The CHAIRMAN. I observe that you make the penalty for failure to afford access to the Government the sum of $500 for each such offense and for each and every day of its continuance. That is on page 8. Later on, on page 9, do you fix that penalty also there upon the directors and officers of the corporation, making a personal application of it?

Commissioner HALL. That is on page 9, line 12.

Commissioner CLEMENTS. Referring to the penalty there in the discretion of the court, following that language that we have proposed, beginning on page 9, line 12, it is stated:

In construing and enforcing the provisions of this section the act of any director, stockholder, officer, agent, attorney, employee, receiver, operating trustee, or other person acting for or employed by any carrier, corporation, jointstock company, or other corporate combination, acting within the scope of his employment, shall be deemed the act of the carrier, corporation, joint-stock company, or other corporate combination, as well as that of the person so acting. So that it is intended to fix the personal responsibility and liability for such refusal on the agent or officer as well as the corporation. The CHAIRMAN. Do you think it accomplishes that?

Commissioner CLEMENTS. We thought so. If there is any slip in the language there, or in the use of it, it may not so operate. But that was the intent. Would you have some doubt about it because all of that comes after the designation of the penalty?

The CHAIRMAN. It would seem to me that the language which you quoted made the act of the director or the stockholder acting within the scope of his employment the act of the corporation.

Commissioner CLEMENTS. We say it shall be deemed his own act as well as that of the carrier.

The CHAIRMAN. Then you have, on page 8, line 6, the term "offender." You would think that applied, then, not only to the corporation itself, but to the official, would you?

Commissioner CLEMENTS. That is what we thought. First having imposed these obligations and duties and then providing a penalty and then providing that in applying, construing, and enforcing the law it shall apply to the act of each agent or officer enumerated there as his personal act as well as that of the corporation. That is the theory and that is the intent of it.

Senator LIPPITT. Why is it made such a criminal offense to keep other accounts or memoranda of such business than those prescribed or approved by the commission? What objection is there, provided all the memoranda and accounts and so on are kept as prescribed by the commission, to somebody having some other form of keeping accounts that might be more satisfactory to them?

Commissioner CLEMENTS. That is a subject that was very thoroughly discussed and considered when the act of 1906 was passed, when section 20 was rewritten for the first time containing this requirement that the books should be kept in accordance with forms to be presented by the commission and the commission should have access at any time to examine them and that no books or accounts should be kept other than those prescribed by the commission.

That was introduced into the section in the Hepburn bill in 1906, and there was a thorough discussion of the matter then in conference as well as in the Houses. That was construed to be rather a strong and radical proposition when it was first offered, but the

reason for it was this: We had discovered several instances where private memoranda had been made on which rebating transactions were kept account of until they had served their purpose, and then they were destroyed.

In the investigation of matters of this sort in Chicago in 1902 there were at least a dozen traffic managers of important roads who came in, and, one after another, admitted that they had not observed the tariffs. It had been their practice to disregard the tariffs.

One of them had agreed in a contract to continue the matter of cut rates and rebates for a period fixed-either six months or a year, I think it was-and about half of which had then run; and in an effort to get at the extent to which it was admitted by all of them that they had been indulging in these practices, we asked them if they could not furnish us the details of who they paid the rebate to and how much, and when, and what per cent, and all about it; and practically all of them that were asked for that sort of information, or at least some of them, stated that they did not have it, they had destroyed it, directly in answer to the question as to whether they had destroyed it for the purpose of having it out of the way if it should ever be called for by the commission or the courts. There was an open disclosure of this kind-no attempt whatever to conceal it. There was another case that we investigated at Cincinnati in regard to the question of rates on coal

Senator LIPPITT. Excuse me for interrupting you, but if you will provide that correct entries and accounts of all memoranda, etc., of all companies, and transactions pertaining to the carrier's business shall be kept, and not to keep those things would be a violation of the law and subject the carrier to all the penalties, just as much as though they should keep some different and additional book, I do not see why you do not reach the matter just the same if that clause were left out. You prescribe, in the first place, that the carriers shall keep memoranda and accounts in writing of every transaction they make. Then you again provide that if he happens to keep some duplicate one for his convenience, although he has given you all the information you asked for, he is to be punished. I am not familiar with it, and it struck me as being rather remarkable.

Commissioner CLEMENTS. I was going on to illustrate another instance where we investigated the rates on coal in Cincinnati on a complaint alleging some very serious matters.

We found that this practice had been going on there for quite a long time and to a serious extent; that some dealer in coal, hauling it in by rail or getting it by rail some way, was in great trouble in competition with the coal that came down the river, and one of the roads undertook to help him out. The road did not want to reduce its scale of rates in a public way, but was willing to make an arrangement with him whereby he could be taken care of in competition with the river business, and it was deliberately arranged that he could put in his claim from time to time for loss and damage on his shipments, in the form of loss and damage claims. It was understood that when claims of that kind were O. K'd in red ink by the initials of a certain official of the carrier, they were to be checked off and paid without any further question. Several transactions of that kind cropped out all along, and we felt that we got very near to the truth in respect to some very serious departures from the published rate.

Then, in Minneapolis, in the flour business

Senator LIPPITT. That case that you cite would not come under this clause at all. They were not keeping any additional books or memoranda. They were simply neglecting to keep any.

Commissioner CLEMENTS. Of course, they were committing a criminal act and they were not going to write it on their written books.

Senator LIPPITT. They were violating this provision that requires them to keep full and correct account of all their transactions; but the mere fact that they were not keeping any duplicate this provides for keeping duplicates.

Commissioner CLEMENTS. The principal purpose of that was to reach this thing. I alluded--and I will not go into the details of it-to the investigation which indicated to a moral certainty some wholesale transactions of this sort, violating the published rate, in regard to flour shipment from Minneapolis. It was a great many years ago before the Hepburn Act was passed. We did not have as much power then as we have now, and we could not call for these papers or go into the office or send an expert accountant in there to look them over, but it was manifest from the testimony in the case that I have alluded to in regard to a grain investigation in 1902 at Chicago, and these other matters, that there was a practice of keeping accounts in a private way on separate memoranda which they had destroyed after it had answered its purpose.

A wholesale practice of this sort can not go on in any systematic way unless some figures are kept or a memorandum is kept somewhere; and that provision was put in there so as to shut off entirely the opportunity for keeping duplicate books, one for the commission to see and one for private use for the concealment of things that are unlawful.

The CHAIRMAN. Has it been effective in that direction?

Commissioner CLEMENTS. That, along with the other provisions of section 20, I think has been extremely effective. The old raw rebate is, I think, a thing of the past. Of course there are methods of effecting favoritism or discrimination by one device or another that are still resorted to, from time to time, but there is not nearly as much of that as there used to be, and so far as this handing over of checks and money is concerned, in the way of rebate, I think we are safe in saying that it is not done any more.

Senator SAULSBURY. These memorandum books that you refer to are necessary, I suppose, really, to acquit the officer sof the road from charges of embezzlement in certain cases?

Commissioner CLEMENTS. Yes. Sometimes they had a fund set aside for some particular officer for a general purpose of some sort, and he would pay it out, and nobody could ever tell how or to whom he paid it.

Senator LIPPITT. That is all covered by the previous provisions of the bill, as to keeping full and true and correct accounts.

Commissioner CLEMENTS. Whether it has been sufficient or not, I think it has gone along very well. It has been the law since 1906, and I understand that the railroads have no very great objection to it now.

The CHAIRMAN. You simply made it more effective by applying it not only to those who keep any other accounts, but to those who cause them to be kept, and also, not only those who file certain false state

ments, but those who cause them to be filed. That is about all the effect of that amendment, is it not?

Commissioner CLEMENTS. Yes. The particular provision referred to has been in the law for eight years. It is just a part of this general new section 20 which was invigorated by the Hepburn Act in 1906. This one provision of it that all accounts must be kept alike, was inserted so that there should not be a babel of reports, eLe copy on this plan and one on that plan, upon which the commission could never formulate any tables or statistics, and therefore it was necessary to have uniformity for checking and for verification, so that the results could be made up from these reports on a truthful basis. That was the necessity of having a form prescribed, so that all of them would keep their books alike. A great deal of consideration was given to them. Prof. Adams was in our employment at that time for the purpose of framing up these forms of account and bookkeeping methods of that kind, so as to classify their earnings and their expenses and make uniform reports, and it was thought at the time that a provision of this sort which excluded the opportunity of keeping private memoranda, simply for the eye of the manager or a particular officer in the organization by which he could keep accounts with his subordinates, would eliminate one of the facilities for irregular practices. That was the whole purpose of it. It do not understand that it has worked any hardship. I do not understand that the carriers object to it. I do not know how they feel about it. There was considerable objection made at the time, but I do not think the reasons advanced for these objections have been sustained in practice.

A good many of the changes proposed here are in minor matters of phraseology and transposition, as well as some matters of substance, and Commissioner Hall has been the member of the commission who has handled the pen in our conferences and has given great care, by himself as well as with the commission, in going over all these matters, and I want to say that the entire commission present at the time has considered very carefully all of these matters. They have been put together by the hand of Commissioner Hall in accordance with what was agreed to in the discussion, and I am going to ask him to specify, if you care to have them detailed here, the reasons assigned for each and every change that we have made here. He can do it more readily than I can.

Senator SAULSBURY. I would like to ask Commissioner Clements some questions on that line, Mr. Chairman.

The CHAIRMAN. Certainly.

Senator SAULSBURY. I would like to ask you some questions on the line of this bill from a rather different viewpoint. Did the commission consider the possible advisability of getting at the difficulties which have developed, or the abuses which have developed, in railroad management, financially, by taking the course of compelling the public sale of their securities-and by public sale I mean about the way that municipalities have done it, by advertising and accepting bids; have they considered the abuses of a fiscal agent from that standpoint?

Commissioner CLEMENTS. No; I could not say that the commission has considered that method of getting rid of the abuses that have resulted in that way.

Senator SAULSBURY. That would avoid the abuses of the rake-off of the fiscal agent very largely, would it not?

Commissioner CLEMENTS. Well, it would look so on the surface of it, but I am not sufficiently acquainted with financial matters; I mean, operations to place securities and secure money-I am not sufficiently familiar to speak authoritatively or advisedly about that. We have dealt with this only from the viewpoint that carriers ought not to strain their credit and exhaust their ability to do things by raising money except for a proper purpose, and then it should be applied to a proper purpose in the public interest as well as in the interest of the stockholders, or in righteousness for everybody that is involved in it.

Senator SAULSBURY. Your viewpoint has been to increase the power of the commission over the carrier rather than to regulate the practices?

Commissioner CLEMENTS. Yes; our view of it has been to veto an action of that kind when it is not proper. That is the theory of this proposition here.

Senator SAULSBURY. That is, instead of leaving the carriers to determine how much money they wanted, you see that the money got into the treasury of the company and not into the hands of the fiscal agent and his coterie; you propose to cut it off short and not allow them to do that unless you know what they are going to do with the money in the first instance?

Commissioner CLEMENTS. In other words, to know that there is a good reason for it before they do it?

Senator SAULSBURY. Is there any provision in the statute to-day providing that the fiscal agent shall be compelled to sell securities at the highest prices he can get?

Commissioner CLEMENTS. No, sir; that is not embodied.

Senator SAULSBURY. What do you think of a provision of that kind?

Commissioner CLEMENTS. We simply took this bill up as it was handed to us and went over it. Do you mean, to require railroads to sell their securities in no other way than by advertising for the highest bid?

Senator SAULSBURY. Yes; in the same way that municipalities do. Commissioner CLEMENTS. Like the cities and States do?

Senator SAULSBURY. Yes. I thought you might have considered -that.

Commissioner CLEMENTS. No; we have not. I do not know enough about the possibilities of getting money that way. I suppose, for a large road, well known throughout the financial world, that would be quite feasible. I would think so, without having had any experience in the matter. I suppose, for a weak road, not known far beyond its neighborhood, it would probably have to get money from somebody that it could go to and convince them that a practically unknown road in large financial circles would be, in fact, good for its undertaking

Senator SAULSBURY. But they could do that with financiers or banking men by getting them to bid publicly for these securities. Commissioner CLEMENTS. It possibly could be worked that way. I would not say it could not. I simply have not had experience enough in respect to transactions of that sort to speak in a way that would be