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INDIANA STATE AGENCY, 1 No. 36 WALL-STREET, New York.
To the General Assembly of the State of Indiana :
As Agent of the State, and in accordance with the law, I would respectfully submit the following report of the transactions of this ollice, for the fiscal year ending on the 1st day of November, 1862, and including up to the 1st day of January, 1863, and including also the interest on the War Loan to the last mentioned date.
I took possession of the office of the Indiana State Agency on the 9th day of February, 1861. The office was, at that time, in building No. 52 Wall-street, from which I soon afterwards moved it to its present locality, thus procuring better and safer rooms.
On my first examination of the office, I found three uncanceled books of blank certificates of stock. These books had been sent to this Agency under the law of 1846–7, and, strange to say, had neither been canceled or returned to the Auditor's Office, at Indianapolis, on the repeal of part of that law. Each certificate embraced in those books were signed by the Auditor and Treasurer of State, leaving alone the Agent of State to fill up the blank with the desired sum, affix his signature, and thus make the certificate genuine. This being the practice under the law of 1846–7.
Under this law, whole books of blank certificates were signed by the Auditor and Treasurer, at Indianapolis, sent to the Agent of State in the City of New York, and when certificates were brought to the Agency for transfer, the Agent received, canceled them, and issued a new certificate in lieu thereof, pasting the canceled one in the place from which it was originally taken; thus placing in the hands, and at the disposal of the State Agent alone, with hardly any check whatever, the entire amount and condition of the State debt.
A looser and more dangerous system of conducting the financial interests of a great State would be difficult to devise.
These books I at once canceled, by cutting holes through them
and otherwise defacing them, and have also sent them to the Auditor at Indianapolis.
The law of 1846-7 being repealed in this particular, by the Act of 1859, certificates of stock were afterwards, and are now, only issued from the office of the Auditor of State, on the surrender to him, by the Agent of State, the certificates sought to be transferred. Thus making the officers at Indianapolis a sufficient check on the Agent in this City, and preventing the possibility of a further fraudulent, or over issue of certificates of stock.
The Change of the Public Debt, and the Abolishing of this Agency.
By the law of 1816-7, the State of Indiana agreed with her bondholders to surrender to thern her interest in the Wabash and Erie Canal, for one half the public debt of the State. Under this agreement, the coupon bonds, then representing the indebtedness of the State, were, with a few exceptions, brought to this Agency, canceled, and our present certificates of stock, under said law, issued in their stead. Under this fair agreement, made by the agent of the bondholders, and the proper authorities of the State, it was reasonably expected that all the coupon bonds of the State, embraced in the agreement, would be surrendered. This, however, has not been done, as will be shown.
It was thus that the State debt became changed from coupon bonds to certificates of stock, and that it became necessary 10 establish this Agency. However wise this system was in the beginning, and up to the present time, it has answered its purpose, and if it can, without compromising the good faith of the State in any way, should be changed.
The five and two and one-half per cent. certificates of stock of the State of Indiana, are “redeemable at any time aster twenty years from the 19th of January, 1846, at the pleasure of the State."
It might be advisable, therefore, for the Legislature, during its present session, to take some action in relation to this matter. The best thing for the State to do, if she can, is to redeem all her outstanding certificates by the 19th of January, 1866, and thus discharge her obligations to her creditors. As this, however, will, in all probability, not be done, an important question is, what is the next best thing to do?
I would suggest the propriety of changing our certificates of stock, back to coupon bonds—or at least so much of them as the State will not be able to redeem by Jamuary, 1866–the law to go into effect on the 1st day of July, 1866, and the paying of interest on certificates of stock to stop after that date. The coupon bonds being of the denomination of $1,000 each.
As this would do away with the further transfer of certificates of stock on books kept for that purpose, this Agency should be abolished from and after the 1st day of January, 1867, as this would give sufficient time from the taking effect of the law, to change the entire
debt of the State to coupon bonds. The coupons, afterwards held by citizens of Indiana, should be redeemed at Indianapolis, and the remainder at some bank in the City of New York. I can see no reasonable objection the holders of our certificates of stock can have to this, and certainly the interest of the State demand the change.
This being done, the possibility of another fraudulent issue of certificates of stock is precluded, and the State would save $5,000 per annum, the expenses of this Agency.
The Present Debt of the State.
The amount of the five per cent. certificates of stock, is, up to this date, $5,325,500; of the two and one-half per cent, $2,058,173 50; of the War Loan, coupon bonds, drawing six per cent. per annum, $1,225,500. Making in all the present determined debt of the State of Indiana, $8,609,173 50.
It must be understood that this does not include the outstanding original bonds of the State, the precise amount of which still unsurrendered, in accordance with the agreement of 1846-7, and yet outstanding, is impossible to determine from the books of this Agency. The register book, which ought to determine this to a fraction, has, from the first, been so carelessly kept, that the most rigid examination now fails to determine any thing about it. This state of affairs is very unfortunate. Through an extensive correspondence, however, I am enabled, in my judgment, to give a near approach to the number of those bonds still unsurrendered, and think they will not fall far short, or perhaps not much exceed, four hundred of $1,000 each-the attached coupons, which are now due, being equal to the principal of each. These bonds, if surrendered, as they ought to be under the law of 1846–7, would only increase the public debt about $100,000 additional.
In my former report to the Legislature I said, that, "as heretofore reported by my predecessor," there were then outstanding, three hundred and ninety-one of those original bonds. There is no data by which this is determined, left in this Agency, and I only make the assertion, based upon the reports of my predecessors. A looser system of book-keeping than the one originally adopted, in this particular, at this Agency, it would be difficult to devise. office where so much care ought to have been practiced-where the financial interests of the State were placed-a most inefficient system appears to have been adopted.
The exact amount of the fives and two and one-half per cent. certificates of stock, can always be determined from the books of this Agency; but I again repeat it to arrive at the amount of the outstanding original bonds of the State, is, from the books of this Agency, impossible.
The liquidation and surrender to the State of those bonds, is a subject which, at this time, demands the careful consideration of the Legislature.
The Stover Fraud.
In the month of March, 1861, a few weeks after I had taken possession of this Agency, I discovered-with the assistance of G. L. Dashwood, who has for years been an efficient clerk in this office, and whose character for the strictest integrity is above reproachthat there was, in one of the banks on Wall-street, hypothecated for loans, about $200,000 of the Indiana five per cent. certificates of stock in the name of Samuel Hallet. On an examination of the ledger, I found that Mr. Hallet had at that time but $10,500 of genuine certificates of stock. These fraudulent certificates were all signed by H. E. Talbott, Auditor, W. R. Nofsinger, Treasurer, and James A Cravens, by D. C. Stover, Agent of State. On their face they appeared to be genuine; but the books of the office do not show that such certificates, of such numbers and for such suns, have ever been issued to Samuel Hallett. This was alarming, and I at once had an interview with Mr. Stover, my predecessor, who was still in the City of New York, and demanded of him an explanation of this matter. He then and there admitted that he had taken the certificates from one of the blank books left in the office, had filled them up, signed them, and given them to Mr. Hallett, as his broker, who had effected loans upon them. By this, it seems that Mr. Stover had taken an entire book of blanks from the Agency, prior to my taking possession, and from this one, which he always kept, had taken the certificates, which he fraudulently used. That book, or the part remaining, he has assured me, has been destroyed. From these facts it is clear there were four of those blank books of certificates of stock-each one containing about 500 certificates—left in this Agency after the taking effect of the Act of 1859, three of which I destroyed by cutting holes through them as soon as I discovered them, and the one which Mr. Stover kept and which I never saw. These fraudulent certificates were not sold upon the market, but were only hypothecated for loans.
At this interview with Mr. Stover, I demanded of him that all those certificates which he had fraudulently issued, should at once be taken up, brought to this Agency, and by me destroyed. He declared his inability to do so immediately; but if I would give him time to get together his means, he would. I then agreed to give him time, if he would redeem promptly, at the rate of $25,000 each week. This he agreed to do, and did do, assuring me at the same time that the amount then discovered was all that had been, or by possibility could be, issued.
In less than eight weeks, the full amount discovered on the market was brought to this Agency and by me burned; the parties interested always standing by and seeing it consumed. I congratulated myself that the State had been so fortunate in getting these fraudulent issues off the market, without creating any public alarm, and without in any way injuring her credit, or by possibility increasing her debt.
In the meantime, and before I had discovered any more of those fraudulent issues, the country had become involved in civil war. The rebels had fired upon and taken Fort Sumter. Every thing was in a state of alarm. The financial disposition and condition of Wall-street were doubtful. Distrust, uncertainty and dismay were every where. Many of the loyal States were sending their Agents into the money markets to borrow means for the purpose of arming their citizens, and the State of Indiana had her Loan Commissioners in Wall-street, endeavoring to effect al oan of $2,000,000 for that purpose.
Under these circumstances, and with such surroundings, I discovered other lots of these fraudulent issues on the market. These lots, as fast as I discovered them, were taken up by the parties who had hypothecated them, brought to this Agency and destroyed.
To have made this matter public, at this time, or any other time, would, in my judgement, have been seriously injurious to the interest of the State, as well as the general interest. Deeming it, therefore, highly improper and unwise to make an alarm, with the condition of the country so unsettled, and the money market so sensitive, I still pursued the quiet policy of forcing Mr. Stover to redeem, at once, those fraudulent issues as fast as discovered.
Thus the matter progressed, until some time in the month of December, 1861, Mr. Lanier, of the firm of Winslow, Lanier & Co., discovered an additional lot of $40,000. These had been deposited by L. W. Jerome, a broker, as collaterals on which he had effected a loan. In consultation with Mr. Lanier at this, and many times subsequent, and from whom I received valuable assistance, and with officers of the State of Indiana, we determined to continue the quiet policy of withdrawing those fraudulent issues from the market, believing that the interest of the State required alone that
Governor Morton, however, did not-from the moment he was made familiar with this fraudulent issue, and the circumstances attending it-favor this quiet policy, but was for a more open one, and a vigorous prosecution of the parties implicated.
T'irough Mr. Stover and Mr. L. W. Jerome, we procured, as we then thought, the full amount, at that time, in the hands of different brokers and bankers, and which we believed to be $275,000. To take this amount up and surrender each certificate to this office, to be destroyed, required some time. The parties asked indulgence, and we agreed to give them time to redeem, at the rate of $25,000 each week, until the full amount would be taken up and destroyed.
While this arrangement was progressing, the fact that there were fraudulent Indiana five per cents. on the market, became public,
nd Stover and Hallet were arrested and indicted. Up to this time I had succeeded in securing and destroying about one million and five hundred thousand dollars of those fraudulent issues.
When it became generally known, Wall-street was greatly alarmed. The money market, through all its ramifications received a severe check. The stocks of the State of Indiana were excluded