In the beginning of the beginning the distillers of turpentine carried
competition to the quarrelling point. Then they carried the quarrel to
the point of silence, which was most to be feared, for it meant that no
time was to be wasted in words. All were losing money; but each hoped
that the others were losing more, proportionately, and therefore would
go under all the sooner. The survivors thought they could manage to keep
on surviving, for on what twelve would starve four could feast.
It is seen periodically in the United States: an industry apparently
suffering from suicidal mania. It is incomprehensible, inexplicable,
though mediocrities mutter: “Over-production!” and shake their heads
complacently, proud of having diagnosed the trouble. Here was the
turpentine business, once great and lucrative, now ruin-producing;
formerly affording a comfortable livelihood to many thousands and now
giving ever-diminishing wages to ever-diminishing numbers.
It was Mr. Alfred Neustadt, a banker in a famous turpentine district,
who first called his brother-in-law’s attention to the pitiable sight.
Mr. Jacob Greenbaum’s soul thrilled during Neustadt’s recital. He
perceived golden possibilities that dazzled him: He decided to form a
Turpentine Trust.
First he bought for a song all the bankrupt stills; seven of them. Later
on, in his scheme of trust creation, these self-same distilleries would
be turned over to the “octopus,” at nice fat figures, as Greenbaum put
it, self-admiringly, to his brother-in-law. Then he secured options on
nine others, the tired-unto-death plants. In this way he was able to
control “a large productive capacity” at an expenditure positively
marvellous—it was so small. It was also in his brother-in-law’s name.
Then the banking house of Greenbaum, Lazarus & Co. stepped in,
interested accomplices, duped or coerced into selling enough other
distillers to assure success, cajoled the more stubborn, wheedled the
more credulous, gave way gracefully to the shrewder and gathered them
all into the fold. The American Turpentine Company was formed, with a
capital stock of $30,000,000 or 300,000 shares at $100 each. The cash
needed, to pay Mr. Greenbaum, Neustadt and others who sold their plants
for “part cash and part stock,” was provided by an issue of $25,000,000
of 6 per cent bonds, underwritten by a syndicate composed of Greenbaum,
Lazarus & Co., I. & S. Wechsler, Morris Steinfelder’s Sons, Reis &
Stern, Kohn, Fischel & Co., Silberman & Lindheim, Rosenthal, Shaffran &
Co. and Zeman Bros.
They were men who never “speculated”; sometimes they “conducted
financial operations.” They had shears, not fleeces.
The prospectus of the “Trust” was a masterpiece of persuasiveness and
vagueness, of slim statistics and alluring generalities. In due course
of time the public subscribed for the greater part of the $25,000,000 of
bonds, and both bonds and stock were “listed” on the New York Stock
Exchange—that is, they were placed on the list of securities which
members may buy or sell on the “floor” of the Exchange.
Tabularly expressed, the syndicate’s operations were as follows:
Authorized stock $30,000,000
Authorized bonds 25,000,000
___________
Total $55,000,000
Actual worth of property 12,800,000
___________
_Aqua Pura_ $42,200,000
Paid to owners for 41 distilleries representing 90 per cent of the
turpentine production (and 121 per cent of the consumption!) of
the United States:
Cash from bond sales $8,975,983
Bonds 12,000,000
Stock 18,249,800
___________
Total $39,225,783
Syndicate’s commission, stock 12,988,500
Retained in Co.’s treasury, unissued 2,000,000
Expenses and discounts on bonds, etc. 785,717
___________
Total $55,000,000
These figures were not for publication. They told the exact truth.
The public knew nothing of the company’s earning capacity, save a few
tentative figures from the prospectus, which was a sort of financial
gospel according to Greenbaum, but which did not create fanatical
devotees among investors. The stock, unlike the Kipling ship, had not
found itself. It was not market-proven, not seasoned; no one knew how
much dependence to put on it; wherefore the banks would not take it as
collateral security on loans and wherefore the “speculative community”
(as the newspapers call the stock gamblers) would not touch it, since in
a pinch it might prove utterly unvendible. It remained for the syndicate
to make a “market” for it, to develop such a condition of affairs that
anyone at any time could, without overmuch difficulty and without
causing over-great fluctuations, sell readily American Turpentine
Company stock. The syndicate would have to earn its commission.
All the manufacturers who had received stock in part payment were told
most impressively by Mr. Greenbaum not to sell their holdings under any
circumstances at any price below $75 a share. Not knowing Mr. Greenbaum,
they readily and solemnly promised to obey him. They even permitted
themselves to think, after talking to him, that they would some day
receive $80 per share for all their holdings. This precluded any
untimely “unloading” by the only people outside the syndicate that held
any Turpentine stock at all.
Mr. Greenbaum took charge of the market conduct of “Turp,” as the tape
called the stock of the American Turpentine Company. At first, the price
was marked up by means of “matched” orders—preconcerted and therefore
not bona fide transactions. Mr. Greenbaum told one of his brokers to
sell 1,000 shares of “Turp” to another of his brokers and shortly
afterwards the second broker sold the same 1,000 shares to a third, by
pre-arrangement—this being the matching process—with the result that the
tape recorded transactions of 2,000 shares. After the “matching” had
gone on for some time, readers of the tape were supposed to imagine that
the stock was legitimately active and strong—two facts which in turn
were supposed to whet the buying appetite. It was against the rule of
the Exchange to “match” orders, but how could convictions be secured?
“Turp” began at 25 and as the syndicate had all the stock in the market,
it was easily manipulated upward to 35. Every day, many thousands of
shares, according to the Stock Exchange’s official records, “changed
hands”—from Greenbaum’s right to his left and back again—and the price
rose steadily. But something was absent. The manipulation was not
convincing. It did not make the general public nibble. The only buyers
were the “room traders,” that is, the professional stock gamblers who
were members of the Exchange and speculated for themselves exclusively;
and those customers of the commission houses who, because they were
bound to speculate daily or die and because they studied the
ticker-ribbon so assiduously, were known by the generic name of
“tape-worms.” These gentry, in and out of the Exchange, provided the
tape in its curious language foretold a rise, would buy anything—from
capitalized impudence, as in the case of Back Bay Gas, whose property
was actually worth nil and its capital stock was $100,000,000, up to
Government bonds.
Now, the room traders and the tape-worms reasoned not illogically that
the “Greenbaum gang” had all the stock and that perforce the “gang” had
to find a market for it; and the only way to do this was by a nice
“bull” or upward movement. When a stock rises and rises and rises the
newspapers are full of pleasant stories about it and the lambs read but
do not run away; they buy on the assumption that, as the stock has
already risen ten points it may rise ten more. This explains why they
make so much money in Wall Street—for the natives.
Greenbaum and his associates were exceptionally shrewd business men,
thoroughly familiar with Wall Street and its methods, cautious yet bold,
far-seeing yet eminently of the day. They were practical financiers.
They marked up the price of “Turp” ten points; but they could not arouse
public interest in it so that people would buy it. Indeed, at the end of
three weeks, during which the “Street” had been flooded with impressive
advice, printed and spoken, to buy because the price was going higher,
all they had for their trouble was more stock-–6,000 shares from Ira D.
Keep, a distiller, who sold out at 38 because he needed the money; and
they also were obliged to buy back from the “room traders” at 35 and 36
and higher, the same stock the “gang” had sold at 30 and 31 and 32 and
34. Then the manipulators had to “support” the stock at the higher
level, that is, they had to keep it from declining, which could be done
only by continuous buying. By doing this the public might imagine there
was considerable merit in a stock which was in such good demand from
intelligent people as to remain firm, notwithstanding its previous
substantial rise. And if somebody wanted “Turp” why shouldn’t the public
want it? The public generally asks itself that question. It is in the
nature of a nibble and rejoices the hearts of the financial anglers.
Every attempt to sell “Turp” met with failure. At length it was decided
to allow the price to sink back to an “invitingly low” level. It was
done. But still the invited public refused to buy. Efforts to encourage
a short interest to over-extend itself unto “squeezable” proportions
failed similarly. The Street was afraid to go “short” of a stock which
was so closely held. The philosophy of short selling is simple; it
really amounts to betting that values will decline. A man who “sells
short” sells what he does not possess, but hopes to buy, later on, at a
lower price. But since he must deliver what he sells he borrows it from
some one else, giving the lender ample security. To “cover” or to “buy
in” is to purchase stock previously sold short. Obviously, it is unwise
to be short of a stock which is held by such a few that it may be
difficult to borrow it. To “squeeze” shorts is to advance the price in
order to force “covering.” This is done when the short interest is large
enough to make it worth while.
In the course of the next few months, after a series of injudicious
fluctuations which gave to “Turp” a bad name, even as Wall Street names
went, despite glowing accounts of the company’s wonderful business and
after distributing less than 35,000 shares, the members of the
“Turpentine Skindicate,” as it was popularly called, sorrowfully
acknowledged that, while they had skilfully organized the trust and had
done fairly well with the bonds, they certainly were not howling
successes as manipulators. During the following eight months they sold
more stock. They spared not the widow nor the orphan. They even “stuck”
their intimate friends. They had sold for something what had cost them
nothing; it was natural to wish to sell more.
Now, manipulators of stocks are born, not made. The art is most
difficult, for stocks should be manipulated in such wise that they will
not look manipulated. Anybody can buy stocks or can sell them. But not
every one can sell stocks and at the same time convey the impression
that he is buying them, and that prices therefore must inevitably go
much higher. It requires boldness and consummate judgment, knowledge of
technical stock-market conditions, infinite ingenuity and mental
agility, absolute familiarity with human nature, a careful study of the
curious psychological phenomena of gambling and long experience with the
Wall Street public and with the wonderful imagination of the American
people; to say nothing of knowing thoroughly the various brokers to be
employed, their capabilities, limitations and personal temperaments;
also, their price.
Adequate manipulative machinery, moreover, can be perfected only with
much toil and patience and money. Professional Wall Street will always
tell you that “the tape tells the story.” The little paper ribbon,
therefore, must be made to tell such stories as the manipulator desires
should be told to the public; he must produce certain effects which
should preserve an appearance of alluring spontaneity and, above all, of
legitimacy and candor; he must be a great artist in mendacity and at the
same time have the superb self-confidence of a grizzly.
Several members of the syndicate had many of these qualities, but none
had them all. It was decided to put “Turp” stock in the hands of Samuel
Wimbleton Sharpe, the best manipulator Wall Street had ever known.
“Jakey” Greenbaum said he would conduct the negotiations with the great
plunger.
Sharpe was a financial free-lance, free-booter and free-thinker. He had
made his first fortune in the mining camps of Arizona and finding that
field too narrow had come to New York, where he could gamble to his
heart’s content. He was all the things that an ideal manipulator should
be and several more. He had arrived in New York with a sneer on his lips
and a loaded revolver in his financial hands. The other “big operators”
looked at him in pained astonishment. “I carry my weapons openly,”
Sharpe told them, “and you conceal your dirks. Don’t hurt yourselves
trying to look honest. I never turn my back on such as you.” Of this
encounter was born a hostility that never grew faint. Sharpe had nothing
of his own to unload on anyone else, no property to overcapitalize and
sell to an undiscriminating public by means of artistic lies and his
enemies often did. So they called him a gambler, very bitterly, and he
called them philanthropists, very cheerfully. If he thought a stock was
unduly high he sold it confidently, aggressively, stupendously. If he
thought a stock was too low he bought it boldly, ready to take all the
offerings and bid for more. And once on the march, he might be
temporarily checked, be forced by the enemy to halt for a day or a week
or a month; but inevitably he arrived. And such an arrival!
And as a manipulator of stock-values he had no equal. On the bull side
he rushed a stock upward so steadily, so boldly and brilliantly, but,
above all, so persuasively, that lesser gamblers almost fought to be
allowed to take it off his hands at incredibly high prices. And when in
the conduct of one of his masterly bear campaigns he saw fit to “hammer”
the market, values melted away as by magic—Satanic magic, the poor lambs
thought. All stocks looked “sick,” looked as though prices would go much
lower; murmurs of worse things to come were in the air, vague,
disquieting, ruin-breeding. The atmosphere of the Street was
supersaturated with apprehension, and the black shadow of Panic brooded
over the Stock Exchange, chilling the little gamblers’ hearts, wiping
out the last of the little gamblers’ margins. And even the presidents of
the solid, conservative banks studied the ticker uneasily in their
offices.
Greenbaum was promptly admitted to Sharpe’s private office. It was a
half-darkened room, the windows having wire-screens, summer and winter,
in order that prying eyes across the street might not see his visitors
or his confidential brokers, whose identity it was advisable should
remain unknown to the Street. He was walking up and down the room,
pausing from time to time to look at the tape. The ticker is the only
telescope the stock-market general has; it tells him what his forces are
doing and how the enemy is meeting his attacks. Every inch of the tape
is so much ground; every quotation represents so many shots.
There was something feline in Sharpe’s stealthy, soundless steps, in his
mustaches, in the conformation of his face—broad of forehead and
triangulating chin-ward. In his eyes, too, there was something
tigerish—unmelodramatically cold hearted and coldly curious as they
looked upon Mr. Jacob Greenbaum. Unconsciously the unfanciful
Trust-maker asked himself whether Sharpe’s heart-beats were not ticker
ticks, impassively indicating the pulse of the stock-market.
“Hallo, Greenbaum.”
“How do you do, Mr. Sharpe?” quoth the millionaire senior partner of the
firm of Greenbaum, Lazarus & Co. “I hope you are well?” He bent his head
to one side, his eyes full of a caressing scrutiny, as though to
ascertain the exact condition of Sharpe’s health. “Yes, you must be. I
haven’t seen you look so fine in a long time.”
“You didn’t come up here just to tell me this, Greenbaum, did you? How’s
your Turpentine? Oh!”—with a long whistle—“I see. You want me to go into
it, hey?” And he laughed—a sort of half-chuckle, half-snarl.
Greenbaum looked at him admiringly; then, with a tentative smile, he
said: “I am discovered!”
Nearly every American may be met as an equal on the field of Humor. To
jest in business matters of the greatest importance bespoke the national
trait. Moreover, if Sharpe declined, Greenbaum could treat the entire
affair—the proposal and the rejection—as parts of a joke.
“Well?” said Sharpe, unhumorously.
“What’s the matter with a pool?”
“How big?” coldly.
“Up to the limit.” Again the Trust-maker smiled, uncertainly.
“You haven’t all the capital stock, I hope.”
“Well, call it 100,000 shares,” said Greenbaum, more uncertainly and
less jovially.
“Who is to be in it besides you?”
“Oh, you know; the same old crowd.”
“Oh, I know,” mimicked Mr. Sharpe, scornfully, “the same old crowd. You
ought to have come to me before; it will take something to overcome your
own reputations. How much will each take?”
“We’ll fix that O. K. if you take hold,” answered Greenbaum, laughingly.
“We’ve got over 100,000 shares and we’d rather some one else held some
of it. We ain’t hogs. Ha! Ha!”
“But, the distillers?”
“They are in the pool. I’ve got most of their stock in my office. I’ll
see that it does not come out until I say so.”
There was a pause. Between Sharpe’s eyebrows were two deep lines. At
length, he said:
“Bring your friends here, this afternoon. Good-by, Greenbaum. And, I
say, Greenbaum.”
“Yes?”
“No funny tricks at any stage of the game.”
“What’s the use of saying such things, Mr. Sharpe?” with an experimental
frown.
“The use is so you won’t try any. Come at four,” and Mr. Sharpe began to
pace up and down the room. Greenbaum hesitated, still frowning
tentatively; but he said nothing and at length went out.
Sharpe looked at the tape. “Turp” was 29¼.
He resumed his restless march back and forth. It was only when the
market “went against him” that Mr. Sharpe did not pace about the room in
the mechanical way of a menagerie animal, glancing everywhere but seeing
nothing. When something unexpected happened in the market Sharpe stood
immobile beside the ticker, because his overworked nerves were
tense—like a tiger into whose cage there enters a strange and eatable
animal.
On the minute of four there called on Mr. Sharpe the senior partners of
the firms of Greenbaum, Lazarus & Co., I. & S. Wechsler, Morris
Steinfelder’s Sons, Reis & Stern, Kohn, Fischel & Co., Silberman &
Lindheim, Rosenthal, Shaffran & Co., and Zeman Bros.
They were ushered not into the private office, but into a sumptuously
furnished room, the walls of which were covered with dashing oil
paintings of horses and horse-races. The visitors seated themselves
about a long oaken table.
Mr. Sharpe appeared at the threshold.
“How do you do, gentlemen? Don’t move, please; don’t move.” He made no
motion to shake hands with any of them, but Greenbaum came to him and
held out his fat dexter resolutely and Sharpe took it. Then Greenbaum
sat down and said, “We’re here,” and smiled, blandly.
Sharpe stood at the head of the polished, shining table, and glanced
slowly down the double row of alert faces. His look rested a fraction of
a minute on each man’s eyes—a sharp, half-contemptuous, almost menacing
look that made the older men uncomfortable and the younger resentful.
“Greenbaum tells me you wish to pool your Turpentine stock and have me
market it for you.”
All nodded; a few said “yes”; one—Lindheim, _aetat 27_—said, flippantly,
“That’s what.”
“Very well. What will each man’s proportion be?”
“I have a list here, Sharpe,” put in Greenbaum. He intentionally omitted
the “Mr.” for effect upon his colleagues. Sharpe noted it, but did not
mind it.
Sharpe read aloud:
Greenbaum, Lazarus & Co 38,000 shares.
I. & S. Wechsler 14,000 shares.
Morris Steinfelder’s Sons 14,000 shares.
Reis & Stern 11,000 shares.
Kohn, Fischel & Co 10,000 shares.
Silberman & Lindheim 9,000 shares.
Rosenthal, Shaffran & Co 9,800 shares.
Zeman Bros 8,600 shares.
______________
Total 114,400 shares.
“Is that correct, gentlemen?” asked Sharpe.
Greenbaum nodded his head and smiled affably as befitted the holder of
the biggest block. Some said “Yes”; others, “That is correct.” Young
Lindheim said, “That’s what.” The founders of the firm—his uncle and his
father—were dead, and he had inherited the entire business from the two.
His flippancy was not inherited from either.
“It is understood,” said Sharpe, slowly, “that I am to have complete
charge of the pool, and conduct operations as I see fit. I want no
advice and no questions. If there is any asking to be done, I’ll do it.
If my way does not suit you we’ll call the deal off right here, because
it’s the only way I have. I know my business, and if you know yours
you’ll keep your mouths shut in this office and out of it.”
No one said a word, not even Lindheim.
“Each of you will continue to carry the stock for which he has agreed to
stand in the pool. You’ve had it a year and couldn’t sell it, and you
might keep it a few weeks more, until I sell it for you. It must be
subject to my call at one minute’s notice. I’ve looked into the
company’s business, and I think the stock can easily sell at 75 or 80.”
Something like a gasp of astonishment came from those eight hardened
speculators. Then Greenbaum smiled, knowingly, as if that were his
programme, memorized and spoken by Sharpe.
“It is also understood,” went on Sharpe, very calmly, “that none of you
has any other stock for sale at any price, excepting his proportion in
this pool, and that proportion, of course, is not to be sold excepting
by me.” No one said a word, and he continued:
“My profit will be 25 per cent of the pool’s winnings, figuring on the
stock having been put in at 29. The remaining profits will be divided
pro rata among you; the necessary expenses will be shared similarly. I
think that’s all. And, gentlemen, no unloading on the sly—not one
share.”
“I want you to understand, Mr. Sharpe, that we are not in the habit of—”
began Greenbaum with perfunctory dignity. He felt it was his duty to
remonstrate before his colleagues.
“Oh, that’s all right, Greenbaum. I know you. That’s why I’m particular.
We’ve all been in Wall Street more than a month or two. I simply said,
‘No shenanigan.’ And, Greenbaum,” he added, very distinctly, while his
eyes took on that curious, cold, menacing look, “I mean it, every d——d
word of it. I want the numbers of all your stock-certificates. Excuse
me, gentlemen. I am very busy. Good-afternoon.”
And that is how the famous bull pool in Turpentine came to be formed.
They thought he might have been nicer, more diplomatic; but as they had
sought him, not he them, they bore with his eccentricities. Each pool
manager had his way, just as there are various kinds of pools.
“Sam is not half a bad fellow,” Greenbaum told them, as if apologizing
for a dear friend’s weaknesses. “He wants to make out he is a devil of a
cynic, but he’s all right. If you humor him you can make him do
anything. _I_ always let him have his way.”
On the very next day began the historical advance in Turpentine. It
opened up at 30. The specialists—brokers who made a specialty of dealing
in it—took 16,000 shares, causing an advance to 32⅛. Everybody who had
been “landed” with the shares at higher figures, and had bitterly
regretted it ever since, now began to feel hopeful. As never before a
stock had been manipulated, with intent to deceive and malice prepense,
so did Sharpe manipulate Turpentine stock. The tape told the most
wonderful stories in the world, not the less wonderful because utterly
untrue. Thus, one day the leading commission houses in the Street were
the buyers, which inevitably led to talk of “important developments”;
and the next day brokers identified with certain prominent financiers
took calmly, deliberately, nonchalantly, all the offerings; which
clearly indicated that the aforementioned financiers had acquired a
“controlling interest”—the majority of the stock—of the American
Turpentine Company. And on another day there was a long string of
purchases of “odd” lots—amounts less than 100 shares—by brokers that
usually did business for the Greenbaum syndicate, meaning that friends
of the syndicate had received a “tip” straight from “the inside” and
were buying for investment.
Then, one fine, sunshiny day, when everybody felt very well and the
general market was particularly firm, the loquacious tape told the
watchful professional gamblers of Wall Street—oh, so plainly!—that there
was “inside realizing”; said, almost articulately to them, that the
people most familiar with the property were unloading. Sharpe was
selling, with intentional clumsiness, stock he had been forced to
accumulate during his bull manipulation—for in order to advance the
price he had to buy much—and he was not averse to conveying such
impressions as would lead to the creation of a short interest, large
enough to make it profitable to “squeeze.” He had too much company on
the bull side. And sure enough the professional gamblers said: “Aha!
They are through with it. The movement is over!” and sold “Turp” short
confidently, for a worthless stock had no business to be selling at $46
a share. The price yielded and they sold more the next day. But lo, on
the day following, the Board member of a very conservative house went
into the “Turp” crowd and bought it—he did not “bid up” the price at
all, but bought and bought until he had accumulated 20,000 shares, and
the bears became panic-stricken, and rumors of a nearby dividend began
to circulate, and the bears covered their shorts at a loss and “went
long”—bought in the hope of a further rise—and the stock closed at 52.
And Sharpe reduced very greatly the amount of “Turp” stock he had been
obliged to take for manipulative purposes. So far he was buying more
than he sold. Later he would sell more than he bought. When the demand
exceeds the vendible supply, obviously the price rises; when the supply
for sale exceeds the demand, a fall results. But the average selling
price of a big line may be high enough to make the operation profitable,
even though a decline occurs during the course of the selling.
For a week “Turp” rested; then it began to rise once more. At 56 and 58
it became the most active stock of the entire list. Everybody talked
about it. The newspapers began to publish statements of the company’s
wonderful earnings, and the Street began to think that, in common with
other “trusts,” the American Turpentine Company must be a very
prosperous concern. The company at this time developed a habit of
advancing prices a fraction of a cent per gallon every week, so that the
papers could talk of the boom in the turpentine trade.
At 60 the Street thought there really must be something behind the
movement, for no mere manipulation could put up the price thirty points
in a month’s time, which shows what a wonderful artist Sharpe was. And
people began to look curiously and admiringly and enviously and in many
other ways at “Jakey” Greenbaum and his accomplices, and to accuse them
of having intentionally kept down the price of the stock for a year in
order to “freeze out” the poor, unsophisticated stockholders, and to
“tire out” some of the early buyers, because “Turp,” being “a good
thing,” Greenbaum _et al._ wanted it all for themselves. And Greenbaum
_et al._ smiled guiltily and said nothing, though Jakey winked from time
to time when they spoke to him about it; and old Isidore Wechsler
cultivated a Napoleon III. look of devilish astuteness; and “Bob”
Lindheim became almost dignified; and myopic little Morris Steinfelder
gained 15 pounds and Rosenthal stopped patting everybody on the back,
and mutely invited everybody to pat him on the back.
Then Sharpe sent for “Jakey,” and on the next day young “Eddie” Lazarus
swaggeringly offered to wager $10,000 against $5,000 that a dividend on
“Turp” stock would be declared during the year. Whereupon the newspapers
of their own accord began to guess how great a dividend would be paid,
and when; and various figures were mentioned in the Board room by
brokers who confided to their hearers that they “got it on the dead q.
t., _straight from the inside_.” And two days later Sharpe’s unsuspected
brokers offered to pay 1¾ per cent for the dividend on 100,000 shares,
said dividend to be declared within sixty days or the money forfeited.
And the stock sold up to 66¾, and the public wanted it. A big, broad
market had been established, in which one could buy or sell the stock
with ease by the tens of thousands of shares. The 114,400 shares, which
at the inception of the movement at the unsalable price of $30 a share
represented a theoretical $3,432,000, now readily vendible at $65 a
share, meant $7,422,000; not half bad for a few weeks’ work.
And still Sharpe, wonderful man that he was, gave no sign that he was
about to begin unloading. Whereupon the other members of the pool began
to wish he were not quite so greedy. They were satisfied to quit, they
said. The presence of the pool’s stock in their offices began to
irritate them. They knew the vicissitudes of life, the uncertainties of
politics, and of the stock market. Supposing some crazy anarchist blew
up the President of the United States, or the Emperor of Germany were to
insult his grandmother, the market would “break” to pieces, and their
$4,000,000 of paper profits would disappear. They implored, individually
and collectively, Mr. Jacob Greenbaum to call on Sharpe; and Greenbaum,
disregarding a still, small voice that warned him against it, went to
Sharpe’s office, and came out of it, two minutes later, somewhat
flushed, and assured his colleagues one by one that Sharpe was all
right, and that he seemed to know his business. Also, that he was cranky
that day. He always was, added Greenbaum forgivingly, when one of his
horses lost a race.
The stock fluctuated between 60 and 65. It seemed to be having a resting
spell. But as it had enjoyed these periods of repose on three several
occasions during the rise—at 40 and 48 and 56–-the public became all the
more eager to buy it whenever it fell to 60 or 59, for the Street was
now full of tips that “Turp” would go to par. And such was the public’s
speculative temper and Mr. Sharpe’s good work that disinterested
observers were convinced the stock would surely sell above 90 at the
very least. Mr. Sharpe still bought and sold, but he sold twice as much
as he bought, and the big block he had been obliged to take in the
course of his manipulation diminished. On the next day he hoped to begin
selling the pool stock.
That very day Mr. Greenbaum, as he returned to his office from his
luncheon, felt well pleased with the meal and therefore with himself and
therefore with everything. He scanned a yard or two of the tape and
smiled. “Turp” was certainly very active and very strong.
“In such a market,” thought Mr. Greenbaum, “Sharpe can’t possibly tell
he’s getting stock from me. In order to be on the safe side I’m going to
let him have a couple of thousand. Then, should anything happen, I’d be
that much ahead. Ike!” he called to a clerk.
“Yes, sir.”
“Sell two—wait; make it 3,000–-no, never mind. Send for Mr. Ed Lazarus.”
And he muttered to himself, with a sub-thrill of pleasure: “I can just
as well as not make it 5,000 shares.”
“Eddie,” he said to his partner’s son, “give an order to some of the
room traders, say to Willie Schiff, to sell five—er—six—tell him to sell
7,000 shares of Turpentine and to borrow the stock. I am not selling a
share, see?” with a wink. “It’s short selling by him, do you
understand?”
“Do I? Well, I guess. I’ll fix that part O.K.,” said young Lazarus,
complacently. He thought he would cover Greenbaum’s tracks so well as to
deceive everybody, including that highly disagreeable man, Samuel
Wimbleton Sharpe. He felt so confident, so elated, did the young man,
that when he gave the order to his friend and club-mate, Willie Schiff,
he raised it to 10,000 shares. Greenbaum’s breach of faith had grown
from the relatively small lot of 2,000 shares to five times that amount.
It was to all appearances short stock, and it was duly “borrowed” by
young Schiff. It was advisable that it should so appear. In the first
place no member of the pool could supply the stock which he held,
because Sharpe could trace the selling to the office, as he had the
numbers of the stock certificates. And, again, short selling does not
have the weakening effect that long selling has. When stock is sold
short it is evident that sooner or later the seller will have to buy it
back; that is, a future demand for the stock is assured from this
source, if from no other. Whereas, long stock is that actually held by
some one.
Isidore Wechsler, who held 14,000 shares, was suffering from a bad liver
the same day that Greenbaum was suffering from nothing at all, not even
a conscience. A famous art collection would be sold at auction that
week, and he felt sure his vulgar friend, “Abe” Wolff, would buy a
couple of exceptionally fine Troyons and a world-famous Corot, merely to
get his name in the papers.
“‘Turp,’ 62⅞,” said his nephew, who was standing by the ticker.
Then old Wechsler had an idea. If he sold 2,000 shares of Turpentine at
62 or 63, he would have enough to buy the best ten canvases of the
collection. His name—and the amounts paid—would grace the columns of the
papers. What was 3,000 shares, or even 4,000, when Sharpe had made such
a big, broad market for the stock?
“Why, I might as well make it 5,000 shares while I’m about it, for
there’s no telling what may happen if Sharpe should overstay his market.
I’ll build a new stable at Westhurst”—his country place—“and call it,”
said old Wechsler to himself, in his peculiar, facetious way so renowned
in Wall Street, “the Turpentine Horse Hotel, in honor of Sharpe.” And so
his 5,000 shares were sold by E. Halford, who had the order from Herzog,
Wertheim & Co., who received it from Wechsler. It was short selling, of
course.
Total breach of faith, 15,000 shares.
Now that very evening Bob Lindheim’s extremely handsome wife wanted a
necklace, and wanted it at once; also she wanted it of filbert-sized
diamonds. She had heard her husband speak highly of Sam Sharpe’s
masterly manipulation of Turpentine, and she knew he was “in on the
ground floor.” She read the newspapers, and she always followed the
stock market diligently, for Bob, being young and loving, used to give
her a share in his stock deals from time to time, and she learned to
figure for herself her “paper” or theoretical profits, when there were
any, so that Bob couldn’t have “welched” if he had wished. On this
particular evening she had statistics ready for him, showing how much
money he had made; and she wanted that necklace. She had longed for it
for months. It cost only $17,000. But there was also a lovely bracelet,
diamonds and rubies, and——
Lindheim, to his everlasting credit, remonstrated and told her: “Wait
until the pool realizes, sweetheart. I don’t know at what price that
will be, for Sharpe says nothing. But I know we’ll all make something
handsome, and so will you. I’ll give you 500 shares at 30. There!”
“But I want it now!” she protested, pouting. She was certainly
beautiful, and when she pouted, with her rich, red lips——
“Wait a week, dear,” he urged nevertheless.
“Lend me the money now, and I’ll pay it back to you when you give me
what I make on the deal,” she said, with fine finality. And seeing
hesitation in Bob’s face, she added, solemnly: “Honest, I will, Bob.
I’ll pay you back every cent, this time.”
“I’ll think about it,” said Bob. He always said it when he had
capitulated, and she knew it, and so she said, magnanimously: “Very
well, dear.”
Lindheim thought 1,000 shares would do it, so he decided to sell a
thousand the next day, for you can never tell what may happen, and
accidents seldom help the bulls. But as he thought of it in his office
more calmly, more deliberately, away from his wife and from the
influence she exercised over him, it struck him forcibly that it was
wrong to sell 1,000 shares of Turpentine stock. He might as well as not
make it 2,500; and he did. He was really a modest fellow, and very
young. His wife’s cousin sold the stock for him, apparently short.
Total breach of faith, 17,500 shares. The market stood it well. Sharpe
was certainly a wonderful chap.
Unfortunately, Morris Steinfelder, Jr., decided to sell 1,500 “Turp,”
and did so. The stock actually rose a half point on his sales. So he
sold another 1,500, and, as a sort of parting shot, 500 shares more. All
this through an unsuspected broker.
Total breach of faith, 21,000 shares. The market was but slightly
affected.
Then Louis Reis of Reis & Stern, “Andy” Fischel of Kohn, Fischel & Co.,
Hugo Zeman of Zeman Bros., and “Joe” Shaffran of Rosenthal, Shaffran &
Co., all thought they could break their pledges to Sharpe with impunity,
and each sold, to be on the safe side. This last lump figured up as
follows:
─────────────┬─────────────┬─────────────┬─────────────
│ Sales First │ Period of │Actual Sales.
│Contemplated.│ Hesitancy. │
─────────────┼─────────────┼─────────────┼─────────────
│ Shares. │ Minutes. │ Shares.
Louis Reis │ 1,500│ 3 │ 2,600
Andy Fischel │ 2,000│ 15 │ 5,000
Hugo Zeman │ 1,000│ 0 │ 1,000
Joe Shaffran │ 500│ 1¾ │ 1,800
─────────────┴─────────────┴─────────────┴─────────────
Total breach of faith, 31,400 shares.
The market did not take it well. Sharpe, endeavoring to realize on the
remainder of his manipulative purchases, found that “some one had been
there before him.”
An accurate list of the buyers and sellers was sent in every day by his
lieutenants, for all but the most skilful operators invariably betray
themselves when they attempt to sell a big block of stock. He scanned it
very carefully now, and put two and two together; and he made certain
inquiries and put four and four together—four names and four other
names. He saw through the time-worn device of the fictitious short
selling. He knew the only people who would dare sell such a large amount
must be his colleagues. He also was convinced that their breach of faith
was not a concerted effort, because if they had discussed the matter
they would have sold a smaller quantity. He knew where nearly every
share of the stock was. It was his business to know everything about it.
“Two,” he said to his secretary, “may play at that game.” And he began
to play.
By seemingly reckless, plunging purchases he started the stock rushing
upward with a vengeance-–63, 64, 65, 66, four points in as many minutes.
The floor of the Stock Exchange was the scene of the wildest excitement.
The market—why, the market was simply Turpentine. Everybody was buying
it, and everybody was wondering how high it would go, Greenbaum and the
other seven included. It looked as if the stock had resumed its
triumphant march to par.
Then Sharpe called in all the stock his brokers were loaning to the
shorts, and he himself began to borrow it. This, together with the
legitimate requirements of the big short interest, created a demand so
greatly in excess of the supply that Turpentine loaned at a
sixty-fourth, at a thirty-second, at an eighth, and finally at a quarter
premium over night. It meant that the shorts had either to cover or to
pay $25 per diem for the use of each 100 shares of stock they borrowed.
On the 31,400 shares that the syndicate was borrowing it meant an
expense of nearly $8,000 a day; and in addition the stock was rising in
price. The shorts were losing at the rate of many thousands a minute.
There was no telling where the end would be, but it certainly looked
stormy for both the real and the fictitious shorts.
Mr. Sharpe sent a peremptory message to Greenbaum, Lazarus & Co.; I. &
M. Wechsler; Morris Steinfelder’s Sons; Reis & Stern; Kohn, Fischel &
Co.; Silberman & Lindheim; Rosenthal, Shaffran & Co.; and Zeman Bros. It
was the same message to all:
“_Send me at once all your Turpentine stock!_”
There was consternation and dismay, also admiration and
self-congratulation, among the recipients of the message. They would
have to buy back in the open market the stock they had sold a few days
before. It would mean losses on the treasonable transactions of fully a
quarter of a million, but the pool “stood to win” simply fabulous sums,
if Mr. Sharpe did his duty.
There were some large blocks of stock for sale at 66, but Sharpe’s
brokers cleared the figures with a fierce, irresistible rush, whooping
exultantly. The genuine short interest was simply panic-stricken, and
atop it all there came orders to buy an aggregate of 31,400
shares—orders from Messrs. Greenbaum, Wechsler, Lindheim, Steinfelder,
Reis, Fischel, Shaffran, and Zeman. The stock rose grandly on their
buying: 4,000 shares at 66; 2,200 at 66⅜; 700 at 67⅝; 1,200 at 68; 3,200
at 69½; 2,000 at 70; 5,700 at 70½; 1,200 at 72. Total, 31,400 shares
bought in by the “Skindicate.” Total, 31,400 shares sold by Samuel
Wimbleton Sharpe to his own associates in the great Turpentine pool. In
all he found buyers for 41,700 shares that day, but it had taken
purchases of exactly 21,100 to “stampede the shorts” earlier in the day,
and in addition he held 17,800 shares acquired in the course of his bull
manipulation, which had not been disposed of when he discovered the
breach of faith, so that at the day’s close he found himself not only
without a share of stock manipulatively purchased, but “short” for his
personal account of 2,800 shares.
The newspapers published picturesque accounts of the “Great Day in
Turpentine.” A powerful clique, they said, owned so much of the
stock—had “cornered” it—that they could easily mark up the price to any
figure. They called it a “memorable squeeze.” It was hinted also that
Mr. Sharpe had been on the wrong side of the market, and one paper gave
a wealth of details and statistics in bold, bad type to prove that the
wily bear leader had been caught short of 75,000 shares, and had covered
at a loss of $1,500,000. A newspaper man whose relations with Sharpe
were intimate asked him, very carelessly: “What the deuce caused the
rise in Turpentine?” and Sharpe drawled: “I don’t know for a certainty,
but I rather imagine it was inside buying!”
On the next day came the second chapter of the big Turpentine deal. Mr.
Sharpe, having received the pool’s 114,400 shares, divided it into three
lots, 40,000 shares, 50,000 shares, and 24,400 shares. The market had
held fairly strong, but the lynx-eyed room traders failed to perceive
the usual “support” in “Turp” and began to sell it in order to make
sure. There was enough commission-house buying and belated
short-covering to keep it moderately steady. Then the room traders
redoubled their efforts to depress it, by selling more than there were
buying orders for; also by selling it cheaper than was warranted by the
legitimate demand for the stock. It was a favorite trick to offer to
sell thousands of shares lower than people were willing to pay, in order
to frighten the timid holders and make them sell; which in turn would
make still others sell, until the movement became general enough to
cause a substantial fall.
Slowly the price began to yield. All that was needed was a leader.
Whereupon Mr. Sharpe took the first lot of pool stock, 40,000 shares,
and hurled it full at the market. The impact was terrible; the execution
appalling. The market reeled crazily. The stock, which after selling up
to 72¾ had “closed” on the previous day at 71⅞, dropped twenty points
and closed at 54. The newspapers said that the corner was “busted”; that
the “squeeze” was over. Hundreds of people slept ill that night. Scores
did not sleep at all.
On the next day he fired by volleys 50,000 shares more at the market.
The stock sank to 41¼. Such a break was almost unprecedented.
The Street asked itself if it were not on the eve of a crash that would
become historic in a district whose chronology is reckoned by big market
movements.
Greenbaum rushed to Sharpe’s office. The terrible break gave him courage
to do anything. A Wall Street worm will turn when the market misbehaves
itself.
“What’s the matter?” he asked angrily. “What are you doing to
Turpentine?”
Sharpe looked him full in the face, but his voice was even and
emotionless as he replied: “Somebody has been selling on us. I don’t
know who. I wish I did. I was afraid I might have to take 100,000 shares
more, so I just sold as much as I could. I’ve marketed most of the
pool’s stock. If it had not been for the jag of stock I struck around 60
and 62, Turpentine would be selling at 85 or 90 to-day. Come again next
week, Greenbaum; and keep cool. Did you ever know me to fail? Good-by,
Greenbaum; and don’t raise your voice when you speak to me.”
“This has gone too far,” said Greenbaum, hotly. “You must give me an
explanation or by Heaven I’ll——”
“Greenbaum,” said Mr. Sharpe, in a listless voice, “don’t get excited.
Good-by, Greenbaum. Be virtuous and you will be happy.” And he resumed
his caged-tiger pacing up and down his office. As by magic, Mr. Sharpe’s
burly private secretary appeared, and said: “This way, Mr. Greenbaum,”
and led the dazed Trust-maker from the office. On his return Sharpe told
him: “There is no need to accuse those fellows of breach of faith.
They’d deny it.”
The next day Mr. Sharpe simply poured the remaining 25,000 shares of the
pool’s stock on the market as one pours water from a pitcher into a cup.
The bears had it all their own way. The loquacious tape said, ever so
plainly: “This is nothing but inside liquidation, all the more dangerous
and ominous since it is at such low figures and is so urgent in its
character. Heaven alone can tell where it will end; and there is no
telephone communication thither.”
Everybody was selling because somebody had started a rumor that the
courts had dissolved the company for gross violation of the Anti-Trust
law, and that a receiver had been appointed. Having sold out the last of
the pool’s stock, Mr. Sharpe “took in” at $22 a share the 2,800 shares
which he had put out at $72, a total profit on his small “line” of
$140,000.
Turpentine stock had declined fifty points in fifteen business hours. It
meant a shrinkage in the market value of the company’s capital stock of
$15,000,000. The shrinkage in the self-esteem of some of the pool was
measurable only in billions.
Sharpe notified his associates that the pool had completely
realized—_i.e._, had sold out—and that he would be pleased to meet them
at his office on Monday—this was Thursday—at eleven A.M., when he would
have checks and an accounting ready for them. He refused himself to
Greenbaum, Wechsler, Zeman, Shaffran, and others who called to see what
could be done to save their reputations from the wreck of Turpentine.
The stalwart private secretary told them that Mr. Sharpe was out of
town. He was a very polite man, was the secretary; and an amateur boxer
of great proficiency.
Failing to find Sharpe, they hastily organized a new pool, of a
self-protective character, and sent in “supporting” orders. They were
obliged to take large quantities of stock that day and the next in order
to prevent a worse smash, which would hurt them in other directions.
They found themselves with more than 50,000 shares on their hands, and
the price was only 26 @ 28. And merely to try to sell the stock at that
time threatened to start a fresh Turpentine panic.
They met Sharpe on Monday. His speech was not so short as usual. He had
previously sent to each man an envelope containing a check and a
statement, and now he said, in a matter-of-fact tone:
“Gentlemen and Greenbaum, you all know what I did for Turpentine on the
up-tack. Around 62 I began to strike some stock which I couldn’t account
for. I knew none of you had any for sale, of course, as you had pledged
me your honorable words not to sell, save through me. But the stock kept
coming out, even though the sellers borrowed against it, as if it were
short stock, and I began to fear I had met an inexhaustible supply. It
is always best on such occasions to act promptly, and so, after driving
in the real shorts, I sold out our stock. The average selling price was
40. If it had not been for that mysterious selling it would have been
80. After commissions and other legitimate pool expenses, I find we have
made nine points net, or $1,029,600, of which 25 per cent., or $250,000,
come to me according to the agreement. It is too bad some people didn’t
know enough to hold their stock for 90. But I find Wall Street is full
of uncertainties—there is so much stupidity in the district. I trust you
are satisfied. In view of the circumstances, I am. Yes, indeed.
Good-day, gentlemen; and you too, Greenbaum, good-day.”
There was nothing tigerish about him. He was affable and polished; they
could see that he seemed pleased to the purring point. He nodded to them
and went into his inner office.
They blustered and fumed among themselves and gained courage thereby and
tried Sharpe’s door and found it locked. They knocked thereon,
vehemently, and the ubiquitous private secretary came out and told them
that Mr. Sharpe had an important engagement and could not be disturbed,
but that he was authorized to discuss any item of the statement, and he
had charge of all the vouchers, in the shape of brokers’ reports, etc.
So they expressed their opinions of the private secretary and of his
master rather mildly, and went out, crestfallen. Outside they compared
notes, and in a burst of honesty they confessed. Then, illogically
enough, they cursed Sharpe. The pool was not “ahead of the game.” They
had so much more stock on their hands than they desired, that in reality
they were heavy losers!
And as time wore on they had to buy more “Turp”; and more “Turp”; and
still more “Turp.” They thought they could emulate Sharpe and rush the
price up irresistibly, at any rate up to 50. They declared a dividend of
2 per cent on the stock. But they could not market Turpentine. Again and
again they tried, and again and again they failed. And each time the
failure was worse because they had to take more stock.
It is now quoted at 16 @ 18. But it is not readily vendible at that
figure; nor, indeed, at any price. Opposition distilleries are starting
up in all the turpentine districts, and the trade outlook is gloomy. And
the principal owners of the stock of the American Turpentine Company,
holding among them not less than 140,000 out of the entire issue of
300,000 unvendible shares, are the famous “Greenbaum Skindicate.”