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The great fraud.

Report of the Special Committee of the House on the Fraudulent Abstraction of the Bonds of the Indian Trust Fund--Over-issue of $6,000,000 of Acceptances by Secretary Floyd.

The report of the Select Committee of the House of Representatives, of which Mr. Morris, of Ill., is chairman, gives a detailed account of the facts relative to the abstraction of the Indian Trust Bonds. Thirty or forty witnesses were examined, including ex-Secretaries Floyd and Thompson. The latter is exonerated from any complicity in the defalcation, but he, as well as the former Secretaries of the Interior, are censured for the insufficient manner in which the bonds have been held in that Department, there being no adequate responsibility attached to the custodian. According to Mr. Russell's own evidence, he did not know at first where the bonds of which he obtained possession came from. Mr. Balley was an agent for the negotiation or sale of the bonds, and Mr. Lea was an intermediate party between Russell and Bailey. It was also ascertained that Secretary Floyd gave acceptances to the amount of nearly seven millions, or from two to three millions more than Messrs. Russell, Majors & Co. ever earned, while these contractors received all the money due them. The acceptances were given on the strength of their contract.

Wm. H. Russell is the head of the house of Russell, Majors & Waddell, a firm widely known as contractors with the War Department for transporting army provisions over the Western and South western plains. Mr. Russell stated to the Committee that he had heard in New York of such a man as Mr. Bailey, although he did not exactly remember his name, who had been in that city to sell Chiquia securities and Florida bonds, the latter for Mr. Yulee, a Senator from that State. When asked from whom he received his information, he gave the answer usually resorted to in such cases, viz: he should not remember. The next heard of Mr. Russell is that he is on his way from New York to Washington, in company with Luke Lea, Esq., a banker in the latter city. Mr. Lea was formerly Commissioner of Indian Affairs, and is a partner of Mr. Russell in the banking business, at Leavenworth, Kansas.

Mr. Lea is, however, careful to state in his evidence that he gave no intimation to Mr. Bailey that he might use the stocks he had in his charge belonging to the Indian Trust Fund. Mr. C. G. Wagner, who is nearly related to Mr. Bailey, and in whose hands was first placed his confession, states, in his evidence, given (your Committee are pleased to say) with full and honorable frankness, that he learned from Mr. Bailey that Mr. Lea did mention the stocks in the conversation between them. And, indeed, this would naturally be inferred, from the fact that Mr. Lea was perfectly familiar with the business of the department, and knew that Mr. Bailey had the stocks in charge, and had no large command of private means. Mr. Lea admits that after the delivery of the first instalment of bonds to Mr. Russell, he knew that Mr. Russell and Mr. Bailey were engaged in riffing the Indian Trust safe; that they so confessed to him; that he had conversations with them on the subject, and that he endeavored to dissuade them from further commission of the crime. He also states that he refrained from informing the Secretary of the Interior of the transactions referred to, and that he exacted the most solemn pledges from his two friends that his name should never be publicly known in connection with the business. But his precautions have not availed to afford him entire exemption from responsibility in connection with the transactions your Committee have inquired into.--Mr. Lea did not introduce Mr. Bailey to Mr. Russell, nor does he state that he appointed for them a place of meeting, yet it happened that these two persons did meet at the War Department on the same day that the interview between Mr. Lea and Mr. Bailey occurred. Mr. Russell says this was between the 12th and 15th days of last July. It was probably on the 13th day of that month.

The Chief Clerk of the War Department, Secretary Floyd's most intimate friend, Col. W. R. Drinkard, was the medium through whom the introduction took place. On that day they had their first interview at the War Department, Col. Drinkard, as shown by his own evidence, impressed Mr. Bailey with the belief that Mr. Russell was a gentleman of great respectability and pecuniary resources, and that if the acceptances of the Secretary of War were allowed to go to protest, he (the Secretary) would be greatly agonized and disturbed. Messrs. Russell and Bailey held a private interview in the third story of the Department, and within a few hours thereafter Mr. Bailey delivered to Mr. Russell one hundred and fifty thousand dollars of bonds at the room of the latter person, in Washington city, and on the same morning the recipient returned with them to New York. Mr. Russell states, that he left with Mr. Bailey one note of Russell, Majors & Waddell's in their stead, as security.

Why Mr. Bailey abstracted the bonds, is a question to which your Committee can present no satisfactory answer. As he and Mr. Russell were entire strangers previously to their meeting at the War Department, neither the obligations of friendship, nor the suggestions of kindly feeling, seem to have prompted the act. Mr. Russell insists that no money, or other valuable consideration, ever passed to Mr. Bailey, or, indeed, was ever mentioned in their interviews. Mr. Bailey confirms this statement in various communications which have reached your Committee. It is not ascertained, either, that Mr. Bailey came suddenly into the possession of any large amounts of money. His bank account was kept with Messrs. Riggs & Co., of Washington city; and Mr. Riggs testifies, that between July and the 13th December his deposits increased largely over former ones, but amounted, in the aggregate, to not more than five or six thousand dollars. It is true, that this sum is a large one to be in the possession of a person whose salary was but $2,000 per annum, and who was supporting a family, yet it would not, of itself, constitute a ground for grave suspicion, or afford a elude to the discovery of the purposes of the abstraction.

Mr. Bailey, in his conversations with various witnesses, stated that his design was to protect the character of Governor Floyd, and to save him from the dishonor and retirement from the Cabinet that would be necessarily incident to the protest and discovery of the acceptances which had been illegally issued to the firm of Russell, Majors & Waddell. Whether this consideration was the sole motive of his conduct, it is left to the House to determine. Your Committee are, however, constrained to express the conviction that behind the events that have been made conspicuous, and beneath the exterior of the transactions that have been described, is a purpose which, although successfully hidden, was none the less powerful and efficient, and has given unity and vitality to the schemes now partially exposed.

Auditor fuller the cause of the Exposure of the fraud.

Mr. Bailey, in the exercise of forethought prudent to avoid detection, made up his stock account for the current year, showing on its face that all the bonds were safely in his custody, and had caused its presentation to the Second Auditor, Mr. Fuller. That officer refused to approve it for the reason that the coupon account, designed to be a check upon it, did not accompany it. It is, perhaps, to this refusal that may in part be attributed the early disclosure of the fraud.

It will be observed that, while Mr. Bailey's statement is dated December 1st, 1860, and embraces the entire number of bonds, and fixes the month of July as the time at which he entrusted them to other parties, the testimony of Mr. Russell shows that they were not all delivered at one time, but that three hundred and thirty-three were transferred to him on the 13th of December--nearly two weeks subsequent to the date of Mr. Bailey's confession. The only satisfactory explanation that can be given of this noticeable discrepancy is the supposition that the statement was actually prepared on the day it was given to Mr. Wagner, and the day the last bonds were delivered to Mr. Russell, and dated wrongfully ‘"Dec. 1st,"’ to allay any suspicion that might be excited if it were seen that the date of the abstraction was identical with the date of the last acceptance which was issued by the War Department, for the purpose, as your Committee think, of making up a definite amount of securities.

How the bonds were disposed of.

From the testimony there procured, it was apparent that the bonds had been disposed of by Mr. Russell and his agent, and that Mr. Russell did not have it in his power to restore any of them. A limited number of them were traced into the possession of certain individuals and corporations, as follows:

Merchants Benevolent Association, N. York city, (witness, Hector Morrison,) Missouri's$1,000
Meigs & Greenleaf, for account of C. W. Purcell & Co., Richmond, Va., (witness, C. A. Meigs,) Missouri's10,000
Mitchell, Schenectady, N. Y. from one to three, State not mentioned, (Meigs witness,)2,000
Sanders, Haydensville, Mass., one to three, State not given, (Meigs witness,)2,000
James G. King & Sons, N. York city, (witness, J. G. Ring,) Missouri's10,000
Clark, Dodge & Co., New York city, (witness, L. C. Clark,)2,000
Captain Porter, New York city, (Matthew Morgan witness,)2,000
Jerome Fitzhugh & Co., New York city, purchased with the knowledge of their character, (J. H. Garland witness,)10,000
W. T. Coleman & Co., N. York city, (witness Coleman,)50,000
George Smith, Chicago, (A. Campbell witness,)21,000
Thomas Swann, Baltimore, (Wm. Mckim witness,)10,000
R. D. Gaither, Balt., (W. Fisher witness,)3,000
B. Atkinson, Balt., (W. Fisher witness,)1,000
Townshend Scott, Balt. (W. Fisher witness,)5,000
Lownds, Thompson & Co., Baltimore, (witness Martin Lewis,)5,000

A few other bonds were ascertained to have been purchased by Riggs & Co., bankers, of Washington, for other parties, and by other individuals, which are not included in the above statement.

More than $6,000,000 of acceptances issued.

In relation to the acceptances issued unconditionally by the late Secretary of War, your Committee deem it their duty to state all the facts they have been able to discover, as fully as possible. They amount, in the aggregate, to the enormous sum of $6,179,395. Add thereto the conditional acceptances which have already been thrown back upon the Government through the agency of Mr. Bailey, and the sum total is $6,977,395. This estimate is based upon data furnished by the War Department. It appears therefrom that acceptances to the amount of $840,000 were returned to the Department for cancellation. Mr. Russell, however, claims to have returned only $200,000, or $250,000. He further states that the acceptances which he did return were those which had matured in his own pocket and could not, therefore, be negotiated. But this assertion is positively contradicted by the endorsements on the returned acceptances, and by the testimony of Mr. Irvin, a clerk in the War Department.

From the careless and irresponsible manner in which business was transacted by that gentleman and the late Secretary of War, and from the fact that it was the habit of Governor Floyd to issue acceptances at the Department or at his house, or at whatever place he happened to be, it is a matter of great uncertainty whether or not the $840,000 should be deducted from the sum heretofore stated. The probability is that when the acceptances were returned to Governor Floyd by Mr. Russell, he accepted others at the same time for the same amount, of which there was no registry made. It is deemed safest to proceed upon supposition that the acceptances made in the place of those returned were registered. Upon this hypothesis, the $840,000 must be deducted from the $6,179,395 of the unconditional acceptances made and registered in the War Department. This would leave them, so far as is shown by the records of that Department, $5,339,395 still in circulation; add to this amount the $798,000 of conditional acceptances received by Mr. Bailey in lieu of the bonds, and the aggregate is $6,137,395. Here, then, confining the statement to the records of the War Department, is a deficit of $6,137,395 to fall upon the holders of these acceptances, or to be assumed in some way by the Government.

What was done with the acceptances.

The evidence shows that the acceptances have been sold in various parts of the United States, wherever a bank or private individual could be induced to purchase. Inasmuch, however, as the amount of those that have been traced directly into the hands of present holders, constituted but a small fraction of the sum still unaccounted for, and as owners are daily filing additional claims at the War Department, it is deemed unnecessary to give a detailed statement of the discovered acceptances, or to make other mention of them than to refer to the papers relating thereto, presented by the War Department, and to the general evidence.

It is proper, however, to remark in this connection, that while your Committee do not deem it necessary to give said details, the data in the War Department fixes the minimum amount of outstanding acceptances known to that Department at $1,445,000.

Mr. Russel's estimate.

To avoid all appearance of unfairness, your Committee consider it proper to give Mr. Russell's estimate of the amount of acceptances issued, as set forth in the following extract from his testimony:

‘ Question.--State as nearly as you can, of your own knowledge and recollection, the amount of acceptances of Gov. Floyd shown by that (his) account to you?

Question.--Does it not exceed $4,000,000?

Answer.--I do not recollect.

Question.--Does it not exceed $5,000,000?

Answer.--I judge not; it is all impression on my part.

Question.--Can you state that you have not received his acceptances to an amount not exceeding $6,000,000?

Answer.--I don't think I have.

Question.--How much less than $6,000,000 can you say was the amount?

Answer.--I will not fix the amount. I know it was very large. I know it was millions.

Question.--Will you fix any amount short of $6,000,000, which you can say covers it?

Answer.--I do not think it exceeds $4,000,000.

Question.--Can you state to the Committee, within a half million of dollars, the amount of the acceptances of Gov. Floyd which you have paid?

Answer.--No, sir; I cannot. We have certainly paid upwards of $3,000,000, and probably $3,500,000, and cancelled them, or retired them.

Question.--Does $3,500,000 cover the amount?

Answer.--I cannot say positively.

Question.--Can you name a sum which you can be positive does cover the amount?

Answer.--I am sure we have paid $2,000,000.

Question.--Are you sure you have paid and cancelled $3,000,000?

Answer.--Well, I am pretty confident in my mind that we have.

Question.--Can you state any amount larger than that, which you are confident in your own mind was paid and cancelled?

Answer.--No, sir.

Question.--Did you not pay and cancel Gov. Floyd's acceptances to an amount larger at the outside than $3,500,000?

Answer.--I think $3,500,000 will cover the sum. I am very confident in my own mind that it will.

Mr. Russell then stated that, besides the acceptances he had used and those still remaining in his possession, (the latter somewhat less than two millions in amount,) Gov. Floyd gave him others which he returned, unused, to the War Department. If evidence should be given to these explanations, the amount of acceptances still outstanding is very large. But Mr. Russell's statements are so rambling, vague and unsatisfactory, and he shows such utter ignorance of the details of his business, and such incapacity or unwillingness to make an exhibit of his affairs, that your Committee have considered it much safer to base their conclusions upon the records furnished by the War Department.--These records are of a character too peculiar to be passed without comment.

Important testimony of Senator Benjamin--Mr. Buchanan notified of Gov. Floyd's System of issuing acceptances.

Mr. Benjamin, who promptly appeared at the request of the Committee, and testified with commendable and courteous frankness, states that during the first session of the present Congress, some twelve or eighteen months ago, he was written to by the Attorney of Duncan, Sherman & Co., of New York, and his opinion requested as to the legality of acceptances issued by Gov. Floyd to Russell, Majors & Waddell.

It was mentioned in that letter that these ‘"drafts,"’ as they were then called, were offered for negotiation with the assurance that they were issued with the approbation of the President and Attorney General. Mr. Benjamin visited the President, and submitted the inquiry to him. The President replied that he knew nothing about the matter, that they had been issued without any knowledge of his, that he did not know by virtue of what law they were issued, but that he (Mr. Benjamin) might rely, if Gov. Floyd had issued them, he had issued them properly, and that he had better apply to him (Gov. Floyd) to ascertain by virtue of what law he was acting.

Interview with Gov. Floyd.

In pursuance of this suggestion, Mr. Benjamin called on Gov. Floyd, and was informed by him that the matter had not been submitted to the Attorney General, as was stated; that the drafts were issued in pursuance of a long-established custom of the office, that he was not aware of any law actually authorizing their issue; that he would inquire into it; that the acceptances were issued to Russell, Majors and Waddell only after he had ascertained that the trains for transportation which they had contracted to send from St. Louis to Utah had actually started on their way; that the payments were to be made under the contract in instalments as the trains arrived at different points; and that, having received intelligence of the actual departure of the trains, he had accepted, in advance of their arrival at the intermediate point, having a certainly that they would arrive.

‘ "I suggested to him," says Mr. Benjamin, "That I thought he was acting imprudently; that if any accident should happen to these trains by attacks by Indians, or any other cause, and they should fail to arrive, it would be impossible for him to pay the acceptances upon intelligence of that fact, and that that would give good reason for complaints and investigations which would be injurious to him, and I urged him to discontinue the practice. --Two days afterwards I received a note from him informing me that he was obliged for the frank statement I had made to him, and that upon reflection he had determined he would accept no more."

Gov. Floyd continues.

It has been shown that, contrary to the assertion of Gov. Floyd, no practice of issuing acceptances had ever prevailed in the War Department previous to its introduction by himself; that he issued these acceptances indiscriminately, and without reference to instalments, or the arrival or departure of trains, and without regard to money which was due.

One would naturally expect to find that Gov. Floyd, having been admonished by one whose position and legal learning gave authority to his advice, having confessed the illegality of his proceedings, and expressed a determination to make no further acceptances, would have proceeded thereafter with great caution and circumspection, even if he did not entirely discontinue his previous policy. It appears, however, that supposing the note to Mr. Benjamin, before referred to, to have been written a year ago, there have been issued by Governor Floyd, since that time, acceptances to the amount of $2,163,000, viz: In April, $40,000; in May, $250,000; June, $350,000; July, $95,000; August, $235,000: September, $125,000; October, $270,000. To this amount must be added the $798,000 of unconditional acceptances, of which there is no registry, and the grand total is as above stated.

Having had his error and its consequences distinctly pointed out — having expressed his intention to refrain in future from the commission of similar acts, he still persists in his former course, and actually issued an acceptance for $135,000 at a date so late as the 13th of December, 1860.

Whether this manifest contempt of counsel, disobedience of law, and violation of a solemn promise, can be reconciled with purity of private motives, and faithfulness to public trusts, is for the House to determine. It is the opinion of your Committee that they can not.

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