That the "evil that men do lives after them while the good is oft interred with their bones" seems to be untrue in the ease of the frauds of Swepson and Littlefield. The former was a native of North Carolina and Littlefield of Maine. Together, they managed to sell about $4,000,000 of the bonds of the Western North Carolina railroad, which had been endorsed by the State, and appropriated the proceeds to their own use. This delayed the building of that road from 1869 to 1880. But most of the younger people have never even heard of this gigantic theft. The true story as told to the Shipp Fraud Investigating Commission follows in condensed form, and every statement in this chapter not otherwise noted was taken from that report between pages 220 and 498.
Soon after the Reconstruction election of 1868 there was a special session of he legislature which, by an act ratified August 19, 1868, divided the Western North Carolina railroad into the Eastern Division--to extend from Salisbury to Asheville-and the Western Division-to extend in two lines, one to Paint Rock and the other to Ducktown, in Tennessee. The State also agreed to take two-thirds of the stock of the Western Division, which was authorized to issue its stock, not exceeding $12,000,000, for the completion of these two lines. Under this act, subscriptions were invited, and 3,080 shares of stock subscribed. Of this stock Milton S. Littlefield, a carpet-bag adventurer, subscribed to 2,000 shares and Hugh Reynolds, of Statesville, to 1,000 shares. But only five per cent of eighty shares subscribed by citizens line of this proposed road was paid in cash, Littlefield and Reynolds giving their drafts for five per cent of their subscriptions, payable to the order of Geo. W. Swepson, who was elected president at the meeting to organize the Western Division, which was held in Morganton October 15, 1868. Four directors, representing the private stockholders, and eight, representing the State, were also elected at that meeting. As, however, the whole of the Western Division was required to be under contract for its construction before the State could be called on for its subscription, the directors made a contract with M. S. Littlefield for this work; but it was understood that it was a mere nominal contract, for the purpose of complying with the terms of the charter, the actual work to be let afterwards to bona fide contractors. But, as no provision had been made for a special tax levy to pay the interest on the bonds, the act did not accomplish its purpose.
Mr. Swepson went to Raleigh in the fall of 1868 and urged the passage of another bill through the legislature to cure this defect; but was told by Littlefield and a man named John T. Deweese, who were lobby lawyers, that he would get no bills through the legislature unless he paid the same percentage that all the other railroad presidents had agreed to pay--viz., "ten per cent in kind of the amount of the appropriations." Swepson agreed to this and claimed that he afterwards "paid Littlefield $240,000 in money and some bonds for his services in procuring the passage" of the necessary legislation (Ch. 7 and 20, Laws 1868-9). Swepson had certified to the Executive of the State on October 19, 1868, "that the entire road had been let to contract"; and at some subsequent date he received from the State treasurer $6,367,000 of special tax bonds of the State, and began hypothecating or selling them in New York.
But in the spring of 1869 the case of the University Railroad v. Holden (63 N. C., p.410) came before the Supreme court on the question of the constitutionality of the special tax bonds authorized to be levied for the railroad; and Chief Justice Pearson, believing that his associates on that bench would be compelled to agree with his reasoning, wrote an opinion declaring those bonds unconstitutional, meaning to submit it to his brethren for their approval or rejection. So confident was he that they would agree with his conclusions, that he told Col. Wm. Johnson, a lawyer and an intimate friend, that the court had decided the University Railroad bonds to be unconstitutional. He then read his opinion to Col. Johnson, and Johnson told Swepson on Thursday, July 1, 1869, that "he had just seen the opinion in Judge Pearson's room" and that it "made the whole of the special tax bonds unconstitutional." But, before the decision of the court was announced, a motion was made by Judge Fowle for a further hearing. The motion was granted and the majority of the judges concurred in holding the University railroad act to be constitutional, thus over-ruling the chief justice, who, however, filed a dissenting opinion. Mr. T. H. Porter, representing Soutter and Company, stock brokers of New York City, came to Raleigh and arranged with the lawyers for the rehearing.
There was much discussion in the State as to this decision. According to the testimony of James C. Turner, as given before the Shipp Fraud Commission (p.307), G. W. Swepson told him in New York "on more than one occasion that he had in his pocket a decision adverse to the one given and published by the court, and that it had cost a large amount to obtain the published opinion." Indeed, Mr. Swepson himself swore (p.207) that his proportion, as president of the Western Division of the Western North Carolina railroad was "60 State bonds, charged as paid attorneys, and the following cash charges: Paid attorneys in Raleigh $2,000. Attorneys, establishing validity of bonds, $21,250." When it is remembered that there were ten railroads to which bonds aggregating $25,250,000 were authorized to be issued at the same session as the University railroad bonds had been authorized, Swepson's proportion of expenses in securing a favorable decision would indicate the expenditure of an enormous sum of money.
But the Shipp Fraud Commission examined Judges R. M. Pearson, E. G. Reade, W. B. Rodman and R. P. Dick, four of the Supreme court judges, upon the question of obtaining this decision, and found that none of these judges knew of any improper or corrupt means or practice concerning it. The only thing that could be construed as of a doubtful character was Judge Rodman's statement, to the effect that, in August 1869, after the decision had been rendered, G. W. Swepson voluntarily offered his personal guarantee to a brokerage in New York for the margin on $100,000 of special tax bonds for ten days; but claimed that, as the bonds had not been sold till after the expiration of ten days, Swepson's liability had ended and the loss had been charged to the judge. As this is the only instance in the history of the State in which our Supreme court was even suspected of having been corruptly influenced, it is pleasant to be able to record the fact that the men who paid out the money and the men who received it have left their testimony on record completely exonerating the members of the court. Yet------!
T. H. Porter, in a letter of May 31, 1870, states that Badger, Fowle, Col. E. G. Haywood, and Judge S. J. Person, attorneys, agreed to undertake the ease for $15,000, and if they won, they were to receive an addition in State bonds. Judge Daniel G. Fowle testified before the Shipp Fraud Commission (p.463) that he and his associates had received the cash and bonds agreed upon, the suit having been won.
It appears that the only roads which Mr. Porter represented in this suit were the two divisions of the Western North Carolina, the Wilmington, Charlotte and Rutherford, and the Western railroad companies. Twenty-five of the bonds received by the attorneys were those of the Wilmington, Charlotte and Rutherford railroad and fifty of the Western Division of the Western North Carolina railroad-the Western railroad seemingly not having contributed any. (This was not the Western North Carolina Railroad, however.) As Swepson's share was $60,000 in bonds and $21,250 in cash, and as the attorneys got $75,000 in bonds and $15,000 in money, nearly $100,000 in bonds, and $6,250 in cash remain unaccounted for. It may be that Soutter & Co., the New York brokers represented by Mr. Porter, got this difference.
But, as indicative of the methods then in vogue, John T. Deweese, represented by Swepson as Littlefield's partner, had difficulty in settling with the Atlantic, Tennessee & Ohio railroad for services in getting the legislature to authorize that road to issue its bonds (ratified February 3, 1869) in exchange for a like amount of State bonds, and gave Mr. R. C. Kahoe $4,000 of these bonds to act as nominal plaintiff in an action to restrain the State treasurer, D. A. Jenkins, from issuing $2,000,000 of these bonds. John T. Deweese, the real party in interest not having been a tax payer, sued out the injunction in June, 1869; and R. Y. McAden, Swepson's nephew, settled this suit by handing over more than $100,000 of these bonds. Of these bonds, Judge Watts got $5,000, "in accordance with the contract between Deweese and himself, as stated in the report of the Bragg committee." Fowle and Badger, lawyers associated with E. G. Haywood, Esq., received $16,000 of these bonds for their services in this case, but returned them to the railroad company upon becoming satisfied that it was really a blackmailing scheme. As, by the time the bonds were issued, they had fallen in price to less than 30 cents on the dollar, the Atlantic, Tennessee & Ohio railroad returned to the State treasurer all except such as had been used in compromising the injunction suit.
According to the testimony of Col. N. W. Woodfin before the Shipp Fraud Commission (p.291) Swepson and Littlefield intended to build the Western Division, but to do it upon mortgage bonds, and otherwise so leave it in debt as to enable themselves to buy it in when sold for the debt. In the meantime, the money for which the special tax bonds might be sold was to be used by them "in speculation and otherwise, in order to strengthen themselves to buy it."
But, long before this time, people of the mountain section were clamoring that work should begin on the railroad, while Swepson was trying to sell as many of the bonds of the Western Division as possible before the price declined in consequence of the sudden flooding of the market with the special tax bonds to which the other nine railroads were also entitled. On various pretexts he postponed the signing of actual contracts for actual work until he could obtain better prices for his bonds, and caused the State treasurer, D. A. Jenkins, to issue some of the bonds for the Western Division prior to all others, and to decline to furnish bonds to the other railroads entitled to them on the ground that the plate from which they were to be printed had been broken. A question had arisen in New York as to Swepson's right to sell the bonds of the Western Division, and at a called meeting of the directors, held in Asheville, July 2, 1869, the president of the company was "authorized to sell any securities of the company, or to pledge them for loans when in his judgment the interests of the company required it; and in case such securities be sold to invest the proceeds in such way as he may deem best." A certified copy of the above resolution was sent to him in New York.
SWEPSON AND DIRECTORS. At this time no one in Carolina stood higher in public respect than George W. Swepson, while the directors were of the best people in this section. They did not, and had no reason to, suspect him of duplicity. They had had no experience either in the building of railroads or the management of corporations. He told them that unless he could sell the bonds he could not build the railroad, and that he could not sell them unless they gave him full authority not only to sell but to apply the proceeds as he saw fit. They gave it unsuspectingly and in full confidence in him. No breath of suspicion ever fell upon any of them in consequence, or that they shared any of Swepson's ill-gotten gains. They had done in good faith what they believed right in order to secure the speedy building of the railroad.
On the 13th of October, 1869, at a meeting of the stockholders at Asheville, M. S. Littlefield was elected president in place of G. W. Swepson, who refused to serve any longer on the ground that "his management had been a good deal censured and he was suspected of improper conduct by the Western people…. " Gen. Clingman, Col. Davidson and Col. Woodfin opposed the election of Littlefield to office.
So outspoken had become the criticism of the management of this railroad and the sale of all the special tax bonds that the legislature, by an act which was ratified March 24, 1870, appointed J. L. Henry, N. W. Woodfin, W. P. Welch, W. G. Candler and W. W. Rollins commissioners to "examine fully into the affairs of the Western Division and to make a full and final settlement of all accounts and liabilities of Geo. W. Swepson, and to collect all assets" and apply the same to "the construction of the railroad." It had full power and was authorized to sit in New York or elsewhere.
But by the time this commission was appointed both Swepson and Littlefield had left the State, the latter never to return. The commissioners, however, immediately took up their work, going to Washington and New York, and effected a settlement with Swepson before the act appointing them was repealed, which was done at the session of 1873-74. (Ch. 119.)
The grand jury of Buncombe county returned a true bill against Swepson and Littlefield (Minute Docket E., No.32) for conspiracy to defraud the State; and by a joint resolution of January 25, 1871, the governor was requested to offer a reward of $5,000 for the delivery of Milton S. Littlefield to the sheriff of Buncombe county. But Littlefield was in Florida, Holland or England and the governor of Florida refused to grant an order for his extradition from that State.
The settlement which the commission had effected with Swepson was dated the l6th day of April, 1870, at Washington, D. C., and was probably the best possible in the circumstances, as Swepson made it appear that he had already so encumbered all his tangible property that if a suit were brought "it was almost certain that nothing would be realized." Swepson was frightened and penitent, and Littlefield was not present to inspire him with courage. Now, as the directors had authorized Swepson to sell and pledge these securities and invest their proceeds as he saw fit, and as they had not advertised that the contracts would go to the lowest bidders, and as, in the contracts themselves, no time limit was made the "essence of the contract," it was plain that Swepson and Littlefield were not alone to blame for the condition into which the affairs of the Western Division had fallen. In his testimony before the Shipp Fraud Commission Judge J. H. Merrimon said (p.277): "It appeared to me, from what I saw at the meetings of the board of directors, which I attended, that they were a useless body of men; did nothing, and if they had any power or authority to do anything, they seemed never to exercise it, except when they were told by Swepson."
By this compromise Swepson paid $50,000 cash and gave his drafts on Littlefield as president of the Jacksonville, Pensacola and Mobile railroad and endorsed by M. S. Littlefield and G. W. Swepson as president of the Florida Central rail road, aggregating $264,000, payable four and twelve months after date, $164,000 of which was secured by a mortgage on certain lands of Swepson's in North Carolina, the said lands to be discharged upon payment on each tract as follows:
|Eagle hotel in Asheville upon payment of||$ 5,000|
|Gid Morris place of 1,600 acres upon payment of||12,000|
|David Hennessee lands in Cherokee upon payment of||7,500|
|Charles Moore place of 600 acres upon payment of||6,500|
|The Sharp place of about 300 acres upon payment of||3,000|
|The Woodfin place in Macon county upon payment of||2,000|
|The Jarrett place on Nantahala river upon payment of||5,000|
|The Harshaw lands on Valley river upon payment of||5,500|
|The Fain lands in Cherokee county upon payment of||5,000|
In addition to the above, upon which no amount was fixed for their redemption, the mortgage was to cover the marble and lime lands in Catawba county, owned in co-partnership with Dr. A. M. Powell, "about 90,000 acres in Macon, Cherokee and Clay counties, known as the Olmstead lands, and a lot of about 50,000 acres held by Joseph Keener in trust for Geo. W. Swepson."
It was further agreed that the draft for $164,000 might be paid in railroad iron delivered at Portsmouth, Virginia; and that if an umpire, to be appointed by N. W. Woodfin and M. W. Ransom, in casc they could not agree, should decide that Swepson had not been authorized by his board of directors to invest the proceeds of the sales of these bonds in these Florida railroads, then Swepson was to guarantee that $880,000 of the amount of $1,287,436.03 transferred in Florida railroad securities should be paid or made fully secure and that, otherwise, there should be no such obligation on Swepson's part.
In addition to the above the agreement provided that an interest in the above named railroad, amounting to $1,287,466.03, should be transferred and conveyed to the Western Division of the Western North Carolina Railroad Company.
It developed soon afterwards that, although Swepson claimed to have turned over these securities in the Florida railroads to Littlefield, yet, when the latter became president of the Western Division, in October, 1869, he then stated that they were the property of the Western Division, having been purchased with the proceeds of the sale of the special tax bonds of said railroad, but had been pledged with Edward Houston, of Georgia to secure the payment of a large indebtedness of Littlefield to said Houston, and were about to be sold. Thereupon the Western Division obtained an injunction in the Supreme court of the State of New York in October, 1870, restraining Littlefield and Houston from making the sale. But, before the order could be served, Houston "fled with the said stock and bonds from New York to New Jersey, and from there to Georgia, in order to avoid the law and keep fraudulent possession" of the securities, which rightfully belonged to the Western Division. This stock consisted "of about 4,370 shares (being nearly the entire capital stock)" of the Florida Central Railroad Company, "which company had then no mortgage debt upon its line of railroad, which was sixty miles long, completed and in good running order." The bonds of the Pensacola and Georgia railroad and of the Tallahassee railroad amounted to $1,000,000, and cost Swepson $720,000 of the proceeds of the special tax bonds of the Western Division, including "some stock in said company and paying expenses incident to such purchases." These railroads had been sold in March, 1869, under foreclosure, and brought in by the trustees of the Internal Improvement Fund of the State of Florida for $1,400,000, "the amount of the whole mortgage indebtedness of both of the railroads." Thus, the Western Division had secured legal title to a majority of the stock of an unencumbered railroad 60 miles in length and owned ten-fourteenths of two other Florida railroads absolutely unencumbered. If, therefore, the settlement effected at Washington had stood intact, there is little doubt but that the courts would have confirmed the interest of the Western Division in these three Florida railroads, as its money had been invested in them.
But Col. Woodfin was soon called to London, England, where a supplemental settlement was made on the 10th of November, 1870, with Littlefield, representing the Florida railroads, by which he agreed to take for the interest of the Western Division in those Florida railroads 800 eight per cent bonds of the State of Florida, of $1,000 each, and enough rails, etc., to lay 53 miles of railroad down the French Broad river to Paint Rock, including sidings, etc. This iron was to be delivered duty free at Norfolk, Va., in three lots, aggregating 1,800 tons, and the rest at New York, the last shipment to be completed by September 1, 1871. An additional shipment was to be made of 1,000 tons to New York, with the necessary chairs and spikes to lay the same, by September 1, 1871, "the shipping of which the said S. W. Hopkins & Co. are to guarantee." But, to get this settlement, Mr. Woodfin had to agree in writing that he would pay a claim of $20,000 held by Henry Clews & Co., of New York, against Geo. W. Swepson, and to leave the 800 Florida bonds with Hopkins & Co. for sale at such price as Mr. Woodfin should direct. Mr. Woodfin also receipted for two hundred sterling, paid him at that time. With the lights this was a most excellent settlement. He did not complications existing in Florida.
This iron was shipped according to agreement but was diverted by Hopkins & Co., to Detroit, Mich. for the purpose of completing the Rock Fish Railroad, a branch of the Michigan Central. Major Rollins discovered this before the iron was actually laid down, and attached it. Mr. Woodfin arrived soon afterwards from New York with a warrant for the arrest and a requisition for the return to New York of S. W. Hopkins, the contractor, with whom Major Rollins had thought he was about to effect a satisfactory settlement. The officer from New York would not wait till this settlement could be effected and hurried his prisoner, Hopkins, back to New York City. By the time the case was to be heard on the question of ownership of the iron the clerk who had identified it for Major Rollins had disappeared and the iron and $10,000 in cash which had been deposited to indemnify the real owner of the iron was lost to the State. The clerk had been "seen."
But that was not to be the end of the bunco game by any means; for in May of the very year of which in April he had signed the Washington agreement, Geo. W. Swepson, while president of the Florida Central railroad had, without any authority of the board of directors of that road, issued $1,000,000 of bonds, which he signed as president in Washington, D. C., and caused one H. H. Thompson, who was not the treasurer of that road, to sign as such treasurer, F. H. Flagg being then the lawful treasurer. But Swepson and Littlefield gave Houston, to whom Littlefield was indebted, Littlefleld's note for $163,000 secured by 4,370 shares of stock and 103 Pensacola and Georgia railroad bonds, and the $1,000,000 of Florida Central railroad bonds, which were to be fraudulently issued by them. Thus, the value of the interest in the Florida railroads had been surreptitiously reduced very materially if not altogether destroyed; for in January, 1871, Littlefield paid his $163,000 note and obtained from Houston the surrender of the collateral which had been given to secure its payment. Then, one Thomas E. Codrington appeared on the scene and got possession of the fraudulent $1,000,000 of Florida Central bonds, which, under acts of the Florida legislature of June 24, 1869, and January 28, 1870, he surrendered to the State of Florida, and obtained in their stead a like number of Florida State bonds. But, strange to relate, Codrington got, instead of Florida State bonds, $1,000,000 of bonds of the Jacksonville, Pensacola and Mobile Railroad Company, which had been authorized by act of the Florida legislature of June 24, 1869, but of which only $3,000,000 of an authorized issue of $4,000,000 had been issued by the governor of Florida. Thus, apparently, had been cured the illegality of the same amount of bonds which Swepson had issued in Washington for the benefit of the Florida Central Railroad Company, to which the signature of H. H. Thompson, the fictitious treasurer, had been attached.
For this transaction, in January, 1872, Governor Harrison Reed of Florida was impeached and removed, and after the carpet-bag regime was entirely overthrown in 1876, and Hon. Thomas Settle of North Carolina had been appointed judge of the district court of the northern district of Florida, a hope was entertained that a court of equity would place the Western Division of the Western North Carolina Railroad in at least as good a position as it had occupied when its money had been originally invested in the three Florida railroads, and would not allow it to suffer by the illegal and fraudulent acts of those who had ceased to be its agents when those acts had been committed.
Now, Major Rollins had been elected president of the Western Division of the Western North Carolina railroad upon the disappearance of M. S. Littlefield and, subsequently, to the presidency of the Eastern Division, and, followed the railroad's interest into Florida, and the control of the Florida railroads. Accordingly, in February, 1877, he instituted a suit in equity in the circuit court of the United States for the Northern district of Florida, in which the Western Division of the Western North Carolina railroad sought to have the bonds of the Florida Central railroads, which had been exchanged for Florida State bonds, declared unlawful; but Judge Joseph P. Bradley, one of the justices of the Supreme Court of the United States, in an opinion filed May 31, 1879, dismissed the bill with costs, on the ground that the Western Division of the Western North Carolina railroad, by agreements made at Washington and in London, had "acquiesced in the issue of the bonds and only claimed to share in the proceeds thereof." The Supreme Court of the United States afterwards affirmed this decision in a case entitled Florida Central Railroad Company v. Schutte and others, upon the ground that, in the language of Chief Justice Waite: "There can be no doubt that the governor of Florida was active in promoting the sale, as was also the chairman of the commission appointed by the General Assembly of North Carolina. The bonds were taken at once to London and from there put on the market in Holland where most or all of these sales appear to have been made. The bonds were undoubtedly steeped in fraud at their inception; but they were nevertheless State bonds on the market in a foreign country, etc." The court held in effect that as the Western Division had adopted the property purchased by an embezzler with its money, its rights were subordinate to those of innocent purchasers of the same class of securities, and were charged with all the liens Swepson had put upon them.
North Carolina afterwards repudiated all of these special tax bonds along with others which had been issued by the carpet-bag government of 1868-70.