The Wrong Side of the Tracks

FROM THE 1830s ONWARD, railroads became potential sources of huge profit. People and goods could be transported further, faster, and for less money than ever before. Those local merchants who had invested in the earliest railroads, such as the Liverpool to Manchester line (see Liverpool and Manchester line), reaped the financial rewards. Further railroad expansion was needed, and many people saw it as the perfect opportunity to make lots of money. By the 1840s, the rapidly expanding railroad system was attracting many new businessmen, entrepreneurs, and investors, all hoping to see fat returns for their money, if not always by honest means.

In 1859, a pioneering investigative journalist, D. Morier Evans, described the situation in his book Facts, Failures and Frauds: “It is with the railway mania of 1845 that the modern form of speculation may be said to begin and the world has not yet recovered from the excitement caused by the spectacle of sudden fortunes made without trouble.” It was finance capitalism at its most primitive, with George Hudson (see George Hudson) typical of those who, in Evans’ words, were “pioneering new lines through every difficulty” and establishing the many and various ways in which he and his successors could defraud the public. Hudson embezzled a fortune and ruined many investors along the way, including the famous English literary family, the Brontës.

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By modern standards of corporate governance, the promoters responsible for many of the world’s railroads were dishonest. Yet many of them, such as Henry Meiggs in South and Central America (see Henry Meiggs), made innovative contributions to the development of the railroads. Even George Hudson belonged to the class of railroad promoters who actually cared passionately about railroads, as well as feathering their own nests. So perhaps the worst scoundrels were those who contributed nothing to the actual development of the railroads. John Sadleir, a successful Irish financier and Lord of the (British) Treasury, who issued £150,000 (around $750,000) worth of forged shares in the Royal Swedish Railway Company, certainly belonged to the latter category.

While John Sadleir eventually ruined himself, his railroad fraud ensured that the Swedish government assumed responsibility for its country’s rail system for the next 150 years. In this the Swedes were typical of many European governments whose control over their railroads was far more complete—and more honest—than the British. The French, for instance, operated a system of controlled regional monopolies. Nevertheless there remained opportunities for those involved to enrich themselves, and some politicians often made handsome, if completely unethical, profits from the railroads. In Prussia (later part of Germany), Chancellor Otto von Bismarck had no qualms about instructing his banker to buy shares in the railroads he was proposing to nationalize—a process that made him a tidy profit, but that would now be deemed illegal insider trading.

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Perhaps inevitably, it was the US, with the biggest rail network in the world (at that time), that provided crooks with the greatest opportunities. The battle for control of the Erie Railroad in the late 1860s really laid bare the world of railroad speculation—the varied characters, the complex legal dealings, and the level of political involvement. The battle was immortalized by Charles Francis Adams, a grandson and great-grandson of United States presidents and himself a railroad man, in his book Chapters of Erie(1871). The Erie Railroad had never been profitable, he explained, but industrialist Cornelius “Commodore” Vanderbilt saw an opportunity to create a monopoly of the tracks to Lake Erie and make some money. However, he came up against a formidable trio of directors and speculators—Jay Gould, who had acquired a reputation as the most sinister and corrupt of railroad barons, and his two associates, Daniel Drew and Jim Fisk. The Gould gang issued masses of stock—and bonds convertible into stock—in order to dilute Vanderbilt’s holdings. The ensuing battle spread to the courts and the politics of New York State. When the battle reached the State legislature in Albany, Vanderbilt looked like he was winning the hearts, minds, and pockets of the legislators, but Gould got there first—at an estimated cost of $1 million. In the end, Vanderbilt gave up.

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Russia, too, was ripe for corruption. During the railroad boom in the latter part of the 19th century, many lines were built by private enterprise with the government guaranteeing a generous rate of return on their investment. This proved highly lucrative. One of the big railroad barons of the Russian railroads, Samuel Polyakov, manipulated the companies he ran to ensure that he owned all the shares, thereby reaping all the dividends. Polyakov also amassed shares in other railroads, which he used as collateral against loans from foreign bankers, betting on the expected rise in share value. While these activities might just have been on the right side of the law, he also artificially inflated costs of railroad construction in return for bribes to state officials, usually paid with railroad shares. And he was not the only one. In A History of Russian Railways J.N. Westwood writes: “Many other important civil servants and even members of the royal family (including apparently Tsar Alexander III’s brother, the Grand Duke Nikolai Nikolaevich) received bribes in the form of shares from railway promoters.” This corruption was endemic at all levels—even conductors, who were poorly paid, would often allow a passenger to travel for a “consideration,” usually around half the proper fare.

German philanthropist Baron Maurice von Hirsch died both respected and respectable, yet he was also a railroad profiteer. Today, his fortune, most of which he made on the Constantinople-to-Vienna railroad, would be counted in billions. Hirsch was awarded a concession by the Sultan of the Ottoman Empire to build lines in the open country, which did not touch any towns. This left gaps that had to be filled, which Hirsch did—expensively—and he was reckoned to have made several million dollars from the construction contracts alone. To make matters worse, the lines were built so shoddily that they required extensive improvement. Hirsch increased his profits by issuing “loans” to himself at cheap rates, then selling them on to banks at a profit. (The banks then sold them to the public even more expensively.)

Every aspect of railroad promotion, construction, management, and operation attracted its own type of crimes and criminals. Unsurprisingly, given the crowds, stations were favorite haunts of pickpockets and other opportunistic rogues. The managers of the London and North Western, Britain’s largest railroad company, were, according to the historian of the line,“at their wits’ end to find out the blackguards. Not a night passes without wine hampers, silk parcels, drapers’ boxes or provisions being robbed; and if the articles are not valuable enough they leave them about the station.” In the US, cardsharps proliferated on the railroads, including the infamous “Poker Alice” Ives, a petite, blue-eyed beauty whose winning combination of card skills and feminine wiles made her a very successful gambler.

Access to the files of a railroad company also provided rich pickings for forgers and con artists. None was more successful than Leopold Redpath, a British clerk at the Great Northern Railway, the company that owned the tracks between London and York. Redpath was assisted in his deception by the fact that the company had numerous kinds of stock, bearing various rates of dividend, and therefore intricate calculations were required to determine the level of payments to which the owners of the certificates were entitled. Redpath forged share certificates in which he was both buyer and seller, or, more cunningly, added the figure “1” to genuine documents bought by him, transforming, say, £250 to £1,250. In total, Redpath is believed to have embezzled an astonishing £220,000 (about $29 million in today’s money) through forgery and speculation on the company’s stocks and shares (which was also forbidden). Interestingly, although he used his ill-gotten gains to live a comfortable and luxurious life, Redpath also became a philanthropist; as Evans summarizes:

never was money obtained with more wicked subtlety; never was it spent more charitably. A greater rogue, so far as robbery is concerned, it were difficult to find; nor a more amiable and polished benefactor to the poor and the friendless.

Ultimately, it took the revelation of anomalies in the affairs of another business, the Crystal Palace Company, to prompt a similar investigation at the Great Northern Railway. This lead to the discovery of Redpath’s deception and resulted in his conviction and banishment to a penal colony in 1857. Redpath was not alone, however; his defense counsel revealed that when Redpath joined the Northern “he found in the office of the company a widespread system of speculation and of trading in stocks and shares under other people’s names—names not infrequently entirely utterly fictitious.” It is impossible to know how many similar frauds occurred during this time, but have remained undetected.

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One railroad crime from this era stands out for its cunning execution—the theft of £12,000 of gold bullion (around $1.6 million in today’s money) in 1855 from a South-Eastern Railway train traveling from London to Folkestone, Kent. It was largely an inside job involving Messrs. Burgess, a guard, Tester, a clerk, and Pierce, a ticket-printer and con artist, together with Edward Agar, a long-time professional thief. The plan was devised by Pierce and Agar: the gold was bound for France, and would be transferred from the train to the ship at Folkestone. On the way to Folkestone, it was carried in a guard’s van in safes with two separate locks and was then weighed at the docks to ensure that nothing had been stolen. The gang managed to acquire impressions of both sets of locks and enough lead to counter the weight of the gold. They were able to board the train, open the safes, extract the gold, and replace it with the lead, all before the train reached Folkestone. It was so wonderfully simple and the scheme only unraveled when Agar was arrested for an unrelated crime. He asked Pierce to provide for Fanny Kay, the mother of one of his children, but Pierce failed to do so. Kay then revealed the plan to the railroad company and Agar confessed, implicating the other three to reduce his own sentence.

Thus the early commercial railroads attracted a wide range of crooks and cheats, forgers and con artists, speculators and schemers from every echelon of society, all looking to line their pockets while emptying others’. As Samuel Smiles put it in his 1857 biography of “father of the railways,” George Stephenson: “Folly and knavery were for a time in the ascendant. The sharpers [cardsharps] of society were let loose and jobbers and schemers became more and more plentiful. They threw out railway schemes as lures to catch the unwary.”

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