New York Times, November 22, 1910, pages 1-2:
POSTAL RAIDS SHOW VAST STOCK FRAUDS
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Officers of Burr Bros. and Continental Wireless Co. Arrested in War on Swindling Concerns.
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FOUR MEN GO TO THE TOMBS
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Postmaster General Says He Has Closed Concerns That Have Robbed the Public of $100,000,000.
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Post Office Inspectors and city detectives raided the offices of two of the largest sales agencies of unlisted stock in this city yesterday, arresting four men whose names are prominently identified with the distribution of stock in oil companies, wireless concerns, mining and other enterprises in which investors throughout the country have placed many millions of dollars in the last few years.
When the two raids were over and the four prisoners were safely in the Tombs for lack of $10,000 bail each, Postmaster General Hitchcock announced that the arrests were only incidental in a crusade which has been started by the Post Office Department, with the approval of President Taft and Attorney General Wickersham, to wipe out swindling operations through the mails, which in the last five years, says Mr. Hitchcock, have filched from the public more than $100,000,000.
Since the crusade began, says the Postmaster General, seventy-eight cases in which the postal authorities have uncovered fraud in the sale of fake or worthless stock have been unearthed by the Government's investigators. The arrests yesterday only herald others of a similar nature which are to be made here and elsewhere in the next few days, Federal warrants having already been issued for a large number of men whose names have appeared on the prospectuses of questionable stock concerns.
Three Arrests Made.
The first of yesterday's raids was on the offices of Burr Brothers, on the second floor of the Flatiron Building. Three members of the firm were arrested, charged with using the malls for fraudulent purposes. They were Sheldon C. Burr, President; Eugene H. Burr, Secretary and Treasurer, and Frank H. Tobey, Vice President. The Post Office authorities allege that Burr Brothers, in the three years since their incorporation, have disposed of nearly $50,000,000 in stock, selling it far below par in many instances, and taking in anywhere from $13,000,000 to $15,000,00 actual cash. The prisoners were arraigned before Commissioner Shields and held under $10,000 bail each. Their case is now before the Grand Jury, and action from that body is expected to-day.
The second raid was made late in the afternoon on the offices of the Continental Wireless Telephone and Telegraph Company, a $5,000,000 holding concern, and several of its kindred companies, at 56 Pine Street. Charles L. Vaughan, Treasurer of the wireless concern and of the Columbia Finance Corporation, the fiscal agent of the Continental and several other wireless enterprises consolidated with the Continental, was arrested, charged with using the mails to defraud. He, too, was arraigned before Commissioner Shields, held under $10,000 bail, and hustled off to the Tombs.
Not long after the four prisoners were safely out of the way Mr. Hitchcock, who came on from Washington several days ago to supervise the raids and others in prospect, made the announcement which gave an idea of the vast scope of the transactions carried on by the men under arrest.
Hitchcock's Statement.
"The arrest by Post Office Inspectors of the principals in two important companies, Burr Brothers, with offices in the Flatiron Building, and the Continental Wireless Company, with headquarters at 56 Pine Street, constitute two more cases in the series of investigations that the postal authorities have been making in their crusade against the fraudulent use of the United States mails," said the Postmaster General. "With the work accomplished to-day, seventy-eight such cases have been brought to a head during the year. It is estimated that the swindling operations of these seventy-eight cases have filched from the American people in a period of five years more than $100,000,000.
"The crusade now in progress is the result of a carefully laid plan of some months ago, the first step in which was a thorough reorganization of the Inspection Service, with the selection of a new Chief Post Office Inspector and certain changes and reassignments in the force of Inspectors in charge of the fifteen inspection divisions.
"As the work of investigation proceeded, it became apparent that the fraudulent use of mails was far more extensive than had been realized by the department. A vast system of fraud as far reaching in its ramifications as the postal service itself had been developed by unscrupulous men who, through the grossest forms of misrepresentation, were stealing from the people millions of dollars annually. These fraudulent operations have not only swindled thousands of innocent investors, but have created a lack of confidence in legitimate business enterprises. It is therefore as important to the business community to have these frauds stopped as it is to the people whose losses are directly traceable to them.
"Formerly the procedure in such fraud cases was to issue a fraud order against the guilty concern. This method proved to be ineffective; while it deprived the offending concern of the use of the mails, it was a simple matter for its promoters to reorganize under a new name and thus evade the law."
Ready for a Raid.
Accompanied by Robert S. Sharp, Chief of the Postal Inspectors, Mr. Hitchcock came to New York last Friday and at once went into conference with Warren W. Dixon, Chief Inspector of the New York District. The three officials outlined their campaign, and the details had all been arranged yesterday morning. Inspectors Elmer Kincaid, T. M. Reddy, and E. C. Booth, accompanied by Detectives McMillan, Murphy, and John H. Flood of Third Deputy Police Commissioner Flynn's staff, reached the offices of Burr Brothers in the Flatiron Building about 10:30 A. M. They found there a luxurious suite of offices, in which some thirty or more stenographers, clerks, and others were at work.
Several dozen customers, among them a few women, were in the suite, some of them discussing investment matters with E. H. Burr and Vice President Tobey. Inspector Kincaid told Burr that they were there to see all the members of the firm, and asked where he could find S. C. Burr, the President.
"Oh, he's down in the barber shop," replied Treasurer Burr.
Kincaid and McMillan started for the door, leaving the two other Inspectors and the two detectives to guard Burr and Tobey. Just as Kincaid opened the door Burr called to him.
"See here, you will find my brother, I guess, at the Christian Science parlor around the corner."
He explained that he meant the office of Mrs. Mary K. Farnsworth in the Mohawk Building at 160 Fifth Avenue. Kincaid and McMillan hastened there. Mrs. Farnsworth met them at the door and admitted that Burr was inside. He had just been reading one of the Christian Science textbooks with her, explained Mrs. Farnsworth.
Into her office went Kincaid and McMillan. There sat Burr with a copy of the Christian Science textbook in his hands. He was arrested and taken back to the Flatiron Building. There Treasurer Burr and Vice President Tobey were arrested. Immediately there was an uproar in the place. The employees, most of them women, crowded around, and two of the stenographers began to scream. Several or the firm's customers hastened away.
The Burr brothers and Tobey were taken to Police Headquarters and later to the Federal Building, where, after a preliminary arraignment before Commissioner Shields, they were locked up in Marshal Henkel's detention room. Not Long after this Moses H. Grossman, a lawyer, appeared and said that he had been called in by the law firm of Wilbur, Norman & Kahn of 299 Broadway to represent the Burr brothers and Tobey. At 4 o'clock in the afternoon he and his three clients appeared again before Commissioner Shields, and at that time the bail was fixed.
A lot of cameras were trained on the three men and several flash lights were made before Commissioner Shields objected and ordered the camera squad out of the room.
Shortly before the Burr brothers and Tobey started for the Tombs a dozen men and twenty women, all employes of Burr Brothers, went before the Grand Jury.
The company started as a co-partnership concern in 1907 under the laws of Connecticut, with a capital of $100,000. This capital in the last year was increased to $300,000, and a large amount of the stock was sold to the public. The company has been paying a dividend of 1 per cent, monthly.
According to the Postal authorities Burr Brothers have recently been advertising the stock of the Buick Oil Company, a $5,000,000 corporation. The Burrs and their associates have also organized these oil companies: The Coalinga Consolidated, capitalized at $1,000,000: Coalinga Aladdin, $1,000,000; Kern-Western, $750,000; New York-Coalinga, $500,0; Coalinga Crude Oil, $4,000,000, and People's Associated Oil Company, $1,000,000. The inspectors say that the stock of these companies has been sold, with the exception of a portion of the first two named. They say that most of the money has gone into the hands of Burr Brothers.
In a statement given out from the office of the Chief Post Office Inspector yesterday it appears that Burr Brothers have also organized, promoted, and sold stock in the following mining companies: Rawhide Tarantula, capitalized at $1,000,000; Montezuma Mining and Smelting, $1,000,000; Montezuma Extension Gold Mining, $1,000,000, and the Golden Fleece Mining, Milling and Refining Company, $500,000.
"Practically the entire stock in these companies has been sold to the public, and at the present time all these companies have gone out of business," says the statement.
Some of the other companies organized and promoted and of which stock has been sold by Burr Brothers are the Ellsmere Farm of Michigan, the California Eucalyptus Timber Company, capitalized at $1,000,000, and the New Amsterdam Securities Company, capitalized at $100,000, and later merged with Burr Brothers, Inc.
According to the Post Office authorities the following companies, of which Burr Brothers sold large amounts of stock, and which are now out of existence, are: The Red Top Mining and Leasing Company, capitalized at $1,000,000; Long Beach, Mexico, and Arizona Mining Company, capitalized at $1,500,000; Nevada Goldfield Mining, Milling and Smelting Company capitalized at $5,000,000; United Standard Lead and Zinc, capitalized at $1,000,000; Florence Consolidated Mining and Leasing Company, capitalized at $1,000,000; Round Mountain Central Mining Company, capitalized at $1,000,000; Cobalt-Portage Mine Company, capitalized at $1,000,000; British-American Copper Mines and Smelter Company, capitalized at $5,000,000; Arizona Copper Gold Mines Company, capitalized at $1,500,000; Searchlight Canina Gold Mining Company, capitalized at $1,000,000; Holcomb Automatic Engine Company, capitalized at $500,000, and the Cotton Wood Copper Company, capitalized at $1,000,000.
Still other companies in which they have sold stock are the Happy Jack Copper Mining and Developing Company, capitalized at $500,000; Yukon Basin Gold Dredging Company, capitalized at $1,000,000; Toledo, Wabash & St. Louis Railroad, capitalized at $6,000,000, and the Chicago-New York Electric Air Line Railroad capitalized at $2,000,000, in connection with the Co-operative Construction Company, capitalized at $1,000,000.
One other company, the Vitak Company, a million-dollar corporation now in the hands of a receiver, also disposed of its stock through Burr Brothers, who have also been selling lots at Lincoln, N. J.
"It can safely be said," continues the statement from the Post Office Department, "that they sold stock at par value of from $40,000,000 to $50,000,000 in the various companies. During the past Summer they were driven out of California by the State authorities. In every instance they have promised large dividends on the stock sold, in addition to an increase in the value of the stock, but in not a single case have any of the companies paid any dividends, and practically all have been complete failures. The department has received hundreds of complaints from people who have bought this stock and lost their money."
This complaint on which the warrants were issued for the arrest of the Burr Brothers and Tobey was made by Inspector Kincaid, and states that on March 30, 1910, Burr Brothers "devised a scheme to defraud Joseph Lovelace of Charlestown, Mass., and others, whose names and addresses are at present unknown."
The stock purchased by Lovelace, according to the complaint, was of the Coalinga-Aladdin Oil Company. It is stated that Burr Brothers represented that the oil company was an assured success and that its oil well was producing 5,000 barrels a month. It further states that Lovelace, from his own information and from official investigation, believes the statements contained in letters mailed by Burr Brothers were false and fraudulent.
It was also announced that two other men are connected with Burr Brothers. They are E. Wesley Preston and C. H. Tobey, both of whom are said to be in the West. Representatives of the Post Office Department were trying to find them last night.
All the books and other documents of Burr Brothers were seized by the Post Office authorities and will be removed to the Federal Building. Yesterday afternoon while Inspector Reddy was in the Office of Burr Brothers, there came a long-distance call on the telephone for S. C. Burr. The man at the other end announced that he was David Buick, head of the Buick Oil Company and that he was at Flint, Mich.
"What's all this that I hear about Burr Brothers getting into trouble?" he asked. Inspector Reddy told him. Mr. Buick asked that a telegram be sent to him at once telling what had happened and stating whether the Buick Oil Company had been drawn into the matter in any way.
"I'm not here to send you any telegrams," said Inspector Reddy. "If you want information you had better come here and get it."
A little later another long-distance message came from Ben Leven, in Chicago. He was one of the incorporators of the Buick Oil Company, and wanted to know what had happened. He said he would be in New York to-day.
The investigation of the Continental Wireless Telephone and Telegraph Company went further than that of Burr Brothers and the companies whose stock Burr Brothers had been selling. Owing to the large number of companies, wireless and otherwise, involved, eight Post Office Inspectors from districts other than New York were assigned to the case, and their investigations led them as far west as the Pacific Coast. They worked in conjunction with the New York Inspectors. The out-of-town Inspectors were Birdseye of the Cincinnati Division, Enterman of the Philadelphia Division, Greenway of Chattanooga, Gregory of Atlanta, Keene of Washington, Robinson of Boston, Simmons of St. Paul, and Wayland of Spokane.
Several of the Inspectors, accompanied by Headquarters detectives, arrived at the Pine Street offices of the Continental just before dusk. There they found Treasurer Vaughan. No other officials were in sight. The Inspectors learned that Vaughan was the only official who had been there for several weeks, the main business of selling stock having been taken over by the Columbia Finance Corporation.
Forty mail sacks full of letters, books, and other documents were seized by the Inspectors, who also learned that 100,000 circulars had recently been sent out in one day's mail.
It was after dark when Vaughan and the Inspectors reached Commissioner Shield's office. It was there learned that the warrant had been issued on complaint of Walter N. Altman of Topeka, Kan. It was charged that on June 4, 1910, Vaughan "devised a scheme or artifice to defraud" Altman and others "by falsely representing" that the Continental Wireless Telephone and Telegraph Company was organized to operate, develop, and control various wireless concerns in this country and of having made statements concerning the earning capacity of these concerns which were considered false.
Vaughan was not represented by counsel. His bail was fixed at $10,000 and he was hustled away.
The Continental Wireless Telephone and Telegraph Company is an Arizona concern, incorporated in October, 1909, said Inspector Keene. It was practically dormant until about May of the present year, however. But in May last an ornate circular of eighty pages was sent out announcing that the Continental had arranged for the controlling interest in the Collins Wireless Telephone Company, the Pacific Wireless, the Clark Wireless, and the Massie Wireless Company. The Collins concern was organized in the District of Columbia and capitalized at $1,000,000. The Clark company has an authorized capital of $2,500,000, the Pacific Wireless is capitalized at $10,000,000, and the Massie Company at $300,000.
"The announced purpose of this consolidation," said Inspector Keene, "was to give the Continental an immediate and wide field of operation and to give investors the opportunity to be associated with a 'conservatively capitalized concern.' The announcement was made that 'the public is assured that the capitalization is most conservative and reasonable.'
"The Collins company made its headquarters at 54 Clinton Street, Newark. There was a Frederick Collins, a wireless inventor who had a small laboratory there. The chief selling agents of the Collins concern also made their headquarters there. The Clark company was organized and controlled by Thomas E. Clark, an electrical engineer at Detroit, Mich. The Pacific company formerly had headquarters at Los Angeles, and the Massie company was organized by Walter W. Massie of Providence, R. I., an electrician.
"One of the most enticing things in the announcement after the consolidation was that the Continental was to take the wireless stations of the amalgamated companies, and by organizing new stations at Pittsburg, St. Louis, Omaha, Denver, Salt Lake City, and Reno, Nev., to establish a transcontinental service.
"After the first circular was sent out in May there came another very large one. It gave the officers of the Consolidated as F. T. Davis, President; Charles L. Vaughan, Vice President and Treasurer; Walter W. Massie, Vice President, and Director of the Operating Department; C. B. Walter, Secretary; Thomas E. Clark, General Manager; A. Fred Collins, Technical Director and consulting engineer, and Samuel D. Bradford, Manager of the Pacific Coast Department. Others on the board were Frank Ford, a banker of Detroit; N. A. Hawkins, business manager of a motor company in Detroit; A. C. Jessup, a steel and iron manufacturer, New York; A. J. Lauer, of a brewing company of Auburn, N. Y.; Frederick H. Shoemaker of Seattle, Wash.; Gen. Joseph L. Stoppebein of Atlanta; Max Loenthal, an electrical engineer of New York: Henry W. Lee, a publisher of Chicago; George M. Davis of Wilmington, Del.; Isaac Gans of Washington, D. C.; Judge Edwin R. Cochran, Jr., of Wilmington, Del.
The first definite proposal to the investing public originated from the office of the Collins Company in Newark, where C. L. Vaughan, Assistant Treasurer of the company, arranged for the consolidation and explained its purposes and arranged for the exchange of stock of the Collins for the Continental. The basis of this exchange was that for every dollar spent by investors for the Collins stock just so much stock would be issued by the Continental Company. But the stockholders were not to get possession of their new stock until the expiration of two years.
"The stockholder got a certificate saying that his stock would be held by two trustees for two years. This served the purpose of appeasing the Collins investors, who were restive about dividends. Their stock had been advanced from $1 to $10 a share and still no dividends had been declared. This consolidation tied up their stock so they could not flood the market with it. Repeated efforts were made to get the Collins stockholders to exchange their stock for the Continental certificates. The Continental also sent out circulars offering its stock to the public and pointing out great alleged earning powers.
"The Continental has sold $116,000 in shares in the last few months. The stock started out at $1 a share, and is now $1.25. In May last the Continental, the Collins, and the Columbia Finance Corporation all took offices at 56 Pine Street. The Columbia Finance Corporation is the fiscal agent for the Continental, and was organized by the same men who are identified with the Continental.
"There have been several changes in the Continental Company since its organization. F. T. Davis of Phoenixville, Penn., resigned as President recently, and S. D. Bradford was elected in his place. Max Loenthal also took Vaughan's place as Treasurer. Among the Directors who have resigned are A. J. Lauer, Mr. Shoemaker, Judge Cochran, and both Massie and Clark of the Massie and Clark companies.
"The Collins company had an arrangement by which it contracted to let the fiscal agents have its stock at 20 cents a share. The fiscal agents raised the price of the stock at various times to $10, making a profit of $9.80 on each share sold. The Continental arranged with the selling agents to sell them their stock for 40 cents a share. But besides the stock sold by Exchanges the Consolidated has sold outright $100,000 of its capital stock, yet it has no bank account. The Columbia Finance Corporation says that the Continental owes it $40,000 in money advanced.
"The pretensions of the Continental Company, as contained in its circular, were so exaggerated that both Massie and Clark have repudiated them. They have told the Inspectors that many of the claims of the Columbia were so impossible that they were obliged to withdraw from the concern.
"In spite of the original announcement to investors that the Continental would issue no bonds, the company has recently made a bond issue of $250,000, of which $10,000 has already been sold. These bonds are called convertible collateral 7 per cent. trust bonds. They are to run two years. The only collateral to guarantee them is stock of the company."
Papers in the possession of the postal authorities show that the Columbia Finance Company was incorporated, on April 23, 1910, in this State, and that the incorporators were Charles L. Vaughan, George H. Davis of Wilmington, Del., and Arthur English, an attorney of this city.
Postmaster General Hitchcock said last night that he would be here most of to-day and will leave in the evening for Washington. Several other arrests are expected this morning.