History of Dakota Territory, volume III, Part 76

Author: Kingsbury, George Washington, 1837-; Smith, George Martin, 1847-1920
Publication date: 1915
Publisher: Chicago, Ill. : S.J. Clarke Publishing Company
Number of Pages: 1146

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CHAPTER XV

STATE DEPARTMENTS, COMMISSIONS, EXAMINERS, ETC.

The Legislature of 1891 vastly increased the duties of the public examiner who stated in his report of July, 1892, that it was a physical impossibility for one person to perform all of the requirements. In view of this fact he had directed his attention to three principal points: (1) Insuring the safety of the state and county funds; (2) enforcing a correct and uniform system of bookkeeping and accounting by officers having the custody of such funds; (3) protecting persons who deposited money with banks and moneyed corporations and extended them credit. He had examined all of the state officers' accounts and could discover no irregularity. He pointed out several weaknesses, one requiring a better sys- tem of accounting between the state treasurer and the state auditor so that each would have a check upon the other. This had been partially remedied by the previous Legislature.

The law concerning the old method of charging the various counties with a state tax was changed so that each county was charged with its actual state taxes as shown by the county auditors. This obviated confusion and variance between the accounts of the state and those of the counties. He had inaugurated also, under the law, a different method of collecting state funds from the various counties. The old method was less cumbersome, but there was no substantial check between the state treasurer and the state auditor. The last Legislature had attempted to provide for the adjustment and settlement of the delinquent state taxes for 1890 and previous years, but had only partially succeeded in accomplishing this result. One difficulty encountered was the lack of system in the counties. Local finances were in the hands of persons who did not understand bookkeeping and accordingly accounts were confused and mixed. The examiner suggested several reforms to remedy these defects. He said that the present system, so far as it related to the extension of taxes, footing, proving, recapitulating and keeping accounts, was satisfactory as a whole. He found the books of the state treasurer well kept and the accounts accurate; the same of the state auditor. He likewise found that the secretary of state had rendered full account of all moneys collected. Upon request of the governor and other state officials he assisted in reconciling discrepancies in several counties and in adjusting the amounts that should be remitted to the state treasury. In one county he was called upon to enforce a prompt remittance of state funds. The bonds of the state officers were found to be in regular form and sufficient as to sureties. The highest bond was for the state treasury, $250,000. Other comparatively high ones were the treasurer of the board of trustees, agricultural college, $30,000; superintendent of the insane hospital, $25,000; public examiner, $25,000; commissioner of lands, $20,000; warden of the penitentiary, $15,000.

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He reported that he had endeavored to effect uniformity in the accounts of the various counties of the state. There had existed too much confusion and irregularity, and his object was so to blend all the duties of county officers that they would serve as checks upon one another. This result had been accomplished to a large extent by December, 1902. He emphasized the value of the duties of county auditor and suggested important changes concerning the management of his office. He made similar suggestions in regard to county superintendents, registers of deeds, clerks of courts and county officers' bonds. He suggested numerous improvements in the laws relating to the county commissioners. In a few instances he was called upon to make special examinations. The commis- sioners of Fall River County asked him to inspect the books and accounts of the treasurer there. He found the difficulty was with the local bank where the treas- urer had deposited county funds. The treasurer's books were correct and in the end the money was accounted for. Similar special calls came from Brown, Camp- bell, Sanborn, Sully, Edmunds, and Faulk counties. He had likewise examined the books and accounts of various state institutions. The many new laws passed in 1891 had been duly considered, and put into effect with the result that many changes in public offices were instituted.

While thus engaged, the examiner ascertained the actual necessary expend- itures of each state institution. This was reported with the expectation that the Legislature would thus have more specific information upon which to base their appropriations. The report of these expenses was elaborate and valuable. The state banks had received from him a thorough investigation. The law of the Legislature in 1891 sought to prohibit private banking and to confine the business exclusively to associations organized under the act. It was copied from the North Dakota law and in many ways resembled the national banking act. It was an attempt to prohibit private parties from carrying on the business of banking, but this step in due time was declared unconstitutional by the Supreme Court. The banking act really repealed all acts or parts of acts in conflict with it, because it was believed, in view of the decision of the Supreme Court, that such corpora- tions then existing could continue to do business until the expiration of their charters in the absence of any further legislation. Under the state bank law of 1891, seventy-two banks had been organized by July, 1892. Of these forty were still doing business in December, 1892. All banks organized under this act were supervised by the public examiner. The same banks organized under the general law of the state. Private banks were under no supervision whatever and were subject to no limitations except those provided in the penal code.

The following were the principal features of the banking act and the only ones that placed any restriction upon their operation: (1) Fixing the capital stock in proportion to the size of the town or city as to population; (2) limiting its power to purchase and hold real estate; (3) providing that dividends should be declared only upon net profits after deducting losses and bad debts and pro- viding for the creation of a surplus fund; (4) providing that each director should own at least ten shares of capital stock; (5) providing that each stockholder should be responsible to the extent of the amount of his stock at the par valne thereof, in addition to the amount invested in and due on such shares; (7) prohibiting the bank from loaning on the security of its own stock and limiting the amount of loans to any one individual or firm to 15 per cent of its capital stock; (8) pro-

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viding that each bank should have on hand at all times in available funds an amount equal to 20 per cent of its deposits, at least half of which should be in cash and the balance due from solvent banks; (9) providing that insolvent banks should not receive deposits.

The examiner recommended that the law should be amended so as to allow loans to be made on real estate security. For the year ending June 30, 1891, six private banks had failed. After that date until December, 1892, two private banks failed and also two state banks. The examiner said that many private banks were equally as good as the best national or state banks and that they needed no law for the protection of their patrons. He suggested, however, that the tendency to start up banks without adequate capital ' should be checked at once. The purpose of the law of 1891, he said, was not to cripple or discourage legitimate banking ; just the reverse. His severest criticism against banking meth- ods was the failure of many bankers to appreciate the importance of frequent verification of loans and discount, of keeping thorough records and of frequently checking up certificates of deposit. The law of 1891 made the public examiner the superintendent of all banks. It made him also executor of the law. He was required to put the law into force and effect. He could not, however, enforce any fines or penalties except by instituting proceedings in court. At this time T. E. Blanchard was public examiner.

In 1891 Governor Mellette announced that the bonded debt of the state was $116,000 bearing 6 per cent interest, $124,000 bearing 5 per cent interest, $317,100 bearing 41/2 per cent interest, and $302,500 bearing 4 per cent interest ; besides the recent issue of $160,000 in bonds at 31/2 per cent interest ; total, $1,019,600. On this sum the interest and sinking fund annually amounted to about $54,000 which, together with a few other items, made the total debt in round numbers $1,050,200. At this time he recommended a banking law which would require all institutions loaning money to take out articles of incorporation. By so doing he argued they would be placed under the supervision of the public examiner who had power to cancel their charters under certain conditions. He likewise recom- mended a reduction in the existing high legal rate of interest. In reference to the Legislature he expressed the opinion that the House should not consist of over sixty members, nor the Senate of more than thirty members, because such a reduction would lower the general expenses of the Assembly fully 50 per cent and would leave a representation abundantly able to care for the affairs of the state. He recommended, further, the immediate adoption of the Australian ballot.

During two years and eight months ending with November, 1892, there were created in this state. 675 corporations of which 200 were for religious, fraternal, benevolent or charitable purposes and 475 were for profit. A law of 1891 pro- vided that the secretary of state should have supervision and control of the state capitol building and grounds together with the funds appropriated for the main- tenance of the same. This appropriation in 1891 amounted to $6,140. The sec- retary of state was also made ex-officio state librarian. When the library was received from Bismarck, that portion relating to laws and court was placed in the custody of the Supreme Court; the miscellaneous library was placed on the first floor of the state house in the room formerly occupied by the state treasury. This room was wholly inadequate for the proper care of the books, but the

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Legislature had failed to make any improvement. The state printing and the Supreme Court reports were placed under the supervision of the secretary of state. The laws concerning corporations were very inadequate in 1892. Mr. Ringsrud recommended a complete revision of such laws in order to harmonize numerous conflicting positions and the creation of additional safeguards to pro- tect the state. A well guarded law governing building and loan associations was urgently needed. A considerable number of such corporations in the state were doing a large business and were rapidly becoming financially strong.

The State Board of Dental Examiners in 1892 suggested the expediency of several new laws. The board asked for a .yearly registration of dental practi- tioners with a small fee for clerk service, for the creation of a fund to meet the necessary expenses of enforcing the law, and for the preparation of a list of the practicing dentists of the state. There were at this time about seventy practic- ing dentists in South Dakota. For the fiscal year ending June 30, 1892, there were nine applications for licenses, five of whom were graduates who had been licensed on proof of their diplomas and three upon passing the required examina- tion. One was rejected. At this time C. W. Stuteuruth was president of the state board.

In the spring of 1892 the South Dakota commission to determine the boundary between Nebraska and South Dakota, consisting of A. E. Lee, E. C. Ericson and E. H. Van Antwerp, met for the discharge of their duty. They succeeded in adjusting. the boundary without any serious controversy with Nebraska. About the same time the dispute between North Dakota and South Dakota concerning the boundary line between them was considered and settled. Charles H. Bates, of Yankton, ran the line on the 7th parallel. The old line was irregular and had been extended by the Minnesota surveyors over a portion of the boundary. Regardless of the old line, Mr. Bates ran a new one according to the law wholly along the line of the 7th parallel.

The State Board of Pharmacy, in August, 1894, reported that they had held four regular meetings and one special meeting during the year for the examina- tion of applicants for registration. C. F. Ayer was president of the board. At the meeting in October, 1893, seven applicants were examined and all were. granted licenses. At the second meeting held at Parker, fourteen applicants suc- cessfully passed and in April, 1894, nineteen secured licenses. At the fourth regular meeting fifteen secured licenses. On the roll at the last annual report were 488 registered pharmacists. The highest standing in pharmacy was secured by G. S. Agersborg at Vermillion, who passed at 90 per cent. The board admitted that while it was true some incapable persons were found occupying the posi- tions of dispensing pharmacists, the percentage of incompetents was being rapidly decreased under the regulations of the pharmacy law. The examinations were thorough, and none but competent and skilled pharmacists could secure license. At the regular meetings the order of the business was as follows: Applications for examination ; organization and examination ; communications ; reports on vio- lations of the pharmacy law ; new business ; unfinished business ; reading minutes ; adjournment. Applicants were examined in pharmacy proper ; chemistry ; iden- tification of drugs; materia medica; and specimens for identification. In their report were published a full list of questions presented to applicants to answer. At the August meeting in 1894, a committee on trade interest, appointed at a

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previous meeting, made a full and exhaustive report showing the condition of the pharmacy industry in South Dakota. There was discussed at this time the attitude of the pharmaceutical association towards physicians and their prescrip- tions. Several interesting essays were read at almost every session of the asso- ciation. They covered every subject of interest to professional pharmacists. All were valuable contributions. They considered also what side lines were the most profitable for pharmacists to handle.

Early in January, 1895, at the meeting of the Legislature, it was learned amid intense excitement, that State Treasurer W. W. Taylor was short in his accounts, was a defaulter and had left the state and his whereabouts could not be learned. At first the shortage was stated to be $200,000, but a little later the amount was fixed in round numbers at $350,000. At once investigation was commenced.

Many prominent men of the state, including Ex-Governor Mellette and Speaker Howard, were on his bond. It was soon learned that he had been caught in a chain of national bank failures extending from Chicago through several banks both within and without this state. It was reported that he had lost $20,000 in the bank at Milbank and $10,000 in the bank at Gettysburg. These were a few of the rumors that swept the Legislature from its feet early in Jan- uary. Taylor · was a republican and his defalcation plunged the Legislature and the state officials in the depth of gloom. The democratic and populist papers made the most of their opportunity, many declaring that the entire administration of the state was corrupt, dishonest and should be investigated. There was great discord and confusion when the new state treasurer, Phillips, prepared to take possession of the state treasurer's office. A hurried count showed the shortage of $375,000. When the defalcation was learned to be a certainty, bills offering from $10,000 to $20,000 for the arrest of Taylor were introduced. In the finan- cial emergency thus created, the state auditor made an immediate demand upon the counties for all the tax in their possession due the state. Soon $40,000 in cash was received from this source. It was thought best at first to issue fund- ing warrants. The amount to be raised was about $400,000, which would be sufficient until August. Then the State Board of Equalization could provide cash through a deficiency levy.

It was soon learned that Taylor's bondsmen had not been idle in this emer- gency. It was finally learned that Taylor and his friends had taken all avail- able money of the state in order to be in a better position to compromise to their own advantage when the final settlement should come. At once the attorney general commenced suit against the bondsmen for an amount sufficient to cover the entire defalcation. It soon became known that Mr. Ruth, commissioner of school and public lands, had postponed the apportionment of school funds and that thereby about $90,000 of school money was lost in the defalcation. As early as 1893 it was reported that Mr. Ruth had used state money outside of his office. It was at first thought that perhaps he had acted in concert with Tay- lor, whereupon the Legislature appointed a joint commission to investigate both the Taylor and the Ruth accounts. Thomas H. Ruth was a banker of DeSmet. A thorough investigation showed that while there were some irregularities in the official conduct of Colonel Ruth, he had not violated the law and consequently was exonerated by the legislative committee. It was shown that he had not vio- lated the law in delaying the apportionment, and consequently could not be held

SIOUX FALLS LUTHERAN HOSPITAL

McKENNA HOSPITAL, SIOUX FALLS

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SOUTH DAKOTA: ITS HISTORY AND ITS PEOPLE

for the loss of the $90,000 which had fallen into the hands of Taylor. No doubt the action of both Taylor and Ruth was due in a measure to the financial panic of 1893, which affected all banking institutions of this state more or less. The committee ascertained that Ruth had been absent from his office much of the time and had left the business to be performed by his deputy and clerks. He had been in the habit of signing vouchers in blank and leaving checks with his clerks so that he could leave Pierre and attend to his private business at his home town.

Another important feature of this transaction was the alleged conspiracy of Taylor, McCoy, Tenny and McChesney to clear Taylor and to affect a com- promise with the state by withholding all the state funds that had been accumu- lated in order to protect the bondsmen and to secure easier terms of settlement for all concerned. C. T. McCoy was finally arrested for complicity in the Tay- lor defalcation. Mr. McCoy was Taylor's attorney. It was learned that Taylor had told McCoy of his shortage and that McCoy had recommended him to to to Chicago and consult Tenny, a prominent lawyer. McChesney, who was on Taylor's bond for $50,000 and was his brother-inlaw, was taken into the conference. Tenny and McChesney, it was reported, agreed to aid Taylor pro- viding he would turn over every dollar to them to be placed in a bank in Chi- cago. In July the grand jury at Pierre indicted H. M. Benedict and C. T. McCoy for the alleged conspiracy. Taylor had lately conveyed to Benedict val- uable property for the consideration of $1. Mr. Benedict was arrested in Chi- cago and was investigated at Pierre. He was also a brother-in-law of Taylor. Attorney-General Crawford used every measure in his power to clear the matter and convict and punish the law breakers. The Legislature passed a bill placing extra safeguards around the state treasury to prevent future defalcations.

Among other revelations was the fact that Taylor had certified to a forgery before State Inspector Myers in April, 1894. There was then a shortage of $130,000 in his Redfield bank, but he managed through his influence with Colonel Ruth and others to use $130,000 of state school money to supply this deficiency when his bank was investigated by Myers. It was shown that Taylor had lost much money through loans to friends and through bad investments and that he had juggled the funds in his possession and all he could borrow in order to deceive Inspector Myers. In March, 1895, State Treasurer Kirk G. Phillips went East with $98,000 in bonds to make good the permanent school fund deficit which had resulted from the Taylor defalcation.

Early in January Attorney-general Crawford was given full authority to hire the necessary detectives to trace Taylor and bring him back to Pierre. It was surmised that probably Taylor's lawyers and bondsmen were responsible for his disappearance and could produce him whenever they were offered the best terms of compromise by the state authorities. Taylor was finally arrested in the East and brought back in April. It was learned from him that he had lost much money in his private affairs and had used public money hoping to make good his losses, but had failed and as a last resort had turned over every- thing to his lawyer and bondsmen hoping to save himself as well as possible. He was put on trial and his case was finally argued in the Supreme Court in August on a demurrer. It was argued that embezzlement was only a statutory crime. Taylor was released on a bond of $30,000 pending the result of the Vol. 111 -- 35

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appeal to the Supreme Court. The application for a writ of error to the Supreme Court was successful, the writ being granted by Justice Fuller. It had been shown that the indictment was defective and that the grand jury was im- properly drawn. Taylor was finally sentenced on the retrial to the penitentiary for five years on August 14th by Judge Gaffey of the Circuit Court. The judge said that he considered the fact that Taylor had used the state funds for private purposes and had loaned the same to his friends as the lesser crime and that the worst crime was that of getting together the state funds and attempting to force a compromise with the state authorities after Taylor had fled from the jurisdiction of the state. Taylor's term in the penitentiary was fixed by the Supreme Court at two years. This was about October 13, 1895. The sentence was dated back to August 14th when sentence in the lower court had been pronounced. The court stated that justice had not been administered, but that the law was to blame and not the court. Taylor turned over to State Treasurer Phillips $100,- 000 and deeds to all his real estate. The balance due the state was to be made good by Taylor's bondsmen through judgments that had already been secured by Crawford, the attorney-general. Ex-Governor Mellett, one of Taylor's bondsmen, voluntarily relinquished his property in the state to meet the obliga- tion on his bond. Most of the bondsmen waited for executions after appraisers had fixed the valuation of Taylor's property, which was scattered in fully twenty counties of the state. A portion of Mellette's property was in Deadwood, there being fourteen lots or more there. He also owned Cripple Creek property worth $4,000. By April 1, 1896, the state secured from Taylor and his bondsmen, a total of $255,922.11. The judgment against Taylor and his bondsmen, includ- ing interest, amounted to $351,225.17. There was thus yet to be secured, $95,303.06.

The Superior Court of LaFayette, Ind., held that Taylor's bond was good for $250,000 only and that the $100,000 additional to cover the defalcation was void or not collectable. Several of Taylor's bondsmen lived at LaFayette. Early in 1898 W. W. Taylor was released from the penitentiary at Sioux Falls and soon afterward started in business at Chicago. He was burned out there and lost about $8,000, on which there was $5,000 insurance. Governor Mellette lost nearly everything he possessed, including his homestead, though the latter finally was transferred to his widow. When Kirk G. Phillips became state treasurer in 1895, the treasury had just been depleted by Taylor. There was outstand- ing a floating debt of $225,000 and $90,000 of the school fund was missing. He secured an extension of time on the floating debt, and in 1897 paid $126,000 of the state debt.

The Legislature of 1895 generally blamed Public Examiner Myers for the Taylor defalcation. Many believed that he had failed to perform his duty, or had known of the defalcation before the public announcement of Taylor's disap- pearance had appeared. No sooner was the defalcation known throughout the state than many newspapers, as a measure of retrenchment in expenditure, advo- cated uniting the state university and the agricultural college and combining the State Normal schools. They declared that the hard times, state debt, high taxation, and labor troubles generally were sufficient to show the wisdom and to warrant the adoption of this course. The defalcation, of course, created a tremendous sensation in the Legislature. Many newspapers and numerous

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History of Dakota Territory, volume III, Part 76

Author: Kingsbury, George Washington, 1837-; Smith, George Martin, 1847-1920 Publication date: 1915 Publisher: Chicago, Ill. : S.J. Clarke Publishing Company Number of Pages: 1146

Author: Kingsbury, George Washington, 1837-; Smith, George Martin, 1847-1920
Publication date: 1915
Publisher: Chicago, Ill. : S.J. Clarke Publishing Company
Number of Pages: 1146