New York Times, June 16, 1910, pages 1-2:
GOVERNMENT RAIDS UNITED WIRELESS
President and First Vice President Arrested on Charges of Using the Mails to Defraud.
THIRD MAN IS LOCKED-UP
Head of Stock-Selling Agency Also Involved in the Charges -- Heavy Losses for Stockholders.
Acting under directions from Washington, Post Office Inspectors, headed by Chief Inspector Walter S. Mayer, raided the luxurious offices at the United Wireless Telegraph Company at 42 Broadway just after noon yesterday and arrested the President, Col. Christopher Columbus Wilson, and its First Vice President, Samuel S. Bogart. They were taken before United States Commissioner Shields, arraigned on a charge of using the mails to defraud, and later released under heavy bail.
About the same time a Deputy Marshal went to Mahopac Falls, Putnam County, N. Y., and arrested William W. Tompkins, President of the New York Selling Agency of 18 Broadway, which handles the stock and advertisements of United Wireless. He reached New York at 5:30 o'clock, too late to obtain bail, and was locked up in the Tombs. The complaint against him is the same as in the other cases, and the hearing at all three was set down for July 12 at 2 P. M. before Commissioner Shields.
The raid on the concern and the arrests caused great excitement in Wall Street, for the United Wireless Company had recently been sending out reams of literature extolling its marvelous growth and its impregnable financial condition. The news of the company's troubles, however, will cause the greatest concern through the West, where the largest amount of the stock was sold.
Big Swindle, They Say.
Behind the bare charge of using the mails for fraudulent purposes the Post Office authorities assert that the men under arrest conducted one of the most gigantic schemes to defraud investors that has ever been unearthed in this country. It is alleged that the company was formed for the purpose of selling worthless stock; that its claim of possessing more than $14,000,000 worth of assets is wholly false, and that the stock has steadily decreased in value because the business has been a losing one.
At the same time it is alleged that some of the officers of the company have become enormously wealthy, that price of the stock has been advanced a score of times, starting at $1.50 and recently selling as high as $50 a share. The par value of the stock at present is $10 a share. It is further alleged that the officers had a simple method of keeping all the stock to themselves in order to dispose of it as they saw fit, by allowing it to have no market value for outsiders through refusing to make it exchangeable on the stock books of the company.
While the inside officers of the company were privileged to sell their stock, all of the outside purchasers were required to accept stock certificates stamped "Not transferrable until Feb. 11, 1911." The alleged variation of the stock, it is said, was raised from time to time by arbitrary methods on the representation that the business was growing with extraordinary rapidity. These extravagant representations, it is said, were used to keep the stockholders satisfied. Altogether there are about 28,000 stockholders, scattered principally through the West. According to the Post Office authorities, these stockholders stand to lose upward of $20,000,000.
The Arrests Made.
Chief Inspector Mayer and Inspectors Carter G. Keene and Frank O'Brien went to the offices of the company about 1 o'clock in the afternoon. They were armed with warrants Commissioner Shields had issued several weeks ago, when Assistant District Attorney Stevenson represented that the affairs of the company had been under investigation for more than a year.
Wilson and Bogart, who are both past middle age, accompanied the inspectors to the Federal Building. When arraigned before Commissioner Shields Arthur W. King said he appeared as Wilson's personal counsel, as well as legal representative for the firm, and Samuel Bogart, a son of the man under arrest, appeared for his father. Francis X. Butler is attorney of record for the company.
Assistant District Attorney Stevenson asked that Wilson's bail be fixed at $50,000, and Bogart's at $25,000. After some argument Commissioner Shields fixed bail for Wilson at $25,000, and at $10,000 for Bogart. The National Surety Company went on the former's bond, while John M. Robinson of Tea Neck, N. J., furnished the security for Bogart. He put up property in Madison Avenue valued, he said, at $300,000. As soon as they were at liberty both Wilson and Bogart hurried away without making any statement.
Tompkins was found on his farm at Mahopac Falls by Deputy United States Marshal Grum. Commissioner Shields fixed his bail at $10,000, and Tompkins immediately called up his lawyer. E. B. Wilson, by telephone. After a short talk he informed the Commissioner that it would be impossible to get bail at such a late hour, so he had to go to the Tombs. Meantime Deputy United States Marshals went to the Broadway offices of the company in automobiles and carted away two loads of books and papers, which were turned over to the United States District Attorney.
The company has a branch office at 45 Montgomery Street, Jersey City, and a subpoena was served there on Arthur C. Fike, the manager. He also brought over a load of office books to the Federal Building. It is expected that the Federal Grand Jury will take up the case to-day. The section in the United States Criminal Code which covers the complaint provides for a punishment of five years' imprisonment or $1,000 fine or both, on each count.
Stock Sold Everywhere
Chief Inspector Mayer said after the arrests that the investigation of the affairs of the company had taken his men all over the United States. It showed, he said, that the company was the outgrowth of the Amalgamated Wireless Securities Company, which was organized under the laws of Maine on Dec. 6, 1904. In November, 1906, this name was changed to United Wireless Telegraph Company and in the following February the capitalization was increased from 1,000,000 shares at $10 a share, par value, to 2,000,000 shares at the par value, 1,000,000 preferred and 1,000,000 common.
The original company had merely a legal existence until Nov. 17, 1906. About that time active arrangements were instituted to put the company into operation for the purpose of making it the successor to the defunct American De Forest Wireless Telegraph Company. It was the plan of the officers, according to Inspector Mayer, to institute a gigantic stock manipulation plan. One of the instruments used, he said, was the Greater New York Security Company, a concern without any financial stability and merely a trade name.
It is alleged that the officers of the American De Forest Company planned to abandon their company because it was encumbered with debts and running at a loss. It had an authorized capital of 350,000 shares of preferred and 1,150,000 shares of common, par value $10, with bonds based upon the entire assets of the concern to the amount of $500,000. A vast amount of preferred stock was sold to the public, also substantially the entire bond issue.
The company advertised extensively that it had a large and profitable commercial business, that it had a large number of wireless stations in operation, that it had contracts with many steamship lines, and that it had factories for the manufacture of wireless equipment. About this time Thomas H. Hubbard procured a judgment for $15,000 against the firm and others got judgements, amounting in all to $40,000. All the patents of the company were sold for $750. The other securities, it is said, were practically worthless.
Shifting of Assets.
In 1906 the American De Forest Company placed all of its assets in care of the Greater New York Security Company and undertook, as trustee, to carry out the provisions of the bonds. It accepted a large block of common or "promotion" stock, which cost the officers practically nothing. Another concern that it is said was used in manipulating the De Forest stock was the International Loan and Investment Company of Denver. This concern, it is said, was also without financial standing and capital and was used merely as a trade name. It was owned by one of the manipulators. Its entire business, it is said, was conducted by a girl.
Abraham White, known as the postage stamp bidder because he made a fortune out of the sale of Government bonds which he procured for a mere postage stamp, was President of the American De Forest Company. He owned 15,000,000 shares of stock, but turned this over to Wilson, who was active in the promotion of the United Wireless Company, for, it is said, $25,000, and later withdrew from the new concern.
The United Wireless Company professed to have for its sole object the combining of all the wireless telegraph companies, including the Marconi Company, and in its early literature it announced that it had procured practically a controlling interest in all such companies, and that it had a large holding in the Marconi Company. Although White asserted that the new concern had holdings in the Marconi Company, this was afterward found to be untrue.
For a short time the stockholders in the defunct American De Forest Company had an offer from the United Company to exchange their stock on a ten for one basis. At that very time, it is said, the officers who were holding big blocks of stock in the De Forest were exchanging their own stock share for share. Soon after this the officers raised the price of the United stock and declined to accept any more exchange from the holders of the De Forest stock except at $10 premium or more per share.
An Advertising Campaign.
The United Company then, it is said, started a big advertising campaign to sell its stock all over the country, particularly through the West. The New York Selling Agency had charge of this end of the work. The company also worked through the International Loan and Investing Company of Denver, of which Wilson was practically the head. George H. Parker of Seattle, Wash., handled the business on the Pacific Coast. He is said to be worth $1,800,000 and his estate is one of the finest in the Far West.
As the result of the advertising campaign the company carried on, the United Wireless Company soon became well known. Its Executive Committee met at regular intervals and arbitrarily increased the price of its stock, jumping it from $12.50 to $15, to $25, to $35, and so on up to $50. Little attempt, it is said, was made to develop its property. The company had several land stations and a considerable number of ships were equipped with wireless outfits.
In the statement issued to its stockholders on Dec. 31, 1909, it was stated that there was a surplus of $6,882,329, when as a matter of fact, it is said, the company had not made its operating expenses the year before.
"There was no possible analogy between the value of the stock quoted to the public and the real income of the company," said Inspector Mayer. Whenever a new contract was obtained from a ship or line of ships the stock would be increased $5 a share. Reckoning it on the total stock issue of the company, both common and preferred, it would mean an increase of $100,000,000 to the value of the property, when in fact the property had not appreciated at all because the wireless business with ships was not paying. Yet these increases continued for some twenty times until the present month. The last price given by the company was $50 a share, thus making the total value of the stock $1,000,000,000.
"The real assets of the company consist of land stations, patents, manufacturing plants, and real estate. A conservative estimate would be about $400,000, or an actual worth of 2 cents a share par value. The last quotation for the stock was at $50 a share.
The Public Caught.
"The officers of the company have sold to the public thousands of shares, asserting all the time that they were holding their shares and putting the money received from the public into the plants of the company. One of the officers is believed to have cleaned up $5,000,000 at $10 a share, and possibly $10,000,000 at the ranging prices of $10 to $50. The other officers of lesser degree have profited in proportion.
"There are 28,000 stockholders throughout the country, many of whom have placed their savings in the stock of the company through false representations that have been made by its officers. A portion of the business has been done by soliciting agents in a house-to-house canvass, but the greater part of the stock selling has been done by the use of the mails, either through newspaper advertising or circulars."
The art with which Wilson was able to satisfy any complaint of the stockholders, many of whom became suspicious from time to time, is said to have been marvelous. At a meeting of the Board of Directors on April 16 Wilson made a speech in which he magnanimously announced that he intended to turn over to the company a large block of common stock which he had procured by exchange for stock and bonds of other wireless companies. He said he didn't have to do it, but the company was getting along so nicely that he was willing to make the sacrifice. The amount he turned over he said was 400,000 shares, worth in all $4,000,000. This generosity affected the Directors almost to tears. The Rev. D. J. Starr, a clergyman of Columbus, Ohio, and a Director, offered a resolution thanking Wilson in the highest terms for his magnanimity. A copy of this resolution, nicely engrossed, was mailed to all the stockholders.
"This investigation," said Lawyer King when his clients were finally freed on bail, has been going on actively for three months and tentatively for a year. Post Office Inspectors have been holding up the company's mail in Western cities. The officers of the company acquired their stock by salary and purchase. The charges against my clients were filed here by disgruntled stockholders, who acquired some of the stock illegally. When they desired to transfer it, transfer was refused on the grounds that no return for it had been paid into the company.
Gruber Took a Hand.
The information on which the complaint was based was obtained by Col. Abraham Gruber, who acted for several outside stockholders. He wrote a letter to the Post Office Inspector, charging fraud, and linked the name of the New York Selling Agency to that of the wireless company. As a matter of fact, the agency sent out advertisements about the company that were not authorized by the company. The New York Selling Agency is now out of existence. Two months ago the United Wireless Company deemed it unsafe to do business with it and abrogated its contract with the concern."
"Was Wilson the controlling factor in the Selling Agency?" Mr. King was asked.
"I don't care to answer any questions now," he replied. He also said he did not believe the investigation was started by Attorney General Wickersham.
"Any statement alleging irregularity, fraud, or crookedness on the part of either Wilson or Bogart is false," said Mr. King with emphasis. "I don't care to answer in detail the allegations of the complaint at this time, but I will have something to say later."
Col. Gruber would not deny that he was acting in the interests of stockholders. He refused to discuss the matter in any way. C. C. Galbraith, General Manager of the United Wireless Company, said that the action of the Federal authorities would in no way affect the commercial business of the company.
"The interests of this company are too widespread for us to fear any obstacle being placed in the way of its development," said Galbraith. "It is only necessary to glance at the list of ship and shore stations on both coasts of the United States owned and operated by this company to convince any one that we are too firmly intrenched in the business of. transmitting wireless messages to fear serious trouble from any source."
Wilson came to New York about three years ago. He is 65 years old and was born in the South. He is said to own a valuable mine in Colorado, besides having an interest in several manufacturing concerns, including the May Development Company, a concern organized by him for the purpose of exploiting a new type of street car run by gasoline. He lives at the Waldorf-Astoria. Bogart lives at Dumond, N. J.