What was happening during the period before and after the fire is best learned from the testimony given before the Oliver Grand Jury, and in the confession of Ruef, which came as a result of the facts there developed. The crimes unearthed belong to three classes customarily found in American cities, namely those for the protection of illicit or demoralizing enterprises, commonly known as "Police Graft", those for obtaining franchises or privileges, known as "Franchise Graft", and those for securing advantageous rates to corporations supplying quasi-public utilities, known as the "Rate Graft". The French restaurant cases fall under the head of the first class; the Parkside, the Home Telephone, the overhead trolley deals and the prize fight monopoly under the second; and the gas rate bribery under the third.

We shall, in the succeeding sub-sections of this chapter, endeavor to analyze these crimes and to show something of the relationship they bar to the social, financial, political and economic organization of the city.

The presence of the restaurant on the ground flood gives a certain air of legitimacy to the enterprise. On account of the large profits from the sale of foods and liquors to persons using the upper stories, and for the rental of the rooms above, the prices in the restaurant are kept exceptionally low, considering the skill of the cooks and the quality of the food served. As strict propriety of conduct is required in the public dining room, many innocent and respectable people patronizing the place do not stop to analyze the reason for the low price. Behind this veil of respectability many a tragic "first step" downward is taken.

The business is very prosperous, and, as is usual, the landlord shares in its prosperity. People of social prominence were known to accept a portion of the profits of such establishments, through the extremely liberal rentals paid, and the system is received with easy toleration. One of the largest of these assignation places was located on a prominent corner of the downtown shopping district, where hundreds of women daily passed its doors. The building, five stories in height, had four stories devoted to the private supper bedrooms. The land was owned in trust by one of the largest, if not the largest, trust company in the West. A lease was sought and obtained by a man notorious in the line of business above described; the building was constructed by the trust company according to plans satisfactory to him for this purpose, and the enterprise conducted there for seven years until the building was destroyed by fire.

The significant thing about such a transaction is, not that there are people who are willing to accept money from such a source, or financiers willing to put trust moneys to such uses, but that the facts, though well known, did not seem to detract in the slightest from the social recognition accorded to the persons so taking a share of the profits, while the officer of the trust company which made the lease of that particular house situated in the shopping district, was appointed a regent of the State University.

A striking illustration of the toleration which permits a corrupt Mayor to deal in illicit privileges and to take profits from vice, arose in connection with a raid on a famous house of prostitution–presumably similarly licensed–during an earlier and unsuccessful investigation of the Ruef-Schmitz regime, undertaken by a grand jury of which Mr. T.P. Andrews was foreman. The immunity from police interference which this place was accorded had earned it the name of the "Municipal Crib". In the raid one hundred and sixty prostitutes were arrested from the one house, and released on the deposit of bail money exceeding in all Sixteen Thousand Dollars. It was subsequently published–and never denied–that the money was furnished by a prominent liquor man who was, at the time of the publication, the president of one of the oldest, the most powerful, and the richest of the associations of merchants in the city. That their president, a wholesale liquor man, might be also a wholesale backer of prostitution, did not arouse the merchants to the extent of even making an investigation, and he served out his term, which, at the time of the exposure had less than one-half expired. The fact that his company was, at the time of the raid, selling liquors to a large number of resorts whose licenses were dependent upon the Schmitz Board of Police Commissioners was accepted by many as a sufficient excuse for his supplying the bail.

The Ruef-Schmitz organization, recognizing how easily such illicit enterprises could be made to pay tribute, devised a plan to obtain a share of their profits. They included in their attack the trust company's restaurant already described. This was made the easier from the fact that one of the members of the Board of Police Commissioners had consistently opposed the granting of licenses to these places as soon as he had become aware of their extremely vicious character. The Mayor inspired another member of the Board of four commissioners, who had absolute power to grant or withhold liquor licenses, to commence an attack on the system and to threaten refusal to renew the licenses. The restaurant keepers soon discovered it was necessary to employ Ruef as an attorney to defend them before the Board. It is interesting to note that the member of the Board who had apparently conscientiously anticipated the attack on the system, refused to cease when the matter had been arranged, and was subsequently removed by the Mayor. Ruef was paid large "fees" by the restaurant proprietors, and the licenses were renewed at their expiration.

Five indictments were brought against Schmitz and Ruef based on these extortions, and Ruef later pleaded guilty to the charge on one of them. Schmitz was convicted by a jury, but the conviction was set aside by a decision of the District Court of Appeal, on the ground of a technical defect in the indictment. This defect also released Ruef.

As might be expected in a community which gilds its so-called social evils with the accessibility and attractiveness of its French restaurants, San Francisco still licenses prize fighting. This is done through the medium of its limited-round boxing permits. The words "limited" and "boxing" are a sham that deceives no one, and encounters are openly advertised as for the various prizefighting championships either local or for the world. The "knockout", inducing unconsciousness, is a frequent termination of the encounter, while the "limit"–often twenty rounds, extending over nearly two hours–finds the contestants seriously beaten up and the audience in a frenzy of brutal excitement. This gladiatorial brutality is apparently the sole reason for the continuance of the fights, as there are few persons who are induced by the example of the prize ring to take up the sport for physical development or athletic competition.

The first crime in which the Ruef-Schmitz Board of Supervisors participated as a whole was the creation of a monopoly of these fight permits for a body of promoters known as the Prize Fight Trust. These men paid Ruef a large sum of money for the exclusive right to the permits, and Ruef in turn distributed a part of the money to members of the Board. The price was high, as in the case of the French restaurants, for there was a strong feeling in the community against the continuance of the "fight game", particularly because of its essential barbarity, and secondarily because, being prohibited in most of the other large cities of America, San Francisco became the rendezvous of a large proportion of the pugilists and their following of trainers and rough sporting men of the entire country.

We have found no indications in the prize ring graft which connect it up with the higher financiers, or the landlord, as in the case of gambling and the social evil, but it appears that the business is as firmly established and as regularly organized as either of the former. the "People of the State of California", the plaintiff in all these cases, or the "Prosecution", as they are nicknamed, by focusing the public attention on their character through these indictments and raids, were placing all three of these institutions in jeopardy. the cry that the prosecution was "hurting business" became the watchword of all those who profit by the tenderloin enterprises, both high and low, as well as others in more innocent employments who were led to imagine they would be better off if the city's vices were left to run "wide open".

The so-called trolley bribery was for the purpose of securing a change in the motive power of the roads belonging to the United Railroads of San Francisco, from cable to the overhead electric trolley. These cable roads had practically no loss from experimentation in the mechanism of their cable systems and the right to charge five cents for the carriage of passengers over the city's streets in cable cars had proved so profitable–that is to say, the carriage after payment of all expenses and providing a sinking fund for duplicating the plant, cost so much less than the five cents fare–that the franchises were valued at many millions more than the cost of duplication.

The citizens had recognized that the cable franchises had turned out to be gifts of millions in value to the railways, and there was a strong feeling that if the company were to receive permits to install any other motive power which science might have rendered cheaper, a considerable part of the gain should be shared by the people. Negotiations for adjusting a bargain whereby electricity might be substituted for the cable had begun in 1905 between the "Committee of Improvement and Adornment" and the railway company, through its president.

At the outside there was a demand that on certain main arteries of the city the underground electric system should be used. The United Railroads insisted on the universal use of the overhead trolley, and made no offer to share the benefit of cheapened operation. Neither better seating accommodations nor reduced fares were to be had in exchange for this valuable privilege. The only offer, as against a grant worth many millions, was $200,000 to the city to be expended on its parks, they will knowing that any moneys expended on park improvement would be returned many times to the coffers of the road carrying the people thither.

The company retained Ruef as one of its attorneys in the latter part of 1905, after the election of the Ruef-Schmitz Board of Supervisors. The negotiations with the citizens were broken off in March, 1906, when the company announced that it would deal directly with the Supervisors. Ruef confessed that the arrangement had been made with him for the passage of the ordinance for the overhead permits in the latter part of March, or early in April, and prior to the fire and earthquake–that is, shortly after the company announced that it would deal with the Ruef-Schmitz Board, and after it had broken off negotiations with the Adornment Committee.

The earthquake and fire of April 18, 1906, temporarily suspended transportation on the cable lines. Only one of the United Railroads power plants for the roads which were afterwards changed from cable to electricity was destroyed–that of the Sutter Street system. The plant on Valencia street, which served Market and Valencia streets, the main artery of the city, was so slightly injured by the earthquake that its power would have been available on the morning after, while the injuries by the fire would have delayed the resumption of the operation of the road but a few days. The damage to the various cable slots by the earthquake was not of a serious character, and there seems no question that inside of a month after the fire all the cable roads subsequently converted to electricity, save the Sutter Street system, could have been running. The Geary Street cable road, an independent line, actually commenced running on the morning of the earthquake. The width of the tracks on the streets operated by the Sutter Street power house was greater than the standard gauge for electric cars, and hence these lines were not available for rapid conversion into electric roads. In fact no passengers were carried on these lines for many months after the fire.

The truth regarding the availability of the cable lines of the United Railroads for the resumption of business was not disclosed by the company and no beginning made on the comparatively slight repairs necessary to put them in order. In the confusion and distress caused by the fire and the succeeding struggle to rebuild the city, the facts were not investigated and the general public believed that the cable roads could not be made available till long after the time necessary for the installation of the trolley.

There was a double purpose in concealing the good condition of the cable lines after the fire. The company was not confined to the Board of Supervisors to obtain an ordnance granting the permit to change its power from cable to electricity. The San Francisco charter provides that such an ordinance shall, on the filing of a petition signed by 15 per cent of the city voters, be submitted to the people at the next election, and the obligations of the city officials to submit such a proposed ordinance is mandatory.

The belief that the cable lines were destroyed made many citizens so apprehensive regarding the resumption of traffic, and hence the restoration of retail trade, that they were willing to ignore the method of procuring the permit from the Supervisors. Without the cables it seemed to them entirely impracticable to wait until the November election to submit an ordnance directly to the people. Had the city cable been restored by June 1st, and the question of voting an overhead trolley permit had been submitted in November, five months later, there was no question that the citizens, realizing that in granting a permit they were giving millions to the road in increased capacity for issuing bonds and stocks, would have demanded a substantial return either in additional seats or reduced fares.

Pursuant to the bargain struck with the railroad interests before the fire, the road, through Ruef, bribed the Supervisors to pass an ordinance permitting the use of the overhead trolley on such of its cable lines as the company should deem proper. The Supervisors were paid $4000 each, save Gallagher, who received $15,000, and Wilson $10,000. The ordinance was passed, and the roads are now operating the overhead trolley under the rights thus obtained.

The company expressed a great desire to see transportation restored in the city streets, and for a time their good faith was not questioned. This impression was dispelled, however, when it was discovered that instead of tearing up the cable conduits and replacing them with the overhead system block by block, thus leaving the remainder of the street open to traffic by team and motor, the company put to work gangs of unskilled laborers, which were then easily obtainable, and tore up the streets for miles at a stretch, leaving them in that condition for many months until small gangs of more skilled workmen–much more difficult to obtain–gradually installed the new system.

The uneven contour of San Francisco had caused the transportation companies to install their main cable lines along the streets of easy grade, and the shopkeepers had likewise established their stores along such streets, both because they were natural highways for persons on foot and because of the traffic brought by the cables.

The goodwill of such enterprises was entirely dependent on the habit of the customer to come to the particular locality of the store. The tearing up of the streets by the railway company destroyed hundreds of these establishments and congested the trade in the shopping streets that remained open. The motive was not a desire to harm these shopkeepers or to favor the open streets, but to eliminate as quickly as possible the conduit for the cable, which the citizens experts had declared available for the underground electric system. The confusion and lax administration of the city government made such a proceeding possible, and it was apparent that once the conduits were torn out the business men of these streets, having already experienced the ruin caused to their established trades by changing from cable to trolley, would back up the company's opposition to any civic movement for the underground system which, though much less offensive to sight and ear, has a somewhat higher operative cost.

The Parkside Company owned a large tract of land about a mile and a half south of Golden Gate Park, which was called "Parkside." It was planned to subdivide this tract into small home sites, and the company desired a franchise for an electric road to connect it with the lines of the United Railroads. No doubt had such an ordinance for the franchise been submitted to the people under the charter provisions to that effect, it would have passed at the election of the fall of 1906. However, this would have required the selection of an unimproved street, as the only improved thoroughfare was a macadamized boulevard, and, under the city's laws, a railroad could not be run on any of its boulevards.

The firm of attorneys for the company sent one of its members, who was also an investor in its shares to the amount of $50,000, to secure Ruef's assistance in passing an ordinance through the Board granting the franchise. He reported back that Ruef demanded money. Subsequently the matter was arranged; not, however, by the attorney in question. The agreement was that the Supervisors should declare an unimproved street which adjoined–a mere surveyed streak of sand–to be the boulevard in place of the macadamized street. The latter thus becoming an ordinary city thoroughfare upon which rails could be laid, the franchise was to be granted over some sixteen blocks of its length. The money was paid, but the plot was discovered before the ordinances were passed.

No one has the temerity to urge that this transaction was an extortion or a holdup. Not only did its profitable escape from paving over a mile of street, the absence of any attempt to submit the ordinance to the people at the election of 1906, and the failure to seek relief from the District Attorney, preclude such a proposition, but in this case the District Attorney got wind of the negotiations and on asking the company whether it was being blackmailed was assured that it was not.

The most striking incident in connection with this transaction, from the standpoint of one trying to analyze the forces which have combined to embarrass the people in these prosecutions, was the fact that the attorney who reported the necessity for bribery was a former judge of the Superior Court and the then president of the San Francisco Bar Association, a man of ability, good social and professional standing, and attractive personality. Although it was made public that he had neither disclosed the crime to the District Attorney nor withdrawn from the investment, nor given up his attorneyship or his directorship in the Parkside Company, he did not resign his presidency of the Association. An indictment (subsequently quashed) was found against one of his partners for alleged participancy in the offering of the bribe. This made it apparent that it would be necessary for the Bar Association to consider his partner's disbarment, either for the bribery or for the purchase, as the legal representative of the Company, of Ruef's influence over the Board–a political crime as subversive of the government as bribery itself, and hence a violation of the attorney's oath. Several other prominent attorneys were involved in similar transactions and there was a plain need for a vigorous investigation to determine the propriety of their disbarment as well. A motion was made at a meeting of the Association that such an investigation be undertaken, and the matter was referred to the Grievance Committee. In that body a sub-committee was appointed to follow the criminal prosecutions and determine whether any unprofessional acts, not amounting to crimes, had been committed. Nevertheless this man clung to his position as the head of the Bar Association, and he received a re-election to the presidency at the next annual meeting. At a subsequent re-arrangement of the Grievance Committee he omitted the names of the persons who composed the sub-committee which was to make the investigation. To such lengths was this partnership in evil for personal gain carried that honor, reputation, dignity, are forgotten, and those who should be the bulwark of the state have become its peril.

We are glad to observe that since this time there has been a different spirit infused in the Bar Association, and that it seems to be awaking to a keener appreciation of the obligation it owes the profession and the community whose laws it is organized to sustain.

The Home Telephone bribery was an attempt on the part of some owners of capital in distant cities to obtain a franchise for a system to compete with the Pacific Telephone and Telegraph Company, the local organization. As the Supervisors were to offer a franchise which fitted the apparatus of the Home Company only, and hence as no one else would bid against them, and as the Home Telephone Company had no investment in San Francisco to protect, here, as in other cases we have considered, the claim of extortion was not present. These promoters were seeking a greater income on their moneys and did not hesitate to debauch the city's officials to prevent competition and make the profit possible. The franchise was successfully obtained, the Supervisors receiving an average of $5000 each for their votes.

The Pacific Telephone and Telegraph Company bribed the Supervisors to prevent the Home Telephone Company, or any other organization, from obtaining a telephone franchise in San Francisco. No attack of any kind on the Pacific Telephone and Telegraph Company was threatened by the Supervisors, and the sole purpose of the crime was to maintain a profit which might be cut by the competition of business rivals. The Supervisors were paid in all over $50,000. The managing committee of the board of directors of the company swore before the Grand Jury that they did not know how the funds were procured for the bribery.

We have seen that all the crimes we have heretofore considered, save the French restaurant extortions, were either briberies to secure privileges from the city without making adequate compensation, or to obtain a profitable investment of outside capital, or to prevent the competition of business rivals with profitable monopolies. The element of extortion of "holdup" seems lacking in all of those, in view of the large profits or advantages obtained, the readiness of the District Attorney to enforce the laws, and the further fact that the citizens could have been appealed to directly for the passage of ordinances giving the rights sought, in the event the Supervisors improperly refused them.

The gas rate briberies present a different consideration. The fixing of the rate to be charged for any quasi-public utility should be the result of a judicial inquiry, based upon an intelligent consideration of the elements entering into the cost of the utility at the time it reaches the citizen. This is, in each case, a task of large proportions and should be approached in a purely judicial attitude of mind. Such adjudications in fact involve larger sums and the interests of more person, and require the consideration of more diverse and intricate factors in reaching a judgment than any other class of litigation brought before our courts or legislative bodies.

Instead of creating a tribunal possessed of the requisite professional training to deal with the evidence of values and the engineering and other scientific questions which must necessarily be considered, practically all American communities have turned these adjudications over to the municipal legislative boards. These are made up of men elected on platforms almost exclusively political in their character, and who serve for short terms and hence are extremely sensitive to the clamor of the rate-payer. Not infrequently, the party platform pledges the nominee to decide the question in a certain manner before he can receive his nomination, and the citizens are asked to vote for him because he has promised that, no matter what evidence may be presented as to the cost of the utility, he will declare the rate to be a certain figure. The Ruef-Schmitz Board was elected on such a platform–that is to say, the citizens had pledged their Supervisors to adjudicate gas rates at seventy-five cents per thousand feet. The reduction was prevented by bribes aggregating $20,000, by which it was established that some $600,000 in a year's income was saved for the lighting company. It would seem much less a matter of surprise that the company should bribe under such circumstances than that a self-respecting community should permit the continuance of the system.

However, a better precedent had been long established by the Spring Valley Water Company, which in all cases of dispute as to the rates granted by the Supervisors had sought the courts, where the rates may be set aside if shown to be confiscatory. Under the Buckley regime the methods of this company had been by no means above suspicion, but since the adoption of the charter there had been no suggestion of any impropriety between it and the various municipal boards.

The Courts were equally open to the Gas and Electric Company to set aside any rate if it afforded a return which was confiscatory of its property. While it is true that the company is entitled to an income which is something more than a mere absence of confiscation, we have yet to hear it seriously urged that this is an excuse for bribery, either in morals or at law. The method of fixing rates, however, is radically unjust, and some rational tribunal should be created for their determination.

It is not in the province of this committee to fix the responsibility of the individual human beings, other than those who confessed, for the crimes committed for the benefit of the quasi-public companies. The beneficiaries were in call cases corporations, and their boards of directors have absolute power in their government. It is of course conceivable that the large sums necessary to effectuate these briberies were smuggled though the companies' budgets without the knowledge of some of the directors. It is also possible that, in the case of the gas company and the railway company the moneys were furnished by persons interested in "holding companies" owning blocks of stock in the corporation benefited. The fact, however, that their companies are the beneficiaries of the dishonorable acts placed upon these directors the duty, not only of making reparation to the community for the stolen benefits, but of lending vigorous assistance to the People and in hunting down and punishing the criminals. We are unable to see any difference in morals between the private person who knowingly keeps a case of wine which his butler has bribed the merchant's clerk to sell at half price, and the board of directors of a quasi-public corporation which knowingly retains a franchise secured by bribery. In no case has any corporation made reparation, and in no case has any substantial assistance been rendered the government in unearthing the crimes or punishing the criminals.

San Francisco will have many dealings in the future with the directors of these quasi-public corporations. They will come to many agreements regarding the supply of light, water, transportation and the telephone. Many of the terms of these agreements are not capable of exact statement and their performance is very largely a matter of good faith on the part of the directors of the companies. A dishonorable management could, without detection, add a few switches each month to the telephone bill of each business office using its system. It could deteriorate the quality of gas till it reached the minimum of light with the maximum of profit to the company. It could falsify both its gas and water meters. I could, instead of supplying a seat to each passenger, or running new lines temporarily without profit to develop new districts and thus prevent unhealthy congestion of population, divert the cost of such a service into interest and dividends, or watered bonds of stock.

Whether boards of directors which have on them many men of integrity in their private affairs, but which are unable to discover that large sums are being paid as bribes to secure benefits for their companies, and which retain the benefits after they discover they have been stolen, would be any more efficient in discovering or punishing such frauds on their patrons, is a matter for the present and future officials of the city to solve. In answer to your Honor's letter regarding the conditions leading to th graft prosecution, however, we feel it within our jurisdiction to report the names of the persons who sat on the boards of directors either during 1906, in which time the briberies were committed, or in 1907, when the briberies were disclosed. We have no evidence to show how far these persons were interested in the stock of the company, and the list concerns solely their responsibility as directors:

The directors of the Spring Valley Water Company should be named because of the clean record of that corporation during the Payson regime.