Frank felt his blood growing hot within his veins.
"In short," added Jerome, "we take no chances whatever, for at the start we know the road will cost a million less than half the amount for which it is capitalized, we have borrowed the public's money to build it, we are certain we can sell stock enough to pay back every dollar, and still hold control of the railroad, and we are in a position to come out ahead whether the railroad proves to be a paying piece of property or not."
"And this is the way railroads are built?" muttered Merriwell. "But what if we find, after the railroad is put in operation, that it is a losing venture—that it will not pay a dividend on the amount at which it is capitalized, and is running behind?"
"Then it becomes a simple matter for us to step out from under, and as we step out we can take with us in our own pockets a few millions in profits. If we become satisfied that the railroad is a loser, we'll again work the stock market, and, by certain manipulations, boost the price of Central Sonora to the highest possible point. When we are satisfied that we have it up to the top notch, we'll dump every dollar's worth of stock in our possession, pocket our profits, and smile as we see Central Sonora slump and go to the dogs."
"In short," said Frank, "after we have built the railroad with the money of the general public, overcapitalized it in a criminal manner, and discovered that it will not pay a dividend on its watered stock, you propose that we perpetrate another outrage on unsuspecting investors by selling back to the public our holdings of stock that actually belongs to the public anyhow!"
"Your inexperience is again shown by the manner in which you apply the term 'watered' to that stock. Watered stock is new stock issued by a railroad or other corporation that already has a certain amount of stock in existence, but claims that it does not fairly represent, through increase of the value of a property and franchises, the increase of actual capital. We capitalize at the start for more than double the actual cost of building and putting in operation, and therefore our stock may not justly be called watered. In case this railroad should thrive wonderfully, and should pay wonderful dividends on our ten million dollars' worth of stock, we might then water it by issuing more stock. I hope I have made the whole thing clear to you, Mr. Merriwell."
"You have!" cried Frank. "You have made it clear that what you propose is criminally dishonest, is a gigantic swindle, and that parties concerned in such an outrageous fraud should be amenable to the law and sent to the penitentiary!"
Frank had risen to his feet, his eyes flashing and his whole aspect one of righteous indignation.
Although he had thus pretended, he had not been entirely ignorant of the dishonorable methods of stock jobbers, but he had feigned ignorance in order to draw Basil Jerome out and lead him to fully expose the true inwardness of his reprehensible plan of operation.
Jerome gazed at the indignant youth with a mingling of surprise and pity.