Trying Their Hand at Life Insurance.
"The Western Mutual Life Association of this city has been weighed in the balance by the Missouri and Michigan State Insurance Commissioners and found wanting. An examination of the concern by these officials, made as of August 31, 1898, has recently been reported upon. On that date a deficiency of assets under the most favorable showing of $55,635.36 was shown to exist. In other words, the association was impaired that amount.
"President Thomas F. Rhodus and Vice-President Birch F. Rhodus each received a salary of $10,000 a year, and there seems to have been a handsome expense allowance besides. Secretary Charles S. Johnson received $7,000 annually; Second Vice-President John B. Kirk, of James S. Kirk & Co., and Treasurer J. V. Clarke, President of the Hibernian Bank, under an arrangement, the annual sum of $27,000."
The facts here cited were disclosed by the investigation made by the Insurance Commissioners mentioned above. The association did not long survive this incident, and its assets were soon taken over by the Illinois Life Insurance Company.
When the records of these men are considered, it is believed that the boldness of their operations, the ease with which they have obtained the endorsement of representative business men in Chicago and elsewhere for their various schemes, and the way in which, unchecked, they have personally profited from their operations in the name of legitimate business, are absolutely without a parallel in the history of this city.
Any number of stockholders in the different companies stand ready to testify to the correctness of the foregoing. Every company started and operated by these men appears to have been exploited for the sole benefit of themselves. The stockholders have, with a few insignificant exceptions, lost every dollar invested.
This was the opening gun in the Rhodus campaign. When Detective Wooldridge began boring in he found that in addition to the Central Life Securities Company (whatever that might mean), the Rhodus brothers were promoting the moss-grown mining proposition, and that the Mina Grande Mining Company, with certain holes in the ground located in the State of Sonora, Mexico, was also a Rhodus Company.
The Mercantile Finance Company, which was capitalized at the sum of $1,000 in the State of Maine, Maine being almost as easy as New Jersey as a corporation state, was the basis for the manipulation of all the other companies. Even Maine would not stand for a big capitalization of penniless adventurers, so to make the capitalization bug the services of the Mina Grande and the State of Sonora, where things are still easier than in Maine, were called in and the capitalization of the Mina Grande was rated at $2,000,000.
This did not look nice to the detective. There was too much hunting of easy ground. He bored in further. Then he discovered the true inwardness of the situation. Around Joplin, Webb City, Carterville and other cities in Southwest Missouri, are certain very fine lead and zinc mines. Joplin is the first zinc producing city in the world. It has been known as such for a number of years. The lead from this district is second only in output to that of Leadville, Colo. Here was another easy chance.
Of course any one who knew anything at all about the lay of the land in Jasper County, Mo., knew that all the possible lead and zinc lands had been snapped up years ago; that "Pat" Sullivan of Joplin had been a political boss on the strength of his turning monopolist of the very districts which produced the lead and zinc. But the public did not know it. At least not the great, gullible public. They only knew that Jasper County was full of lead and zinc and they in some way formed the conclusion that the whole county was underlaid with the precious metals.
Therefore it was easy for the Rhodus "companies" to start the "Independent Zinc Securities Company," bore a few holes in the ground which would produce fish-worms and black ants and nothing else, and "transfer the stock of the 'Mina Grande' to the 'Independent Zinc'." This only was used as a safeguard where a stockholder of Mina Grande began to get peevish because the holes in the hillsides of Sonora produced nothing.
But the Rhodus game was not yet complete. The Mercantile Finance Company, with its thousand-dollar capitalization in the State of Maine, might get into difficulties transferring stock to the "Independent Zinc," because somebody might know enough about Jasper County to realize that there was not enough lead in that county outside the control of the lead trust to make a small-sized pea.
Therefore it needed another company to "transfer" the peevish stockholder to. So the Mexican Development Company was formed by the Mercantile, the capital of the new company being $1,000,000, and its assets 90,000 shares of the "Mina Grande" stock, the par value of which would not buy a cigarette paper.
The literature of the new company also carried the literature of the "Mina Grande," with a glowing account of how the new company was going to turn Mexico upside down and enrich the whole world from the scorpion holes in the Sonora hillsides.
The stockholders in the Mexican Development are still waiting for returns on their investment. But the American people were getting wise to the mining game, even when the magic name of Jasper County was used. So to supplement Mexico and Jasper County the Mercantile Finance Company, the old reliable thousand-dollar concern, organized in rapid succession the Boise King Placers Company, which was going to wash fortunes out of the inoffensive mud of Idaho rivers, the Moose Creek Placer Company, which had the same end in view, the American Fibre Company, which had about as much fibre about it as a paper candy box, The Illinois Finance Company (frenzied finance, all right), The Indiana Securities Company, which "secured" the money of the investor, but secured nothing else, The Minnesota Securities Company, and then with a great play to the galleries, The Finance Company of America.
From one to another of these absolutely bankrupt and worthless concerns the investor was thrown back and forth like a shuttlecock. If he was sore on Independent Zinc he got American Finance. If he became convinced that American Finance was worthless paper he got Idaho mud in the shape of "Moose Creek Placers."
Interest-bearing bonds with coupons attached were floated on a number of these companies and sold largely through the mails.
Just here Uncle Sam, urged on by reports made to the Chicago Postoffice Inspectors by Wooldridge, took a hand. When Wooldridge began boring in the bankers and other influential friends of the Rhodus people, who had been wise enough to get good political affiliations as an adjunct to their business, became extremely busy and influences were brought to bear to call Wooldridge off the case, because he was the most feared man in America on a fraud game.
Wooldridge accepted the recall gracefully, but immediately stepped over the way to the Federal Building, and called upon Postoffice Inspector William Ketcham, who is acknowledged by everyone in the secret service of the United States and the general public to be the shrewdest, most astute, and most indefatigable man in the service of the United States Government. Wooldridge convinced the great inspector that there was something doing in the "Rhodus" line. Ketcham complimented Wooldridge highly on the manner in which he had gathered the data together. Then Ketcham got busy himself. When two such men as Wooldridge and Ketcham get busy it is not long until the explosion comes.
Nor was it long coming in the Rhodus case. First came the receivership of the Central Life Securities Company. And here another big man and an incorruptible one got into the game—none other than John C. Fetzer, founder of the "Fetzer System" of receiverships that receive for the victims of defunct concerns, in place of and for the receiver. This man was fresh from the great Stensland Bank fraud, where as receiver he had paid 72 cents on the dollar and wound up a record receivership in less than one year, whereas the usual time taken in such cases was ten years.
With some of the water out of her food,
All profits milked out, too,
With little to eat and going dry,
What is the poor beast to do?
When Fetzer's name appeared as receiver there was dismay in the Rhodus camp. The triple combination was enough to frighten anyone, especially where the guilty conscience was a factor. Fetzer immediately went to work. He called in his fighting aids. He told Ketcham and Wooldridge to "keep it up." When the Rhodus people began to give evasive answers before the Referee in Bankruptcy, it was a short step, with the information which had been gathered, to bring the matter before the Federal Grand Jury. And the indictments of the Rhoduses followed.
The investigation of the Rhodus manner of doing business showed that the shrewd manipulators of fish-worm holes and scorpion nests had not neglected the feminine element. The treasurer of the old thousand-dollar stand by hailing from the pine tree state, the Mercantile Finance Company, was Mary C. Scully, who had been with the Rhodus gang since 1894. Katherine T. Scully, a very young woman, who had recently appeared on the scene, was listed as treasurer of the good old "thousand-dollar" medium. She came into the secretaryship as a result of a shuffle of officers of the Rhodus companies, the shuffle of officials being found to be as necessary as that of the shuffled stock.
It was also found that the Rhoduses came to Chicago about 1894 and organized the Western Mutual Life Association. This company had a stormy career and was finally merged into the Illinois Life Insurance Co. The methods of the Rhoduses were severely criticised in connection with this company and all confidence in it was destroyed.
Prior to coming to Chicago, Thomas and Birch F. Rhodus operated a lottery at Denver, Colo., and in 1889 came in conflict with the Federal authorities. Indictments are on record against them and it is claimed that they used various aliases. Thomas Rhodus was convicted at Denver in November, 1889, and fined.
During the past four or five years the Mercantile Finance Co. has offered the stock of numerous mining schemes, none of which has shown any merit, but were officered and owned by the Rhoduses and their associates. The methods employed to sell stock in these enterprises were (according to bills filed in court by the persons victimized) those of the ordinary swindler, and a close study of the schemes and the manner in which they are floated leads to the conclusion that the Rhoduses are not entitled to any confidence.
At the time of going to press the Rhodus brothers are still under indictment. The tangle in their affairs seems to show conclusively that the matter will be long and bitterly fought, but the facts that have come to light make matters look very dark for the manipulators of the moss-grown stock-kiting game.
Samples of the literature secured by Wooldridge and Ketcham prove very enlightening to the general public as to the methods of the Rhodus' and kindred concerns. Here are a few of them:
"It is a rule of this company," one pamphlet of the company reads, "not to act as fiscal agent for any corporation unless this company is prominently represented in the management, so as to be able to protect the interests of our clients."