74 NATURE OF CAPITAL AND INCOME [CHzar. V

the value of the assets. Sometimes this is done systematically,
 asin the case of stock-jobbing concerns. Unscrupulous
 promoters often invest the sums entrusted to them
by confiding stockholders, in unwise or fraudulent ways.
For instance, we may imagine an Oil Well Company in
California, of the type called ‘stock-producing wells,”
which borrows $50,000 and collects $50,000 more from the
sale of stock (at par), and with this $100,000 purchases
land of friends at a fancy price, collusively providing that
the proceeds be returned in large part to the promoter.
In such a case the books of the bubble concern will show
the following figures: —

 

 

Assets Liabilities
Land. oe 8100000 Dalste co. + «350,000
Capitals... . « «. «50,000
$100,000 $100,000

But if the land is worth, say, only $60,000, these accounts
should read : —

 

 

Assets Liabilities
and: .  .. . - - .. 50000 Debts .'. . . . . $50,000
Capital .-. . + . . 10,000
$60,000 $60,000

In other words, the investor has only $10,000 worth of
property, instead of the $50,000 which he put in, or 20
cents for every dollar he invested. The rest has been
diverted into the pockets of the promoter and those in
collusion with him.
A favorite method of concealing the real condition of a
company is to enter among the assets the bad debts due it,
at their nominal value. Sometimes bad debts are bought
up for that special purpose, the fraudulent company investing
 in the notes of some bankrupt concern, which can be
obtained for very little, but may be entered on the books
at face value. It is clear that any exaggeration on the
assets side of the ledger produces an equal exaggeration of