Oregon and California Railroad - Mismanagement and Fraud

Mismanagement and Fraud

While construction was still ongoing, multiple charges of land fraud arose. The company was accused of rounding up individuals from saloons in Portland's waterfront district, and paying them to sign applications to purchase 160-acre (0.6 km2) parcels of O&C lands as "settlers," then selling these fraudulent instruments in large blocks to corporate interests through corrupt middlemen. This elaborate money laundering and land fraud scheme was only the beginning. Southern Pacific Railroad eventually abandoned the pretense of nonexistent settlers, and sold lands in large parcels directly to developers for as much as US$40 per acre. By 1902, with land prices soaring, the company declared it was terminating land sales altogether. When the scandal broke in 1904 through an investigation by The Oregonian it had grown to such a magnitude that the paper reported that more than 75% of the land sales had violated federal law.

Newly elected President Theodore Roosevelt, as part of his plan of progressive reforms, vowed in 1903 to "clean up the O&C land fraud mess, once and for all!" Over the following two years, Roosevelt’s investigators collected evidence, and over 1,000 politicians, businessmen, railroad executives and others were indicted. Many were eventually tried and convicted on charges including fraud, bribery and other corruption. The federal government sought return of the grant lands from the railroad not actually part of the right of way for the railroad line itself.