“What about the loans?”
“The loans are paid off promptly when they become due.”
“What about the stockholders?”
“That is the peculiar thing, Mr. Lam. It is something I cannot understand.”
“Go ahead.”
“A certain amount of stock is sold to the public; not a great amount. Most of that stock is held in escrow. Then apparently — and you understand I didn’t know this until the last forty-eight hours when our investigators reported — the stock is bought up by someone who pays the stockholders just about what they paid for the stock.”
“Suppose the stockholders don’t want to sell?”
“The stock that is not sold back—”
“Wait a minute, you say ‘back.’ What do you mean by that?”
“We have every reason to believe that the person who buys the stock is the representative of George Tustin Bishop.”
“All right. What about the people who don’t want to sell?”
“They’re permitted to hold their stock for another six months or a year, and then an offer is resumed. Eventually they either sell the stock or it becomes valueless. The mine languishes with no further development work being done.”
“Now, what,” I asked, “would be the idea of making a wash transaction of that sort? There must be considerable overhead.”
“There is. Not only are there legal expenses, but there is the selling commission. There is, however, no great drive to sell the stock. A prospectus is put out and the stock is sold in every instance entirely by mail. After a small percentage has been sold, selling activities are discontinued. Then the corporation goes through a quiescent period, after which the stock is bought back.”
“It doesn’t make sense,” I said.
“Exactly.”
“All right, tell me about this Skyhook Mining and Development Syndicate.”
“Now, there we have a very peculiar situation. The organization of that corporation apparently followed the usual pattern. Permission was given to sell the stock at par value, allowing a fifteen-percent commission for the salesmen, but with the understanding that all of the balance of the money must go into the treasury of the corporation, and that there could be no disbursements until certain prerequisites in the nature of development work had been done.”
“How was the money secured for the development work?”
“The understanding of the corporation commission was that the sales of the stock would be handled by a syndicate, and that the fifteen percent, together with contributions made in the form of a loan by the organizers, would go toward the initial development.”
“So that the stockholders would be getting a free ride?”
“If you want to put it that way, yes.”
“And that was done?”
“That was done. The corporation was permitted to endorse a note, which was signed by George Tustin Bishop, with the understanding that every penny of the proceeds would go into the treasury of the corporation.”
“How much was the note?”
“Twenty-five thousand dollars.”
“Then what happened?”
“Then a peculiar thing happened. Something about the name appealed to the investing public. I understand the solicitation was by mail, but the public reacted very favorably. The records indicate that some fifty percent of the treasury stock was sold to the public under the conditions laid down by the commissioner of corporations.”
“That was a departure from the usual pattern of the Bishop corporations?”
“Yes, sir. Very much so.”
“And then what happened?”
“Then,” Billings said, “Bishop flatly refused to meet the note. He drew out every cent of money he had in our bank and stated he had no funds with which to meet that note, and that we would necessarily call upon the corporation as an endorser to make good the amount of the loan.”
“What had happened to the money in the treasury of the corporation?”
“It had been spent for development work. Now, then, Mr. Lam, I dislike very much to go into this because it is something that would ruin us if it became public.”
“What?”
“The bank made a very extensive investigation through certain channels which are open to a bank, which would not be open to the general public, and concerning which I do not want to make any statements.”
“All right, what was the result of the investigations?”
“Ore was being shipped from the Skyhook mine and sent in flat cars to the George T. Bishop Smelting Corporation.”
“Then what happened?”
“Then comes the incredible part of the whole thing,” Billings said. “The ore was being smashed up into fine particles and used to grade roads, for earth fills, and used as ballast.”
“Ore was shipped down out of the mountains, smashed up, and then transported by freight to wind up as mere crushed rock?”
“Exactly.”
I said, “There must be a mistake somewhere.”
“There is no mistake. We have found that the same procedure was followed in virtually every one of the mines where any development work was done. Ore was shipped down to the smelting and refining company, and by the smelting and refining company was converted into road ballast.”
“In other words, Bishop was a swindler.”
“I’m not making that as a flat accusation. Certainly there is something going on that is definitely far from the normal development of a business venture.”
“What would the smelting company pay for this ore which it converted into road ballast?”
“Various amounts,” Billings said, “until the mining corporation had received enough to repay the loan which it had made; then the mining company became inactive, there were no further shipments of ore, the loan was paid, and the company was virtually dissolved, with nearly all of the stockholders exercising the option which had been given them by the commissioner of corporations to withdraw the amount of money which had been put in for their stock and had been held in escrow for a period of a year.”
“You went to the commissioner of corporations, of course?”
“No, sir. I did not.”
“Why?”
“Because the bank was involved in the transaction to a certain extent. Perhaps we should have exercised a closer scrutiny over the affairs of these corporations, but because Mr. Bishop customarily kept a very large balance in our bank, and because his various accounts were quite active, we took him at face value.”
“But when you found out — then what?”
“We asked for an explanation from Mr. Bishop.”
“Did you let him know what you had found out?”
“We found out a lot of this after — well, too late. But Bishop knew we were making the investigation.”
“You had found out some of this before Tuesday?”
“Yes. By last Tuesday we knew enough to put us very much on guard, to make us rather suspicious.”
“And you had asked Bishop to meet with you and explain matters?”
“Yes.”
“You had asked him to meet with you when?”
Billings coughed.
“When?”
“On Tuesday night.”
“Where?”
“At my house.”
“All right. Now let’s go back to the boat. Your son found Bishop’s body on the boat. What did he do?”
“He realized that fortuitously no one knew he was aboard the yacht.”
“What time was all this?”
“It was well after dark.”
“So what did he do?”
“He undressed. You see, we each of us have a stateroom on the yacht and each stateroom has a closet containing a lot of clothes. Therefore my son was able to divest himself of his entire wearing-apparel without creating any attention.”