By this time Drew had come to be looked upon as a stock operator to be both admired and feared, and this incident took its place in Wall Street history as a brilliant coup side by side with Vanderbilt's Harlem Railroad and other celebrated exploits. It was soon followed, however, by much more sensational events. We have seen that the portentous figure of Vanderbilt was just at this time looming up in the railroad world, and Vanderbilt had his own theory of the management and financing of railroads. It was inevitable that he should clash with Drew. He was a few years older than Drew, and the two men, as we have seen, had much in common. Both were well on in life before they had transferred their activities to steam railroads. When finally, in 1868, they crossed swords in connection with the two railroad systems extending through New York State, both were more than seventy years old and had been successful in the acquisition of millions by methods of their own invention. They were no doubt equally unscrupulous, but, while Drew was by nature a pessimist and "bearish," Vanderbilt, in the Wall Street vernacular, was always a "bull."
Having obtained control of the New York Central, the Hudson River, and the Harlem railroads, Commodore Vanderbilt now decided in the summer of 1867 to go after the Erie, of which Drew was nominally in possession, although no one knew when he owned a majority of the stock or when he was temporarily short of it. Usually he loaded up as the annual election of officers approached and liquidated shortly thereafter. Besides Vanderbilt there was another interest at this time trying for the control of the Erie. This interest consisted of certain Wall Street speculators and certain Boston capitalists who proclaimed themselves railroad reformers. These so-called reformers were as unscrupulous and crafty as either of the other men, and they really represented nothing but an attempt to raid the Erie treasury in the interest of a bankrupt New England corporation known as the Boston, Hartford and Erie Railroad. As was well said, the name of this latter road was "synonymous with bankruptcy, litigation, fraud, and failure."
The Erie Railroad control was always nominally for sale, and, as the annual election approached, a majority of stockholders stood ready to sell their votes to the highest bidder. Commodore Vanderbilt cleverly secured the cooperation of the "reformer" element, corralling their proxies, and thus he appeared to be in a position to oust the Drew interests without difficulty. On the Sunday preceding the election the Commodore saw Drew and amicably explained to him the trap he had laid, and showed him clearly that there was no way out of the situation. Upon this disclosure, Treasurer Drew at once faced about and agreed to join hands with Vanderbilt in giving the market for the stock the strong upward twist it had lacked before that hour. Jointly they would make so much money that neither side would lose anything. "Uncle Daniel" went away apparently satisfied and contented with the compromise.
But the Commodore had not finished. A few hours later he took the Boston adventurers into his confidence and explained that he proposed to continue Drew in the directorate. The Boston men were puzzled and confused by this sudden change of front. Later, all parties met at Drew's house, and Vanderbilt brought the Boston men to terms by proposing a plan to Drew whereby they would be entirely left out. This ruse succeeded and a written agreement to the advantage of all, but at the expense of the outside stockholders and of the general public, was then drawn up.
This, however, was only the beginning of the fight. Vanderbilt was now in the Erie as a joint owner, but he had stretched out his hands to control the road and he meant to succeed. In February of 1868, Frank Work, the single representative of Vanderbilt on the Erie board, applied for an injunction against Treasurer Drew and his brother directors to restrain them from the repayment of the $3,500,000 borrowed by the railroad from Drew in 1866, and to restrain Drew from taking any legal steps toward compelling a settlement. Judge Barnard granted a temporary injunction, and two days later Vanderbilt's attorney petitioned for the removal from office of Treasurer Drew. The papers presented in the case exposed a new fountain of Erie stock which had up to that time been entirely overlooked.
A recently enacted law of the State of New York—probably fathered by Drew—authorized any railroad company to create and issue its own stock in exchange for the stock of any other railroad under lease to it. Upon the basis of this law Drew and his close satellites had secretly secured ownership of a worthless piece of road connecting with the Erie and known as the Buffalo, Bradford and Pittsburgh. Then, as their personal needs in the stock-market or at elections demanded, they had supplied themselves with new Erie stock by leasing the worthless road to the Erie and then exchanging Erie stock for the worthless stock of the leased line. The cost of the line to Drew and his friends, as financiers, was about $250,000. They then issued, as proprietors, $2,000,000 in bonds of the road, payable to one of themselves as trustee. This person then shifted his character, became counsel for both sides, and drew up a contract leasing the line to the Erie for 499 years, the Erie agreeing to guarantee the bonds in consideration. These men then reappeared as directors of the Erie and ratified the lease. After that it was a simple matter to divide the loot. The Erie was thus saddled with a $2,000,000 mortgage at seven per cent in addition to a further issue of capital stock.
Following the first injunction another was now issued restraining Drew and the Erie board from making any further issues of stock, by conversion of bonds or otherwise, and also forbidding the Erie to guarantee any further issues of bonds. An additional injunction forbade Drew from having any transactions in Erie stock or fulfilling any contracts until he had returned to the treasury the shares involved in his loan transaction of 1866 and in the purchase of the worthless Buffalo, Bradford and Pittsburgh road.
Matters now looked forbidding for Treasurer Drew. Instead of being allowed to manufacture fresh Erie stock certificates at his own will, as had been his habit for fifteen years, he was to be cornered by a legal writ and forced to work his own ruin. But notwithstanding the apparently desperate situation it was quite evident that Drew's nerves were not seriously affected. Although he seemed rushing on destruction, he continued day after day to put out more short stock, all in the face of a steadily rising market. His plans, apparently, were carefully matured, and he said that if the Commodore wanted the stock of his road he would let him have all he desired—at the proper price.
As usual the Erie treasury was short of funds, and as usual "Uncle Daniel" stood ready to advance all the money required—that is, on proper security. There was but one kind of security to offer and that was convertible bonds. No stock could be issued by the company for less than par, but convertible bonds could be disposed of by the directors at any price. A secret meeting of the executive committee was held, at which it was voted to issue immediately and to offer for sale $10,000,000 in convertible bonds at 72 1/2. Drew's broker at once became the purchaser of $5,000,000 worth. In ten minutes after the meeting had adjourned, the bonds had been issued, their conversion into stock demanded and made, and certificates for 50,000 shares of stock deposited in a broker's safe, subject to Drew's order.
A few days later came the injunction, and Erie stock began to soar in the markets, in response to which "Uncle Daniel," who had been industriously selling his many thousands of new shares, now determined to bring up the reserves and let the eager buyers have the other five millions; but before the bonds could be converted the injunction had been served. The date for the return of the writ was Tuesday the 10th of March; but the Erie ring needed less time than this and decided on Monday the 9th as the day to defeat the corner.