They were going over the situation in Hale's private office, which had once been Grove's sanctum, sitting by the same table upon which Grove had leaned his elbows long ago, when he remonstrated with Rod for walking Beach Avenue with Mary Thorn. Beyond its walls the faint murmur of voices arose, and the remote tapping of typewriters.
"Take this Spruce Supplies Limited for an example," Hale continued. "One of the apparently honest failures that left the Norquay Trust in the lurch. Spruce Supplies was organized by Richston and Wall. There were other stockholders—all dummies. Once incorporated, Wall and Richston apparently dispose of all interest in the company. Then Spruce Supplies proceeds to issue three hundred thousand dollars' worth of five-year, seven per cent bonds against their holdings, which consist of timber limits, camp equipment, and logging machinery, valued at seven hundred thousand dollars. The Norquay Trust takes these bonds as security for a loan of three hundred thousand, recommended and authorized by Wall, Richston, etc., in their capacity as directors. The concern is supposed to create a sinking fund to retire these bonds at maturity. They begin timber operations with a flourish. For two years they pay the bond interest. But after two years they cease payments. In the fullness of time the Norquay Trust forecloses and acquires all the assets. But, in my investigation of these assets, I discover that Spruce Supplies operated on a tremendous scale while they did work. The timber is practically all cut, the equipment is pretty well worn out. The men who cruised the limits for me estimate seven or eight hundred thousand dollars' worth of timber removed—prices went rocketing for airplane spruce, you know. A liberal estimate of what we have to show for three hundred thousand cash is less than sixty thousand in real value.
"There were seven shareholders. Five owned two shares apiece. Two are clerks who disappeared in the draft. Three are bond salesmen—forty-dollar-a-week men. The two who owned the bulk of the stock—well, one's a sort of confidential man in Richston's office. The other was for ten years in Wall's employment. They're both out of the country; with a few thousand dollars apiece, I imagine. Dummies—pure and simple. You can guess who got the money. But you can't prove anything. I doubt if you could take legal action against those foxy old birds if you had proof that the pair of them looted Spruce Supplies. It was ostensibly a legal transaction. The Norquay Trust Company should have protected itself, you see."
"And that's only one of several such," Hale concluded. "They made a milk cow of this business. They saw that funds were invested where they would do the most good—for them. They simply made a goat of Grove."
Rod stared at the figures on a sheet of paper before him.
"Liabilities practically four hundred thousand in excess of available assets," he murmured. "That's a hump to get over. How long can we reasonably expect to go on—I mean how much grace will we have to meet everything without going into forced liquidation?"
"With a fair amount of revenue from some outside source—say eighty or a hundred thousand every six months—we can go right along as usual," Hale replied. "There's no immediate call for funds. All the pressing obligations your father provided funds to meet. There's only a dead loss that this concern can't shake off by its own efforts. We can—we have—cut operating expenses to the bone. But as a trust company we can't—legitimately—make money fast enough ever to get even."
"There's only one outside source of revenue available, you know," Rod reminded.
"Is it wise to go any farther?" Hale shifted uneasily. "You'll beggar yourself."
"Between beggaring myself and beggaring other people, there doesn't seem to be much choice."