Pony Express Historic Resource Study

OPERATION OF THE PONY EXPRESS, 1861

While the winter storms swirled over the nation in January 1861, William R. Russell faced a storm of publicity regarding his role in stealing Interior Department bonds. The scandal unraveled the wavering finances of Russell, Majors, and Waddell and the C.O.C. & P.P. Express Co., displaying them before the public eye. What the public and their creditors saw was a firm in deep financial trouble, burdened with debts that emanated from a number of avoidable and ineluctable factors.

Financial Quagmire, 1857-1860

"The plain fact is," according to one historian, "the firm of Russell, Majors & Waddell had been bankrupt since the winter of 1857-58. . . .The cause was the so called Mormon War in Utah." During the Utah War, the firm of Russell, Majors, and Waddell lost several wagon trains of provisions, oxen and equipment for which they were not reimbursed. Thereafter, in 1858, when the War Department failed to pay the freighting firm of Russell, Majors, and Waddell for the 1857 freighting contract because of difficulties in passing the appropriation bill, the firm was left without funds from which to pay for wagons, oxen, and supplies for the next year's military contract. It will be remembered from an earlier discussion, the firm solved their financial problem when Russell convinced Secretary of War John B. Floyd to write "letters to bankers and financiers urging them to lend Russell large sums of money upon the acceptances as security." From March, 1858 to October 1860, some $5,036,127 of acceptances were issued against anticipated earnings from the 1858 military freighting contract. [102]

While dealing with financial quagmire, Russell, Majors, and Waddell took on new financial obligations. First, Russell and his partner, organized the Leavenworth & Pike's Peak Express Company in 1859, but a year later, the firm of Russell, Majors, and Waddell was forced to assume control of L. & P.P. Express Co. because it fell upon difficult times. Russell, Majors, and Waddell reorganized the L. & P.P. Express Co. and renamed it the Central Overland California & Pike's Peak Express Company or the Pony Express. The operation of the C.O.C. & P.P. Express Co. during 1860 only indebted the firm of Russell, Majors, and Waddell even further.

Despite these problems, in the spring of 1860, Russell, Majors, and Waddell outfitted to freight supplies for military posts as usual. They managed to purchase supplies on credit and borrow additional monies to employ men for their yearly seasonal operation, thereby increasing their debt yet again. Then calamity struck when for various reasons their wagon trains, which should have left in March, were not put on the road until August and September—a delay of four or five months. This delay cost the firm dearly, because the company had to pay for idle men and equipment during the months between March and August. Since they could not get paid by the War Department until they presented their bills of lading, Russell, Majors, and Waddell had to take out additional notes to cover their initial notes that were due in mid-summer. This delay caused by their own misjudgment damaged their credit line even further. [103]

While facing these difficulties in their freighting business, Russell, Majors, and Waddell hoped that the Pony Express would convince Congress of the viability of the central route and thereby secure the firm a large overland mail contract. Instead, the unforeseen Indian depredations along the Nevada-Utah portion of the route in May and June 1860. The C.O.C. & P.P. Express Co. suspended Pony Express service for a time until the line could be resupplied, restocked, and fortified against further Indian attacks, steps which added to the firm's growing debt. Russell, ever optimistic and boldly believing in the freighting firm's capacities, brushed off and ignored these problems. Russell sanguinely expected to close in on a contract for overland mail worth some $600,000 to $900,000 per year. [104]

For a time, it looked like C.O.C. & P.P. Express Co. might get the overland mail contract they sought, especially since they had successfully completed the first run of the Pony Express. That spring, Congress vigorously debated the mail routes to the Pacific. During the debates, the Overland Mail Company route was thoroughly discredited when it was revealed that postage receipts for the $600,000 a year route amounted to only $27,229.94. To capitalize on the point, on April 11, 1860, Senator William M. Gwin of California introduced a measure providing for "semi-weekly service carrying all the mail from the Missouri River to Placerville, California in twenty days along the line of the Pony Express on the Central route, with a daily mail to Salt Lake City." Since the post office contract for ocean service was due to expire in June 1860, both Russell and Senator Gwin were almost certain that the central overland mail contract would replace it. The expiration of the ocean service left either the Overland Mail Company on the discredited southern route, or Russell, Majors, and Waddell's Pony Express as the only means of communication with California. However, no contract materialized; Congress adjourned at the end of June 1860 without passing a bill for a central overland mail route. [105]

Bond Scandal

When Congress adjourned, Russell, Majors, and Waddell were in a despairing state without the contract they dearly needed to stave off imminent bankruptcy. At the end of July, some $200,000 of acceptances, backed by Secretary of the War John B. Floyd's signature and used as collateral for their increasing debts, were coming due for collection. Russell, Majors, and Waddell had no money to pay these debts. They knew if they missed their deadline, their acceptances would be protested for nonpayment. Ultimately the scandal associated with nonpayment would probably force Secretary Floyd to resign his cabinet post, since he backed them with his personal signature. All members of the firm acknowledged that they soon would be bankrupt, however Russell remained optimistic, believing that somehow he would find a way out. [106]

Fortunately, or unfortunately, while William H. Russell was on his way back to Washington, D.C., from am unsuccessful trip to New York to raise the necessary cash, he met Luke Lea, former Commissioner of Indian Affairs. During their chance encounter, Russell explained his situation to Lea. The Commissioner told Russell he could not help him personally. However, Lea suggested that Godard Bailey, a relative of Secretary Floyd's wife, might be able to help him. Russell met Bailey and discussed the situation with him. Bailey wanted to protect the reputation and career of Secretary Floyd, and inquired into the matter. After a few days, Bailey decided to help Russell by "loaning" him security bonds worth $150,000. Bailey did not ask Russell for any "interest, commission, or compensation whatever for their use," however, Bailey did stipulate to Russell that the individual bonds would have to be returned. Russell took the "loaned" bonds to New York, misrepresented them as his own, and pledged them as security to various investors for ninety days or less. He raised a total of $97,000 with the borrowed bonds, a sum that temporarily eased Russell, Majors and Waddell's critical state of affairs and saved them from bankruptcy in mid-July. Clearly, what Russell had dome was very close to embezzlement. Prior to this event, Russell had not done anything dishonest in his business dealings. [107]

In normal times, Russell may have succeeded in this scheme and put the firm of Russell, Majors, and Waddell back on a course of fiscal responsibility. However, these were troubled times because of the rising sectionalism between the North and South and the approach of the Civil War. As it turned out, Bailey had not been totally honest with Russell about the ownership of the "loaned" bonds. Bailey was not the owner of the bonds either, but was only the "custodian" of the bonds. The bonds were part of what was known as the Indian Trust Fund (payments made to Indian tribes that were held in interest bearing bonds by the government). As tensions mounted between the North and South, holders of these bonds wished to sell them and Bailey needed them returned. Russell had not known that Bailey had no legal right to loan him the bonds, and when Bailey asked for them back, Russell was backed into a corner. He and the company had no money to redeem the bonds or liquidate the acceptances backed by Floyd's signature. Now, according to one historian, he was a "thoroughly frightened, practically helpless man on the brink of financial ruin." [108]

At this point, Russell should have quit trying to cover up the company's bad financial state. Instead he "borrowed" a second group of bonds from the Indian Trust Fund worth $387,000, and gave Bailey a note for $537,000, the face value of both borrowed bond groups. This action was clearly embezzlement since Russell knew his note was worthless. Notwithstanding, the second lot of borrowed bonds did not solve the firm's fiscal situation either. Because of the impending sectional crisis, Russell had to heavily discount this second batch of bonds in order to raise cash. To alleviate some of the pressure, in September, 1860, Russell called a meeting with bank representatives and private investors in St. Louis and elsewhere, who held Secretary Floyd's acceptances. He told them his firm presently could not pay on their debts and them boldly asked them for an additional $200,000 loam to carry the firm through its financial crisis. Given the circumstances, the investors had no choice but to grant him the loam if they were ever to see their money again. Another financial crisis in the affairs of the Russell, Majors, and Waddell was averted temporarily. [109]

After not getting caught for embezzlement for the second dip into the Indian Trust Fund, it became easier for Russell to rationalize a third trip to the well. By mid- December, Russell, Majors, and Waddell were once again on the brink of bankruptcy. In order to meet this latest emergency, Russell approached Godard Bailey once again. He convinced him that the Russell, Majors, and Waddell's affairs were in order. Bailey furnished him an additional $333,000 worth of Indian Trust Funds, making a grand total of $870,000 that Russell "illegally appropriated for his own use." As he had done before, Russell took the third group of bonds to New York to raise needed capital for Russell, Majors, and Waddell. [110]

Russell might have carried off his last embezzlement scheme were it not for the good conscience of Godard Bailey. Only a few days after he loaned the third group of bonds to Russell, Bailey despaired over what he had done. On December 1, 1860, he wrote out a full confession, but did not deliver it to friends until December 22, 1860. Immediately, his friends advised him to confess everything and to "make no attempt to escape, and take the consequences, as he alone was to blame for the whole difficulty." Secretary Floyd as well as President Buchanan were informed of the embezzlement as well. The president called an emergency meeting of his cabinet, questioned Bailey thoroughly, then ordered his arrest, setting his bond at a modest five thousand dollars. [111]

William Russell never thought or feared that Bailey would reveal their transactions. So on Christmas Eve, 1860, when a United States marshall arrested him in New York City and then transported him to Washington, D.C., he was taken completely by surprise. Russell's bond was not set at a mere $5,000. Instead, his bail was set at $500,000! Since Russell could not meet the bail requirements, he was remanded to jail. Fortunately, public reaction to this exceedingly high sum forced the reduction of bail, and he was set free to stand trial. [112]

When the public heard the news of bond scandal, it created a "sensation, not only in Washington, New York, Boston and elsewhere in the East, but throughout the country." Conveniently overlooking Russell's clear criminal behavior, friends of Russell accused President Buchanan and the friends of the southern route of setting a trap for Russell. Others blamed the government in general for driving Russell, Majors, and Waddell into bankruptcy by not paying their claims in the Utah War. [113] Western newspapers, such as the San Francisco Daily Evening Bulletin, took that viewpoint when the news reached them on January 11, 1861.

The charge appears to be a criminal one, but the fact that the Government owes the Company a large amount which the Treasury Department has not been in condition to pay, renders it probable that nothing will be lost eventually by the alleged crime. [114]

At once, a select congressional committee was appointed to investigate the case. On January 11, 18, and 23, 1861, Russell voluntarily appeared before this body. He submitted a written statement that discussed his taking of the bonds and securing acceptances against them and the reasons for them. On January 29, 1861, a grand jury for the District of Columbia indicted William H. Russell, Godard Bailey, and Secretary John B. Floyd for conspiracy to "combine, confederate and agree together by wrongful means to cheat, defraud, and impoverish the United States." [115]

Russell was saved from prosecution because the approach of the Civil War interfered with the case. On December 20, 1860, South Carolina seceded from the Union, and during the weeks of January, one southern state after another voted to secede from the Union. First Mississippi, and then Florida, Alabama, Georgia, and Louisiana followed South Carolina's action. Eventually, these Southern states formed a provisional confederate government. Naturally, the nation focused attention on these events rather than on the Russell bond scandal. In time, the indictment against Russell was quashed. On March 11, 1861, though Russell certainly was " guilty of feloniously and knowingly receiving stolen securities and appropriating them for his own purposes," he was freed on technicality of the law. None of the bonds were ever recovered, and Congress was forced to reimburse the Indian Trust Fund to the tune of $759,525.56. [116]

The bond scandal ruined the reputations of Russell, Majors, and Waddell in the community, and the firm soon collapsed into bankruptcy to its creditors. Those who trusted the institution of Russell, Majors, and Waddell—namely the people and hundreds of creditors of Lexington, Kansas City, Leavenworth, St. Joseph, and elsewhere in western Missouri, were hurt the most by the bond scandal as they tried to recoup their losses. [117]