r the railroad is put in operation, that it is a losing
venture--that it will not pay a dividend on the amount at which it is
capitalized, and is running behind?"

"Then it becomes a simple matter for us to step out from under, and as
we step out we can take with us in our own pockets a few millions in
profits. If we become satisfied that the railroad is a loser, we'll
again work the stock market, and, by certain manipulations, boost the
price of Central Sonora to the highest possible point. When we are
satisfied that we have it up to the top notch, we'll dump every dollar's
worth of stock in our possession, pocket our profits, and smile as we
see Central Sonora slump and go to the dogs."

"In short," said Frank, "after we have built the railroad with the money
of the general public, overcapitalized it in a criminal manner, and
discovered that it will not pay a dividend on its watered stock, you
propose that we perpetrate another outrage on unsuspecting investors by
selling back to the public our holdings of stock that actually belongs
to the public anyhow!"

"Your inexperience is again shown by the manner in which you apply the
term 'watered' to that stock. Watered stock is new stock issued by a
railroad or other corporation that already has a certain amount of stock
in existence, but claims that it does not fairly represent, through
increase of the value of a property and franchises, the increase of
actual capital. We capitalize at the start for more than double the
actual cost of building and putting in operation, and therefore our
stock may not justly be called watered. In case this railroad should
thrive wonderfully, and should pay wonderful dividends on our ten
million dollars' worth of stock, we might then water it by issuing more
stock. I hope I have made the whole thing clear to you, Mr. Merriwell."

"You have!" cried Frank. "You have made it clear that what you propose
is criminally dishonest, is a gigantic swindle, and that parties
concerned in such an outrageous fraud should be amenable to the law and
sent to the penitentiary!"

Frank had risen to his feet, his eyes flashing and his whole aspect one
of righteous indignation.

Although he had thus pretended, he had not been entirely ignorant of the
dishonorable methods of stock jobbers, but he had feigned ignorance in
order to draw Basil Jerome out and lead him to fully expose the true
inwardness of his reprehensible plan of operation.

Jerome gazed a