Erie War Escalates - Gould and Fisk Flee to Jersey with $7 Million in Watered Stock

The Erie War reached its climax in early March 1868 when Jay Gould, James Fisk, and Daniel Drew, facing arrest warrants from Judge George Barnard after issuing $5 million in fraudulent Erie Railroad stock, fled across the Hudson River to Jersey City with $7 million in cash and watered stock certificates, establishing the Erie’s new headquarters in a hotel beyond New York jurisdiction. The Erie War began in 1866-1868 when Drew, Gould, and Fisk conspired to issue spurious Erie Railroad shares to prevent Cornelius Vanderbilt from acquiring control of the Erie. In February 1868, the Erie board authorized $5 million in convertible bonds, which were immediately converted into 50,000 new shares and sold to Vanderbilt, massively diluting his holdings. On March 3, 1868, Vanderbilt persuaded the notoriously corrupt Tammany Hall Judge Barnard to issue an injunction freezing Erie’s stock issuance, but the Erie directors had already fled to New Jersey with the proceeds. On March 4, Gould traveled to Albany and distributed approximately $1 million in bribes to New York state legislators to pass retroactive legislation validating the bond conversions. On April 13, 1868, the legislature passed the ‘Erie Bill’ legalizing the stock issuance and allowing Erie to operate from New Jersey. On July 10, 1868, negotiations concluded with Vanderbilt agreeing to relinquish his Erie stake in exchange for having his shares repurchased at par, though he had lost $1-2 million in the failed takeover attempt. The Erie War established the practice of ‘stock watering’—issuing shares without corresponding asset backing to dilute ownership—and demonstrated how corporate titans could use bribery, corrupt judges, and legislative manipulation to legitimize fraud. This represented the normalization of corporate-political corruption in the Gilded Age, where business disputes were settled through which side could bribe more legislators and judges—a pattern of legalized corruption that parallels modern corporate lobbying, campaign finance, and the revolving door between corporations and government that enables regulatory capture and the systematic subordination of law to corporate interests.