Part 7

Perhaps because of the pressure of other work, perhaps for other causes, investigations of this nature are allowed to languish. Some years ago, when the firm of Douglas, Lacey & Company was reaping its harvest, an inspector was assigned to investigate the concern's operations. He was one of the ablest inspectors of the service, a man with real detective ability and a knowledge of the devious ways of certain kinds of financing. He made a trip to Mexico and subsequently sent in a report to Washington recommending that a fraud order be issued against the concern and that its use of the mails be stopped. He waited a long time and then got word from Washington that more evidence was required. He made another investigation and sent in another report, recommending in even stronger language that the mails be barred and the public protected. While on this work he was constantly assigned also to other matters and finally was shifted to a station in the South. The concern collapsed some years later, leaving thousands of people in this country and in Canada bereft of their small savings. There was no fraud order ever issued against this firm, though shortly before it closed up it was informed that if it continued to sell stock its use of the mails would be stopped.

The burden of proof is on the buyer. If he turns to the District Attorney he finds perhaps a sympathetic official, without power to assist him. The man selling bogus mining stocks knows all this; therefore his harvest goes on. It is better than the green-goods game, better than the wire-tapping swindle, safer than selling any other form of gold bricks. A few years ago a reporter who was engaged in investigating the schemes of Cardenio F. King--now in Charlestown jail, but then posing as "the apostle of the golden rule in finance" and selling his stocks by the barrel in every mill town in New England--made a call on the late John B. Moran, then District Attorney in Boston and widely known as a reformer. He asked Mr. Moran's help in proving that King was a swindler.

"Young man," said Boston's reform District Attorney, "if King was selling corner lots in heaven and advertising them in the newspapers, I couldn't stop him, because I haven't anybody to send up there and prove that they are not there."

King wasn't selling corner lots in heaven, but he was selling stock in a Texas company that was the next thing to it, so far as tangibility is concerned. It was only when he actually took from investors money sent to him to buy real stocks, and pocketed it, that he was put in jail.

LAWS TO PROTECT INVESTORS

A plan for the protection of the investor by statute is embodied in a model law drafted by the American Mining Congress of Denver, and recommended for general passage:

AN ACT.

To Prohibit the Making or Publishing of False or Exaggerated Statements or Publications of or Concerning the Affairs, Pecuniary Condition or Property of Any Corporation, Joint Stock Association, Co-partnership or Individual, Which Said Statements or Publications Are Intended to Give, or Shall Have a Tendency to Give, a Less or Greater Apparent Value to the Shares, Bonds or Property, or Any Part Thereof of Said Corporation, Joint Stock Association, Co-partnership or Individual, Than the Said Shares, Bonds or Property Shall Really and in Fact Possess, and Providing a Penalty Therefor.

Section 1. Any person who knowingly makes or publishes in any way whatever, or permits to be so made or published, any book, prospectus, notice, report, statement, exhibit or other publication of or concerning the affairs, financial condition or property of any corporation, Joint-stock association, co-partnership or individual, which said book, prospectus, notice, report, statement, exhibit or other publication, shall contain any statement which is false or wilfully exaggerated or which is intended to give or which shall have a tendency to give, a less or greater apparent value to the shares, bonds or property of said corporation, joint-stock association, co-partnership or individual, or any part of said shares, bonds or property, than said shares, bonds or property or any part thereof, shall really and in fact possess, shall be deemed guilty of a felony, and upon conviction thereof shall be imprisoned for not more than ten years or fined not more than ten thousand dollars, or shall suffer both said fine and imprisonment.

This law has been enacted in six states and a campaign for its general enactment is under way. But let not the credulous investor suppose that even such a law would guarantee him against loss. The Secretary of the American Mining Congress, Mr. James F. Callbreath, offers the following comment:

CAMPAIGN OF THE AMERICAN MINING CONGRESS

"I do not believe that any one law can effect protection to mining investors, nor that the protection afforded through the Post Office Department forbidding the use of mails for fraudulent advertising matter can fully cover that ground. The greater part of mining frauds are perpetrated without the use of the mails.

"The proposed law, in our judgment, is the longest possible step toward preventing mining frauds. A second step has been taken in the form of a publicity law. My belief is that no system of laws, either state or national, will prevent men from gambling in mines more effectually than such laws now prevent gambling in its more common forms. These may restrict and furnish protection to those who are wise enough to open their eyes, but it will be impossible to protect all the fools all the time. It is the purpose of the American Mining Congress, after having secured the enactment of laws providing penalties for fraudulent representations and requiring publicity, to perfect an organization to SECURE EXECUTION of these laws, and also to carry on campaigns of education showing to investors, first, that mining is a legitimate business and not a gamble; second, that mines are found and not made; third, that investments in mining should be made with the same care and prudence exercised by business men when embarking in other business enterprises. . . . The next work of our organization will be along the line of developing some manner of control of corporations by which paid-up capital stock shall represent actual value."

Mr. Callbreath would seem to be one fore-doomed to his own troubles; yet it is clear that he and his organization stand for legitimate mining as opposed to prospect-selling. In strictly accurate phrase, it is the prospect which is found, and the mine which is made and investment cannot properly begin until a body of ore has been blocked out in a proved prospect. Add to the glamor of risk the haze of fraud, and the foregoing will show the nebulous condition of mining investments in relation to mining laws in America to-day.

What we really need is a Bureau of Mines at Washington. Nobody protects the mining investor. Nobody guards the widest open gate into the savings deposits of this country.

The American Mining Congress, it should be stated, had a quasi pre-inaugural pledge from President Taft in favor of a Federal Bureau of Mines. Toward this we have made a start. A bill establishing this Bureau has already passed both the House and the Senate, and bids fair to become a law. But the activities of this new department will be confined to safe-guarding mineworkers. The next step should be to enlarge the province of the Bureau so as to include the supervision of the mining industry for the protection of investors.

It seems quite likely that the states and the nation will need to unite if adequate protection to the investing public is to be expected. But when did state and nation unite to solve a great popular problem? When did section ever unite with section or even resident with nonresident? This is America.

THE ENGLISH WAY OF MINING--HONEST BUSINESS

Back of any movement of this kind there must be popular interest in popular education. Thus far, the greater publicity idea is of more value than anything at hand. We may perhaps. best do our own little part by offering some studies in the theory of mining, showing just WHY it is risky, and just HOW we ought to tabulate the risk. In addition to this, we can present, and should perhaps first present, some of the results of intelligent mining as pursued in other countries.

Take the Rand Mines of South Africa, operated on the English basis--mines which turned out more than $12,500,000 in one month not long since. The English method of operating on the Rand is this: A corps of experts is sent to examine a proposed property--that is to say, a proved prospect. If their report be favorable, an estimate is made of the cost of a five-or seven-compartment shaft, to be sunk, say, 3,500 feet. The cost of producing a year's supply of ore for the mill is then considered. The cost of the mill and the cyanide plant is also figured. The total cost is then cast up, and the company is ready to be formed for a half million to five millions of dollars, according to existing conditions. This money is paid in, and is ready to start operations. These men mine carefully, using all possible scientific knowledge and practical experience as guides. The operation may have risk, but it is perforce honest.

THE AMERICAN WAY--A GAMBLE

Now let us examine conditions not infrequent in the United States, by no means assigning wings to all English mining men, or hoofs to all Americans:

A prospector discovers mineralized rock. He locates one or more claims as controlled by the laws of the district where he is. Perhaps others also locate more ground. A little work is done, and then the claims are up for sale. A claim is perhaps sold for a few hundred to several thousand dollars; sometimes the seller receives in addition stock in the company to be formed. No attention is paid to the geology, but a company is formed ostensibly for the purpose of mining, with a capital of one million shares at one dollar par. Perhaps four hundred thousand shares are placed in the treasury to be sold for development purposes. Of course the whole thing is as yet on a wholly gambling basis. The property is still a prospect and not a mine, and hence it is not possible to put it on an investing basis. Comparatively few companies have ever used the services of a real expert, although very possibly the company furnishes a report made from a purchasable local "mining engineer," one of the cheapest commodities in any mining district, where the wide hat and the high-laced boot often take the place of a mining education and a reputable character. This is the stage at which, this is the basis on which, most of the mining "investments" of America are made.

In this state of affairs grafters find their opportunity. Prices in a boom camp are always above any sort of industrial warrant. There were literally millions of dollars poured into Goldfield and Tonopah for claims which never had any careful examination by competent men. Fortunes were made by local promoters and "operators" out of claims which could not show ten feet of actual work. Sometimes the entire capitalization was sold out, and the promoters put the money in their pockets. One operator of this kind sold $130,000 worth of stock, and omitted the precaution of putting even ten per cent. of it in the treasury. Fortunately, he got into the penitentiary. Many of his fellows never had actions brought against them except under the postal laws, which naturally are inefficient. There was one shaft of a hundred feet which cost twelve thousand dollars, charged up to the stockholders, the names of dead men being used on the pay rolls as "laborers." The mine boss and the local officers got big salaries to keep their mouths shut. The real mine was in the savings banks of America, in the pockets of non-residents. In Nevada alone, in the past four years, more than twenty million dollars have been invested in WORTHLESS properties. One engineer with a government certificate could have saved the clerks, stenographers, widows, washwomen, and orphans of America fifteen million dollars at the cost of, say, five thousand. Would that have been a good investment? What could a dozen do? What could an efficient corps do? Is there here yet one more future task for our patient and long-suffering United States Army? What police work would pay better dividends?

THE PROMOTER AND THE CREAM

Even when the mine wins, the small stock-holder rarely wins. The promoters often take the cream. Suppose a company is organized for three million shares. One million is put in the treasury for sale. Of this million shares, say, two hundred thousand are offered at twenty-five cents. This raises a working capital of fifty thousand dollars. Let us be very glowing, and suppose that, with this fifty thousand dollars, we really uncover five million dollars' worth of ore. The net profit would not exceed three million dollars; so that the man who put in twenty-five cents might, after a long time, get back a dollar. In the meantime, two million dollars would have gone to promoters, in "commissions," and so forth. There are thousands of such cases, and still the people continue to bite on such bait.

THE PUBLIC = THE MINE

Instances of actual Nipissing rises caught in time by the lamb are very rare. I rom first to last, the PUBLIC is the mine, AND THE RETURNS COME OUT OF THE SAVINGS BANKS. In some mines "high grading"--the carrying away of valuable pieces of ore by the miners themselves--is fought as sternly as the diamond stealing by the Kaffirs in a Kimberley mine. In yet other mines, far more numerous, high grading is encouraged among the miners. The report gets out that the ore is so rich that the miners steal it in their dinner pails. That booms the stock. WALL STREET MAKES THIS MONEY OUT OF THE MARKET AND NOT OUT OF THE MINE.