Senator MORGAN. He was not a member of the board at all at the time?

Mr. DRAKE. I will find out about that.

Senator KITTREDGE. It is stated here [reading] that the treaty was signed November 18, 1903; and then ratification advised by the Senate February 23, 1904; and it was ratified by Panama December 2, 1903, and then ratified by the President February 25, 1904, and ratifications were exchanged February 26, 1904, and proclaimed the same date.

Senator MORGAN. Yes. Thank you.

Mr. DRAKE. Mr. Parsons was elected as a director on September 15, 1904, and was appointed a member of the executive committee on October 13, 1904.

Senator MORGAN. So that the Cramp transaction was entirely closed before he became a member of the executive committee?

Mr. DRAKE. Yes, sir.

Senator MORGAN. Very good. Now we have that. That last payment of 4 per cent out of the 8 per cent that you made during the year 1903 was made after the Hay-Varilla treaty had been signedafter the revolution in Panama?

Mr. DRAKE. Yes, sir.

Senator MORGAN. The date of these dividends you have given. Four per cent of it was prior to the revolution in Panama and 4 per cent afterwards. And you declared a dividend there of $560,000. Mr. DRAKE. During the year.

Senator MORGAN. Yes; during the year, which is in excess of the earnings during the year, which were $401,068, net earnings. The difference between the amount that you declared a dividend for and the net earnings that year was how much?

Mr. DRAKE. One hundred and fifty-nine thousand dollars. The dividend was not declared out of the earnings of that year.

Senator MORGAN. And while 4 per cent of it had been paid before the Panama revolution, 4 per cent, or half of it, was paid afterwards? Mr. DRAKE. Yes.

Senator MORGAN. And then you left a debt standing you were on the executive committee, and I am asking you this question-you left a debt standing on the ship arrangement that it took

Mr. DRAKE. Two hundred and sixty-five thousand dollars—
Senator MORGAN (continuing). To pay?

Mr. DRAKE. Yes, sir.

Senator MORGAN. And the United States had to pay it?

Mr. DRAKE. The company paid it.

Senator MORGAN. Well, out of the property belonging to the United States?

Mr. DRAKE. The Government had not taken possession of the property.

Senator MORGAN. It had not?

Mr. DRAKE. No, sir; it had not-oh, yes, it had; yes, sir.

Senator TALIAFERRO. When was the last 4 per cent dividend declared?

Senator MORGAN. December, 1903.

Mr. DRAKE. December 10, 1903.

Senator MORGAN. After the Hay-Varilla treaty had been made.

Well, now, I want to be very frank with you, and it looks to me like you were diverting funds from the United States into the Panama Canal Company. You paid that dividend to the Panama Canal Company?

Mr. DRAKE. Yes, sir.

Senator TALIAFERRO. The Panama Railroad Company, you mean? Senator MORGAN. No; the Panama Canal Company. They were the holders of the stock until the stock was turned over, in May, 1904. Senator TALIAFERRO. Yes; excuse me.

Mr. DRAKE. The stock of the railroad company was not turned over to the United States Government until May 7, by actual transfer in Paris, and up to that time the stock belonged to the Panama Canal Company, as far as the directors of the railroad company knew.

Senator MORGAN. It looks to me, Mr. Drake, that the Government. of the United States was out of pocket the whole amount of the bonds that you gentlemen authorized to be sold on that occasion, and that there is no justification in it; and if there is any justification in it, I would like you to explain it.

Mr. DRAKE. I explain it simply by the fact that the act was then authorized by the then owners of the property, exactly as our acts are authorized and approved by the present owners of the property. The property of the company belongs to the owners of the stock of the company. I am telling you a fact, Senator. The property of a company belongs to the owners of the stock of the company, and the acts of the directors of a company are to be approved by the owners of the company, so long as the stock stands in their names.

Senator MORGAN. You evidently stand on the position that this executive committee of that railroad company had the right to make these

transactions?

Mr. DRAKE. Absolutely, sir.

Senator MORGAN. Yes; but still you got it ratified after the Isthmian Canal people came in.

Mr. DRAKE. The railroad company had nothing whatever to do with that, sir.

Senator MORGAN. Were not the directors present?

Mr. DRAKE. The railroad company were not parties to it in any way. The affairs of the railroad company were administered by the board of directors.

Senator MORGAN. Well?

Mr. DRAKE. And the board of directors conducted the business of that company.

Senator MORGAN. When I say the railroad company, I mean its

board of directors.

Mr. DRAKE. Yes, sir.

Senator MORGAN. Yes; and you, as one of that executive committee, appealed to the action taken by the board of directors after the Isthmian Canal representatives had come in, as a ratification of what you had done?

Mr. DRAKE. Yes, sir; but we are talking about things that happened prior.

Senator MORGAN. Why did you want ratification if the act was perfect?

Mr. DRAKE. I only spoke of that to show that the acts of the board, or rather the acts of the committee that were made the acts of the PC-VOL 3-0660

board, were also the acts of the Isthmian Canal Commission and of the Government.

Senator MORGAN. They were not the acts of the Isthmian Canal Commission transacted under its board, but only approved by it afterwards.

Mr. DRAKE. You ask me a question, and I say that the Government took possession of the railroad on May 7, 1904; and from that time on, everything that was done by the board of directors was done by and with the approval of the United States Government, represented by the Isthmian Canal Commission; and if it was not, the Isthmian Canal Commission did not perform its duty as a majority of the board.

Senator MORGAN. The approval could not have been given by the Isthmian Canal Commission members until they were made members of the board.

Mr. DRAKE. Well, there were three or four of them members at that time.

Senator MORGAN. At what time?

Mr. DRAKE. At the time the action you are speaking of was approved-the conclusion of the Cramp contract.

Senator MORGAN. I admit that, but that was between May 7 and September 17-about that time.

Mr. DRAKE. Yes, sir.

Senator MORGAN. Before they came into the board?

Mr. DRAKE. Yes, sir.

Senator MORGAN. So that you wanted to make their ratification relate back to cover all that had been done?

Mr. DRAKE. I wanted to make that ratification cover the consummation of a contract which had been previously made. If they wanted so to do, they could have directed us to take up those bonds and not to sell the bonds.

Senator MORGAN. You had sold them?

Mr. DRAKE. No, sir; I beg pardon. I want to get the dates of those things.

Senator MORGAN. Were they sold by order

Mr. DRAKE. They came in on May 7, and they had the board between that time

Senator MORGAN. You are not stating facts, Mr. Drake. These men that were appointed from the Isthmian Canal Commission did not come in on May 7.

Mr. DRAKE. The Government came into possession of the property May 7.

Senator MORGAN. I am not talking about that. Do not try to dodge facts in that way.

Mr. DRAKE. Excuse me. I am not trying to do so.

Senator MORGAN. That is not becoming.

Mr. DRAKE. I did not intend to do it.

Senator MORGAN. These men who were taken and put into the Commission upon resignations of other men who were in the Commission did not come in there until September.

Mr. DRAKE. I will straighten that out now. [After referring to minute book.] Here is a meeting of July 26-changes in directors. At the meeting of July 14, 1904, Admiral Walker was elected. Mr. William H. Burr was elected at the same meeting, July 14. Mr. C. Ewald Grunsky was elected at the same meeting, July 14. At the fol

lowing meeting, July 26, Messrs. Walker, Burr, and Grunsky were present.

Senator MORGAN. That is the first time they were present?

Mr. DRAKE. They were present at the meeting when they were elected.

Senator MORGAN. That is the first time they were present, I say, was it not?

Mr. DRAKE. That is the first time that they were present as duly elected directors; yes, sir.

Senator MORGAN. So that it was July 26 before you could appeal to them as members of the Isthmian Canal Commission, who had been elected directors for the ratification of what you had done in that Cramp business, and you did appeal to them, and you got their ratification, without their having ever ordered any part of it. Do you undertake to say that at that meeting, when they came there, July 26, they ordered the sale of these bonds, or had it been ordered before?

Mr. DRAKE. No; I undertake to say that at a subsequent meeting-at that meeting or a subsequent meeting they ratified the action taken by the executive committee by which the bonds were ordered to be sold.

Senator MORGAN. Then the executive committee, as you have now just stated, for the first time, ordered those bonds to be sold?

Mr. DRAKE. I say so, because I do not find an order of the board. Senator MORGAN. Do you not remember that that is so, being one of them?

Mr. DRAKE. Yes, sir.

Senator MORGAN. The executive committee, then, ordered the bonds. to be sold, and then, after Admiral Walker and these other gentlemen came in from the Isthmian Canal Commission, you got their ratification of what you had done?

Mr. DRAKE. I have not got the date of the sale of the bonds here. Senator TALIAFERRO. And the bonds had been sold and delivered when these men came in?

Mr. DRAKE. No, sir. The bonds were not sold until August or September, when the contract was closed-about the middle of August. I will get that date exactly. The Government came into possession of the property on the 7th of May. All of these gentlemen who became directors in July, and later, might have been made directors at that time.

Senator TALIAFERRO. This transaction, then, was after the property had been turned over to the Government on the 7th of May?

Mr. DRAKE. The consummation of the contract was.

Senator TALIAFERRO. I say, this transaction that Senator Morgan is speaking about now?

Mr. DRAKE. Yes, sir.

Senator MORGAN. Yes; when I think the Government of the United States ought to have had some word about it, and some show, and they had none.

Senator TALIAFERRO. The dividend seems to be a remarkable feature.

Senator MORGAN. That dividend that you paid in excess of net earnings

Mr. DRAKE. Of that year. excess of the earnings of 1903.

The dividend that was paid in 1903 in

Senator MORGAN. 1903?

Mr. DRAKE. Yes, sir.

Senator MORGAN. That did not belong to these stockholders, did it? Mr. DRAKE. I think it did; yes, sir.

Senator MORGAN. On what ground do you put it?

Mr. DRAKE. I have stated it, and I repeat that it belonged to the stockholders. The dividends in companies are declared payable to stockholders of record on given dates. The stockholders of record of the company during that time were not the United States Government. The stockholders of record were the French Canal Company, and the dividends were paid to them as stockholders of record on the books of the company.

Senator MORGAN. If the payment was regular, where is the conscience or morality that lies at the back of paying stockholders $156,000 more than they were entitled to?

Mr. DRAKE. There is no question of conscience or morality involved in it.

Senator MORGAN. I think there is.

Mr. DRAKE. I beg to differ from you, if I may be allowed to, and if it is proper that I should. The names in which a stock stands are those of the people who own the property. Until those certificates of stock are endorsed on the back and the stock is transferred on the books of the company, everything that is in the company is vested in the holders of the stock, and that stock was not transferred until the 7th of May, and that was done in Paris, and on the 18th of May in the United States.

Senator MORGAN. That may justify an officer as against the company in paying over the money to these stockholders, but it did not justify them as owners of it, because it did not belong to them.

Mr. DRAKE. That is another question.

Senator MORGAN. That is what I am trying to get at.

up these papers? Who drew that Cramp contract? Mr. DRAKE. It was drawn under advice of counsel. Senator MORGAN. Who?

Who drew

Mr. DRAKE. Probably by Sullivan & Cromwell. No contract is made by the company that is not prepared and revised by them. Senator MORGAN. They drew up the contract?

Mr. DRAKE. Yes, sir; under the terms that had been made by the officers.

Senator MORGAN. And Cromwell was a member of the executive committee?

Senator MORGAN. Do you know how much stock he owned at that time?

Mr. DRAKE. No, sir. I can find out, though.

Senator MORGAN. You have made a report heretofore that will show that.

Mr. DRAKE. I think it was 37 shares, or something like that. Senator MORGAN. And the old Panama Canal Company owned a large number of shares at that time?