Union Pacific Railroad Fraud Case Study
When the Union Pacific Railroad was authorized to construct a transcontinental railroad with substantial financial support from the federal government, officers and directors of the company devised a plan to make an immediate profit from its construction by fraud. The vehicle for this fraud was a company called Credit Mobilier of America.
The method was to have Credit Mobilier, which was entirely controlled by the same people, bill the Union Pacific for the costs of constructing the railroad. There was no "market value" of the work, as there were no other bidders, so UP paid much more than Credit Mobilier spent. As a publicly traded company, Credit Mobilier could point to a record of profits that demonstrated that it was efficient and profitable,
The method was to have Credit Mobilier, which was entirely controlled by the same people, bill the Union Pacific for the costs of constructing the railroad. There was no "market value" of the work, as there were no other bidders, so UP paid much more than Credit Mobilier spent. As a publicly traded company, Credit Mobilier could point to a record of profits that demonstrated that it was efficient and profitable,