In 1891 he was obliged to suspend the service of the public debt and make arrangements by which the bondholders accepted a reduced rate of interest.
The smaller company exchanges its stock for stock of the larger system on an agreed basis, or sells it outright, and the bondholders of the absorbed line often have a similar opportunity to exchange their securities for obligations cf the parent company, which are on a stronger basis or have a broader market.
The management of the road under his control, and especially the sale of $5,000,000 of fraudulent stock in 1868-1870, led to litigation begun by English bondholders, and Gould was forced out of the company in March 1872 and compelled to restore securities valued at about $7,500, 0 00.
This of course impaired the obligation of a contract, but under the Eleventh Amendment to the Constitution of the United States the bondholders could not bring suit against the state in the Federal courts.
Since then the import duties have been collected at the rate of 11% ad valorem under the supervision of the Public Debt Administration, the bondholders having certain rights, under the decree of Muharem, described below, over any increase of revenue arising from modification of the commercial treaties.