“(1) Rebates. For the four years ending June 30, 1894, the debits for rebates to shippers on the Atchison system aggregated $3,700,776, and on the St. Louis & San Francisco system $205,879, or a total of $3,906,656.

“This sum was charged, not to the earnings from whence it came, as it should have been, but to an account entitled, ‘Auditor’s Suspended Account-Special,’ and was reported from year to year as a good and available asset, while in fact it had no value whatsoever.

“(2) Additions to Earnings and Deductions from Expenses. Next in order of importance to the rebate account comes an aggregate of $2,791,000, which, on instructions from the East, was credited from time to time to the earnings and expenses respectively, but which credit has no foundation in fact. Of this aggregate $2,010,000 was added to earnings and $781,000 deducted from operating expenses, the sum of the two being debited to ‘Auditor’s Suspended Account.’

“(3) Improvements. The sum of $488,000 was in the period under consideration transferred, improperly as I contend, from Operating Expenses to Improvements or Capital Account, these Improvements being finally closed into the account of Franchises and Property, which represents the cost of the road and property.

“(4) Traffic Balances. It further appears that a traffic agreement for a division of business was formed in November, 1890 (running to July, 1891), between the Atchison Company and certain other companies, whereby such other companies were charged with a balance of $305,843, which the Atchison Company was unable to collect, and which is absolutely uncollectable, and should have been heretofore written off, though it still stands as an asset, and hence must be written to the debit of profit and loss.”[439]

Two facts appear from these charges on which emphasis was laid from different points of view: (1) That for four years the Atchison had been persistently violating the law by the granting of rebates. (2) That to conceal these rebates, and for other purposes, the books had been so systematically falsified as to defy detection, and to deceive not only the investing public but the whole railroad world. The report was handed to Mr. Reinhart, and an answer was requested by the following day. The answer was made, and proved inadequate; for though Mr. Reinhart pointed out some half-dozen items which he argued that Mr. Little had wrongly excluded, he explained no one of the charges directly brought against him.[440] There is no doubt at the present time that Mr. Reinhart was guilty, though perhaps because of the difficulty of fixing legal responsibility he was never prosecuted for falsification of the books. He resigned, of course, and Major Aldace F. Walker was appointed receiver in his stead. Two months later he was indicted with other officers of the company and certain shippers, not for falsifying the books, but for the illegal granting of rebates. His defence was that he had been, at the time the rebates were given, only the general auditor at Boston, and had had no part in the fiscal or executive business of the road.[441] The Government failed to prove connection, and the case fell through.

All this completely altered the requirements to be met by a reorganization plan. A more sweeping reduction in charges, and a more general distribution of losses was needed than before had been the case. Old proposals were laid aside once and for all, and a new scheme was built up from the beginning. The mortgage indebtedness of the Atchison in 1895 was $233,595,247, of which the first and second mortgage bonds comprised $217,258,276. The reorganization of 1889 had done its work in one respect at least, and the reorganization managers were able to concentrate their attention on two issues. The annual net earnings, according to the company’s reports had been:

1890$7,632,348 
18917,631,598 
189210,953,896 
189312,126,866 

but as corrected in Mr. Little’s report were:

1891$5,204,880 
18927,853,173 
18938,085,608 
18945,956,615