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Senator MORGAN. You do not know?
Mr. DRAKE. No, sir.
Senator MORGAN. You have not audited that purchase yet?

Mr. DRAKE. Well, if I had I would not remember it, sir. It was competitive, and an award was made. I can not carry everything in my mind, sir.

Senator MORGAN. You found a cheaper market in Europe than you could find in the United States ?

Mr. DRAKE. Yes, sir.

Senator MORGAN. Or than you could find in New York—which was it?

Mr. DRAKE. Anywhere. He bought the material delivered at Colon cheaper in Europe than he could buy it anywhere else.

Senator HOPKINS. What material ?
Mr. DRAKE. Bar iron.

Senator MORGAN. All descriptions of bar iron used down there. Well, do you buy any provisions, food, or anything of that sort for the Isthmus?

Mr. DRAKE. Yes, sir.
Senator MORGAN. Clothing?

Mr. DRAKE. Everything--anything that is called for by our commissary department. The commissary department of the railroad is a very large plant now, and we buy everything that is called for, for sale to the employees of the railroad company or of the Commission.

Senator MORGAN. Then the purchasing agent of the railroad company buys for the Commission and also for the railroad?

Mr. DRAKE. He buys for the railroad company's commissaries, sir, which sell down there to the employees of the raisroad and of the Commission. Tbe railroad company is conducting the commissary department entirely.

Senator MORGAN. Entirely? Mr. DRAKE. Entirely; yes, sir. Senator MORGAN. Doing all the feeding that is done there of the laborers on the canal ?

Mr. DRAKE. Selling all that is sold for account of the railroad company. They do not have to buy there; they may, though.

Senator MORGAN. They do not have to buy at the commissaries, you mean?

Mr. DRAKE. They are not obliged to. They can buy anywhere they like, but they have the right to buy at the commissary if they want to.

Senator MORGAN. I understand, but all of the commissary supplies that are furnished to the people down there of every class are furnished through the purchasing agent of the railroad company?

Mr. DRAKE. That is right, sir.

Senator Morgan. Does the railroad company charge freight on these things?

Mr. DRAKE. They add to the cost of the articles purchased here, delivered to the steamship line, transportation to Colon, and then a small percentage--20 per cent, I think-to cover the unloading from the steamer and the handling and the sale and the distribution.

Senator MORGAN. I will take supplies for commissary purposes as an illustration; say that they cost a thousand dollars.

Mr. DRAKE. Yes, sir.

Senator MORGAN. You ship them to Colon. Now, give us the expenses upon that thousand dollars' worth of supplies by the tiine you get them out into, say, Culebra.

Mr. DRAKE. A thousand dollars- I will have to let that represent a quantity.

Senator MORGAN. Yes.
Mr. DRAKE. We will say it represents a ton.
Senator MORGAN. Yes; say it is a ton.

Mr. DRAKE. A ton of material; it would cost a thousand dollars delivered to our steamer at Pier 57, North River. It would cost $5 for the railroad company, which has a rate of its own for its own supplies; the railroad company charges itself uniformly $5 a ton. That would be $1,005.

Senator MORGAN. Yes.

Mr. DRAKE. Then to that would be added 20 per cent, which would make approximately $1,200 as the cost of the material laid down at Culebra, and it would be sold at $1,200.

Senator MORGAN. Now, these are supplies bought for the commissa ries?

Mr. DRAKE. Yes, sir.
Senator MORGAN. Which are controlled by the railroad?
Mr. DRAKE. Entirely.

Senator MORGAN. And when they are sold to the Isthmian Canal Commission, or to the purchasers there, they go at the rate of $1,200 for every thousand that is bought?

Mr. DRAKE. Yes, sir.
Senator MORGAN. That is about a fair average?
Mr. DRAKE. Yes, sir.
Senator MORGAN. Is there much of that done?
Mr. DRAKE. We have a very large stock of material on hand now.
Senator MORGAN. Where?

Mr. DRAKE. At the Isthmus. The coal and supplies in transit to the Isthmus now, and the amount of commissary stores on the Isthmus, amount to very nearly half a million dollars.

Senator MORGAN. And when you have delivered that into the hands of the Commission for its uses, it will go at the rate of 20 per cent added for all contingencies and freight?

Mr. DRAKE. Yes, sir.
Senator MORGAN. Twenty per cent besides freight?
Mr. DRAKE. Yes, sir.

Senator MORGAN. If the railroad company was an independent body, it would be doing a pretty lively trade on that, would it not?

Mr. DRAKE. The business has developed very much lately, but it is exceptional. It has developed.

Senator MORGAN I mean the rate of profit on that investment.

Mr. DRAKE. No, sir; there is not any great profit in handling it. The purpose is to get it as near cost as possible--as near the cost as possible to the Commission. The Commission is availing of the facilities of the railroad company for that purpose.

Senator MORGAN. Where are these provisions bought that your purchasing agent sends out there?

Mr. DRAKE. All over the United States, sir.
Senator MORGAN. Delivered in New York:

Mr. DRAKE. Not necessarily; they may be delivered at New Orleans. Senator MORGAN. Well, what is the fact about it?

Mr. DRAKE. The fact is that there is a purchasing agent in New Orleans as well, one at Tacoma, and so on.

Senator MORGAN. There is a purchasing officer there, but what is the fact about the delivery of it?

Mr. DRAKE. The material is bought delivered at one of those ports. If it is bought delivered at New York

Senator MORGAN. What proportion of it is delivered at New York as compared with all other ports?

Mr. DRAKE. A very large proportion.
Senator MORGAN. About how much?
Mr. DRAKE. Easily 80 per cent of it.
Senator MORGAN. Eighty per cent?
Mr. DRAKE. Yes, sir; easily.

Senator MORGAN. Then 80 per cent of all the supplies of every kind that are bought for the Isthmus Mr. DRAKE. Commissary supplies.

Senator MORGAN (continuing). Very good; that includes provisions of every character?

Mr. DRAKE. Yes, sir.

Senator MORGAN (continuing). Eighty per cent of that is bought in New York

Mr. DRAKE. Bought in the markets and forwarded through New York. It may be bought anywhere. It may be bought in Springfield, or it may be bought in Duluth, or it may be bought in Chicago, or it may be bought in Pittsburg, or bought anywhere.

Senator MORGAN. But your purchasing agent makes a contract in New York?

Mr. DRAKE. Yes, sir.
Senator Morgan. The man supplies it there?

Mr. DRAKE. He invites bids, and he makes the award to the man who makes the lowest bid, wherever he may be.

Senator Morgan. The brokers supply him, I suppose-brokers and others?

Mr. DRAKE. No, sir; he buys as nearly as he can of the mills-of the principals.

Senator MORGAN. The proposition is, however, that 80 per cent, at least, of the supply of commissaries is obtained in New York, and it is obtained by your purchasing agents from persons in New York-80 per cent of it?

Mr. DRAKE. No, sir. I said that 80 per cent of the supplies were bought by the agent in New York, and he buys them in New York from people wherever they may be throughout the country.

Senator MORGAN. And you have $500,000 in store now?
Mr. DRAKE. Yes, sir.
Senator MORGAN. Does that include coal?
Mr. DRAKE. Yes, sir. We have a large quantity of coal on hand.

Senator TALIAFERRO. I notice in the minutes of the directors' meeting of January 19, 1906, Mr. Drake, some account of the sale of 618 44 per cent first-mortgage bonds.

Mr. DRAKE. Six hundred and twenty-eight.

Senator TALIAFERRO. Six hundred and twenty-eight. The minutes seem to show that those bonds were sold because the railroad company was in stress for money.

Mr. DRAKE. Yes, sir.

Senator TALIAFERRO. And that they were redeemed, bought in again, and restored to the treasury of the company, because Congress had appropriated money for the Commission, and the railroad company had received assistance from that source. Is that correct?

Mr. DRAKE. Yes, sir; to this extent: That the Commission, being out of funds and owing the railroad company something like a half million dollars or more up to that time, had not paid its bills to the railroad company. The company needed money. It had to pay for the supplies and for the purposes of its operations; and the board of directors authorized the sale of the bonds that were in the treasury to raise that money after efforts had been made to borrow money on them.

Senator TALIAFERRO. Will you show me in the minutes where that authority was given for the sale of those bonds ?

Mr. DRAKE. Shall I read it, sir?
Senator TALIAFERRO. Yes, sir.

Mr. DRAKE. The financial condition-this was at the previous meeting--the meeting of November 8.

Senator TALIAFERRO. Just read the part of it that authorizes the sale of the bonds, Mr. Drake; you need not read the entire proceedings.

Mr. DRAKE (reading). “Resolved, That the executive officers be, and they are hereby, authorized to sell the 628 Panama Railroad 1 per cent 20-year sinking-fund gold bonds now held in the Treasury at as favorable a price as possible, but not less than 1041, the proceeds thereof to be applied to the purchase of equipment and the improvement of the company's facilities. And be it further resolved".

Senator TALIAFERRO. That is sufficient; that seems to be the authority. Now turn to the repurchase of the bonds. Mr. DRAKE. Yes, sir (turning to page referred to).

Senator TALIAFERRO. Does that set up the precise reason for the repurchase of those bonds?

Mr. DRAKE. Yes, sir-“that subsequently Congress bad made appropriations by which the Isthmian Canal Commission was able to pay its indebtedness (in part) to this company, and it was determined advisable to repurchase said bonds at 105 and interest, or to redeem an equal amount at 105 at the next interest date if repurchase were impracticable; that the repurchase at 105 had been consummated, and that the bonds were now again in the treasury. On motion the action of the executive officers so recorded was approved and adopted.”

Senator TALIAFERRO. Did the officers of the company, or the members of the board of directors, or the board itself receive any comniunication from the Secretary of War directing the repurchase of those bonds?

Mr. DRAKE. Yes, sir; I personally received directions from the Secretary of War to repurchase the bonds.

Senator TALIAFERRO. Do your minutes show that?
Mr. DRAKE. No, sir.
Senator TALIAFERRO. Why not, Mr. Drake?

Mr. DRAKE. Because I believe the instructions to repurchase them were given to Mr. Shonts; they were communicated to him first.

Senator MORGAN. Were the instructions to repurchase given prior to the repurchase?

Mr. DRAKE. Oh, yes, sir.

Senator TALIAFERRO. Did not those instructions have something to do with the repurchase of the bonds?

Mr. DRAKE. Yes, sir; undoubtedly.
Senator TALIAFERRO. Why do you set up the other reason, then?
Mr. DRAKE. These are the reasons stated by the president.
Senator MORGAN. What president do you mean?
Mr. DRAKE. Mr. Shonts.

Senator TALIAFERRO. What I want to know, Mr. Drake, is this: Were those bonds repurchased and restored to the treasury of the company because of the order of the Secretary of War, or was it because you had no further use for the money arising from the sale of the bonds, as your minutes set up?

Mr. RAKE. Oh, we needed the money; we needed the money, but we procured it through the payment by the Commission of its indebtedness, and because I had received instructions from Mr. Shonts, which had been communicated to him, I understand, from the Secretary of War, to repurchase the bonds.

Senator TALIAFERRO. Now, which was the reason for the repurchase of the bonds; the instruction of the Secretary of War

Mr. DRAKE. The repurchase of the bonds was because the Secretary of War believed, and stated, I understand, that the board of directors had no right to increase the funded indebtedness of the railroad.

Senator TALIAFERRO. Exactly.
Mr. DRAKE. Without an act of Congress.
Senator TALIAFERRO. Exactly.
Mr. DRAKE. Because it would be increasing the public debt.

Senator TALIAFERRO. That was the reason of the repurchase of those bonds, the true reason?

Mr. DRAKE. That was the reason, the underlying reason; yes.

Senator TALIAFERRO. Why do not your minutes, when they pretend to set up your reasons for action, set up the real reasons?

Mr. DRAKE. Because I am stating what I believe to be the reason that controlled it. I only know that by hearsay, and this was the reason that was given for the repurchase. This is a true record of the reason and of the authority.

Senator MORGAN. Did that project of selling the bonds originate with the executive committee?

Mr. DRAKE. No, sir; it was by the board. The resolution was adopted at the meeting of the board of directors.

Senator MORGAN. Who offered the resolution?
Mr. DRAKE. It does not recite, sir.
Senator MORGAN. You do not remember?

Mr. DRAKE. It does not recite, and I do not remember; no, sir. It is not customary, and it never has been, to give the names of the movers and seconders.

Senator MORGAN. Yes; I know. How much did that transaction cost the Government?

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