carrying on its works and operations; and further represented that it would be necessary - to levy an assesment on the stock of said ‘Railway Company in order to meet its llabllities and expenses unless some other arrangement could be made, and in order to avoid the neces- sity of so levying and collecting an as- sessment said defendant represented and stated to this plaintiff that he, the said defendant, had a friend, whose name was not glven, who would advance and loan the necessary mon- eys, to wit: the sum of one hundred and fifty thousand dollars, to relieve the, necessities of said Railway Com- pany and would hold the said 25,500 shares of stock so belonging to plain- tiff and defendant as collateral secur- ity for the advances so to be made and that when such advances should be re- aid out of the earnings of the said ilway Company or otherwise, that said shares of stock should and would be returned to this plaintiff or its trus- tee as aforesaid, and upon such repre- sentations the defendant procured and induced the agent of this plaintiff to surrender and deliver to him, said de- fendant, the whole of the sald 25,500 shares of said capital stock. Said defendant did not hypothecate. the said shares as he a8 Pro-y, posed as aforesaid, and did not borrow any money thereon or otherwise to re- leve the necessities of said rallway corporation, but simply by the means aforesaid obtained thepossession of the said 25,500 shares of stock for his own uses. and purposes and with intent to defraud and cheat this plaintiff out of its interest therein and share thereof. And this plaintiff avers that the sald defendant btBcame and was and is the trustee of this plaintiff of and for ite. sald one-half interest of, in and to the said 25,500 shares of stock and he has ever since held, managed and con- trolled the same until on or about the st day of August, A. D. 184, when sald defendant exchanged the said 25, 500 shares of stock for other stocks and obligations which he, the said t fendant Qs this plainti® is