The downfall of a railroad empire and its impact on leveraged financing, accounting, business and regulation: 1929–1936

This paper examines accounting records and federal legislative archives encompassing the operations of the New York, Chicago & St Louis Railroad Company (Nickel Plate Road – NKP) from 1929 to 1936. This study researches the strategic management practices, financing methods, capital structure and impact this company had on regulation. The Van Sweringen Brothers, Oris Paxton (O.P.), Mantis James (M.J.) and their President Jon Bernet built an empire worth over US$3 billion (US$45 billion today). They did it all by using little money of their own. The Van Sweringens fully advanced concepts such as leveraging, buying on margin and the utilisation of non-voting preferred stock. In the market turmoil following the Crash of 1929, these methods drew the attention of federal policymakers who initiated investigations that led to capital market regulation. The untimely death of the three leaders, a large amount of debt and the Great Depression resulted in the demise of their empire.