Frisco

St. Louis-San Francisco is a 5,800-mi. railroad that fans out Southwestward from St. Louis but does not reach San Francisco. About every 20 years Frisco has to be reorganized. It emerged from receivership in 1896, only to collapse in 1913. Put on its feet again in 1916, it lasted until 1932. With luck and the prodding of RFChairman Jesse Jones, Frisco may be able to maintain its schedule by completing a third reorganization in 1936.

"The difficulties of the Frisco were of; a financial and not of an operating character," the Interstate Commerce Commission reported in connection with the 1913 receivership. Among causes cited by the Commission for that particular failure were top-heavy capitalization, acquisition of new lines and payment of dividends "in spite of weakened credit and need of money." By changing a few names and figures, the Commission could easily use the same report for the latest Frisco fiasco.

Nevertheless, Frisco arose in 1916 with its liabilities not pared but actually increased by about $10,000,000, and set forth upon another era of conspicuous financial mismanagement, characterized as usual by dissipation of cash in imprudent dividend payments and reckless buying of stock in other carriers. A voluntary plan of readjustment was abandoned in 1932, and Frisco succumbed to its perennial troubles.

Since then in various tribunals enough Frisco dirt has been spread upon the record to justify a dozen law suits. One was started to tie up a $400,000 trust fund, $100,000 of which was appropriated the day before the receivership to reimburse the reorganization managers who had failed to effect a voluntary readjustment. Last week a Federal judge in St. Louis ordered a bankruptcy trustee to sue for $11,000,000 lost in high-handed stock deals of the 1920's.

Principal defendants will be Frisco's Chairman Edward Norphlet Brown and Frisco's old bankers, Speyer & Co. and J. & W. Seligman & Co. Details of the deals have long been common scandal. Biggest deal was executed in 1926 when Chairman Brown, without asking the advice & consent of his directors, made arrangements with the road's bankers to spend $10,000,000 of Frisco money in the purchase of stock in Chicago, Rock Island & Pacific, now also in the hands of the courts (TIME, April 8). At the current price of Rock Island stock ($1.25 per share) Frisco's investment is almost a total loss. Yet Speyer & Co. alone made $1,900,000 in regular commissions, special commissions and straight speculative profits.

Some day a cynical historian will make a comprehensive study of Frisco as a classic example of inept banker-management, supplanting, perhaps, the present standard text on how not to run a railroad, the sorry chronicle of Chicago, Milwaukee, St. Paul & Pacific. When that work is published, the name of James ("Jimmy") Speyer, the dapper little septuagenarian banker, will undoubtedly bulk large. As far back as 1914, when Jimmy Speyer and his banking house were more active, the Interstate Commerce Commission in a special report to Congress on the 1913 Frisco receivership, rebuked Speyer & Co. thus: "The sale of securities to the investing public through the bankers at a time when every appearance indicated the insolvency of the issuing company, invites and warrants condemnation of all those who assisted or participated in such sale."

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