Crédit Mobilier scandal
[1] A new company, Crédit Mobilier of America, was created by Union Pacific executives to actually build the line, but at inflated construction costs.
Part of the excess cash and $9 million in discounted stock was then used to bribe several Washington politicians for laws, funding, and regulatory rulings favorable to the Union Pacific.
There was the high risk of armed conflict with hostile tribes of Native Americans, who occupied many territories in the interior, and no probable early business to pay dividends.
Opponents of the Pacific Railroad Acts felt the construction and its routing were being developed without regard for creating a viable and profitable transportation enterprise.
[citation needed] They believed the whole project was a bare-faced fraud by some capitalists to build a "railroad to nowhere" and to make tremendous profits doing so, while getting the United States government to bear the costs.
George Francis Train and Thomas C. Durant, the vice president of the Union Pacific Rail Road, formed Crédit Mobilier of America in 1864.
Train and Durant aimed to present to both the government and to the public the appearance that an independent corporate enterprise had been impartially chosen as the principal contractor and construction management firm for the project.
Because the conspirators believed they could not expect conventional profits from the operation of the railroad,[citation needed] they created the sham company so they could charge the U.S. government extortionate fees and expenses during the construction phase.
The Union Pacific presented genuine and accurate invoices to the U.S. government as evidence of actual construction costs billed to them by Crédit Mobilier of America for payment.
Union Pacific was accepting for payment genuine Crédit Mobilier invoices (based on fraudulent accounting)[8]: 32 and was applying only an overhead expense for management and administration.
[13] Ames, a member of Congress, distributed cash bribes and discounted shares of Crédit Mobilier stock to fellow congressmen and other politicians in exchange for votes and actions favorable to the Union Pacific.
[14] Ames offered to members of Congress shares in Crédit Mobilier at its discounted par value rather than the market value, which was much higher due to its superb (but fraudulent) profits and exclusive contract with the Union Pacific Railroad.
Following a disagreement with Ames, Henry Simpson McComb leaked compromising letters to The New York Sun, a reformist newspaper highly critical of incumbent President Ulysses S. Grant and his administration.
However, in the February 1873 Senate investigation, Wilson admitted involvement and provided a complicated explanation claiming he had paid for stock in his wife's name, and with her money but had never taken possession of the shares.
