THE WALL STREET GAME
A man who thinks he knows what happened to me in Wall Street, and
_why it happened_, suggests that the New York section of "My
Adventures With Your Money" be prefaced with the following:
This is the story of an energetic, self-confident, aggressive,
optimistic, enthusiastic, nervy, fearless, imprudent,
uncompromising, presumptuous _fool_.
Maybe he was worthy of a following in that he would cast his own
fortunes with those whom he asked to follow him, but withal he was
a dangerous leader because he could not see the rents in his own
armor and lacked caution, prudence and discretion. He could see a
goal ahead and would lead the rush, but always failed to take into
his reckoning one circumstance in his youth that left a blot on his
escutcheon and placed in the hands of unfair opponents an envenomed
weapon ready for use. He failed to see the necessity of making
friends of his competitors and of placating his critics as he
progressed. Indeed, he reckoned these elements not at all. He made
many enemies and few allies. He never compromised. Naturally, he
met with disastrous defeat for himself and the loyal ones who
placed their faith in him.
I disagree. I was not a fool. I refused to be a knave, and I am not
sorry. I have in mind a man of parts who as a stockholder has been
doing the dirty work of unscrupulous multimillionaire Wall Street
mining promoters for years. Dishonest in his expressed opinions and a
sycophant in his every action, the interest of the Wall Street man of
power is always his as against that of the unprotected investor. I look
upon this man as a vile person. I could not do as he does if my very
existence depended upon such conduct. I would rather be out of business
and broke for the rest of my life than be he. For me to serve the base
purposes of high-class crooks just because they have money and power,
would be for me to barter away my soul and lose my peace of mind. I
would not sell either for all the money in the world.
Honesty is the best policy. The type of man I have described can not
thrive for long. He must evidently suffer total eclipse. The business
of this world is founded and builded upon individual integrity. The
business man who allows himself to be used to carry out the base
purposes of men in high places forfeits the respect of those whom he
serves, is forever afterwards mistrusted by them, and loses caste in
the very set he tries to gain favor with.
I charge that powerful, dishonest interests on Wall Street found it
necessary for selfish reasons that I be put out of business. I declare
that they bided their time until newspaper clamor against so-called
Get-Rich-Quick promoters had been fostered, aroused and stimulated to a
point where citizens became imbued with the idea that all promoters who
use the advertising columns of newspapers are crooks. And I aver that
when the Government used upon me and my associates its rare power of
seizure, search and confiscation, it was with no evidence that any
Government statute had been violated. In this and the concluding
chapter of "My Adventures with Your Money" I state the facts which I
believe prove these statements to the last syllable.
GOOD BIG FISH VS. BAD LITTLE FISH
Ask the casual newspaper reader to define offhand the compound
adjective Get-Rich-Quick and he will tell you it is applied solely to
professional promoters who employ flamboyant advertising methods,
promise great speculative profits, use other devices which are
calculated to separate the public from its money, and are in every
instance dishonest. That is the idea which powerful "interests" have
inculcated in the public mind by subtle, insistent press-agenting.
Time and again during the progress of "My Adventures with Your Money" I
have endeavored to show that the really dangerous Get-Rich-Quick forces
are the men in high places who, by the artful and insidious use of the
news columns of "friendly" publications and others which copy from
them, divorce the public from millions upon millions.
I said in my foreword the following:
The more dangerous malefactors are the men in high places who take
a good property, overcapitalize it, appraise its value at many
times what it is worth, use artful methods to beguile the thinking
public into believing the stock is worth par or more, and foist it
on investors at a figure which robs them of great sums of money.
There are more than a million victims of this practice in the
United States.
No man has right to assume that a promoter who sells stock by means of
display advertising in the newspapers is _per se_ a Get-Rich-Quick
operator. There are honest professional promoters of the display
advertising variety and there are dishonest ones, just as there are
honest promoters of the multimillionaire kind and dishonest ones.
The _on-the-level_, trumpet-tongued mining promoter, who believes in
newspaper advertising and successfully finances companies by appealing
uproariously to the speculative investing public, performs an actual
service and is entitled to a place among honorable men. Indeed, he is
the hero of the prospector and "poor" mine owner of the West. He alone
stands between these men and grasping monopoly.
Mine men, stockholders, and financiers the country over understand
this, although the Eastern newspaper-reading public has been taught to
believe that this type of promoter must be a Get-Rich-Quick operator.
A broker in Wall Street who speculates in the securities of the New
York Stock Exchange for his own account is considered unsafe. E. H.
Gary, Chairman of the Executive Board of the Steel Trust, stated under
oath at Washington in June that J. P. Morgan never speculates. Ask the
average member of the New York Stock Exchange what chances the
stock-gambler has. If he is frank, he will shrug his shoulders and
reply something like this:
"If the game could be beaten, do you think I would be a broker?
Wouldn't I be a player?"
The aggregate market value of seats on the New York Stock Exchange is
nearly $100,000,000. It costs more than a hundred million dollars more
every year to gather and transact through offices and branch offices
the speculative business which forms the bulk of the transactions of
the members. The "kitty," or "rake-off," is enormous. Who pays it? You
hear of the stockbroker going to Europe in his yacht every Summer. How
many of his trading customers travel that way?
Who pays the freight? Can a game be beaten where so many
multimillionaires are created among those who are on the "inside" and
where so large a percentage of the speculator's money must come out
every year to pay the enormous cost of maintaining a vast system of
stock-brokerage offices, stock exchanges, telegraph and telephone
wires, newspapers, publicity bureaus, yachts, Fifth Avenue palaces,
huge contributions to national and State political campaigns, etc.?
You hear a hue and a cry against bucketshops. There is no Federal
embargo against bucketshopping. Yet somehow or other the machinery of
the Government's Department of Justice is used to crush out this sort
of gambling institution. Now, what is the difference in principle
between gambling on margin on fluctuations of stocks in a bucketshop
and doing the same through a New York Stock Exchange house?
This is the unimportant difference:
The bucketshop-keeper takes the other end of the play, pays you out of
his pocket when the market goes your way and keeps your money when it
goes against you. He never delivers any stocks.
The New York Stock Exchange member is expected to buy your stocks for
you and _carry_ them--some of them do and most of them don't, as
is shown farther on--but in this case also no stocks are delivered to
you.
The transaction is the same in principle as the one in the bucketshop,
so far as the gambling feature is concerned. The only real difference
is that when you gamble on market fluctuations through the bucketshops
no contribution is made to the New York Stock Exchange "kitty."
RIGHTEOUS WALL STREET AND THE "SUCKER" PUBLIC
The New York Stock Exchange member will tell you that the evil of
bucketshopping is that the bucketshopper is tempted when the public is
long on stocks to depress the market by heavy short sales. On the other
hand, the bucketshopper urges upon you that his business is gambling
against fluctuations which he has no hand in making and that the
financial powers of Wall Street resort to the same trick that he is
occasionally accused of. The "interests" know at every hour in the day
approximately how many shares of stocks have been borrowed for delivery
against "short" sales or are being carried on margin for the long
account. They know what the public's short interest or long interest
is, and they, too, have it in their power to shake out the public at
any moment they choose. Worse, it is common knowledge that this
practice is continually resorted to. Stocks are put up and held up on
bad news and marked down and held down on good news or no news at all.
News is withheld and is manufactured to suit occasions. For years the
market has been thimble-rigged to a frazzle. Margin-trading "suckers"
have been milked to a finish. George E. Crater, Jr., writes:
Margin trading on the New York Stock Exchange is the most dangerous
and destructive form of gambling known, because, being "legal"
and therefore "respectable," it allures hundreds of thousands of
people who would never think of risking their money at "faro,"
"rouge-et-noir," "roulette," or any of the other games of chance.
Statistics show that more people are ruined physically, morally
and financially by stock gambling than by all the other forms of
ordinary gambling combined. Monte Carlo is a Christian philanthropy
compared with "Wall Street." You have quite as good, if not a
better chance to win a fortune at Monte Carlo than you have by
putting up "margins" against Stock Exchange bulling and bearing,
and if you ruin yourself at Monte Carlo the proprietor will at
least refund enough of your money to pay your way home. The man who
"goes broke" on "margins" finds no relief at his service on the
Stock Exchange or among the brokers. There would not be so many
millionaires in this country if there were not so many fools ready
to throw their money away on margins.
A howl of condemnation is raised against horse-racing. Newspapers,
periodicals, politicians, enthusiasts, crusaders, and charlatans in
every walk of life, are encouraged to make a big noise. Horse-racing,
like bucketshopping, is an avenue for speculation--gambling--and it
keeps much money out of Wall Street. Fakirs, who are the tools of Wall
Street, collect from Wall Street for their services and at the same
time make moral or political capital of their zealousness in crusading
against such Wall Street gambling competition.
The small fry mining promoter, who is not a member of the Stock
Exchange, pays no toll to the big game, is beyond the discipline and
control of the governing body of the New York Stock Exchange and is not
a part of the machinery, sets up a competitive business which caters to
the gambling instinct in the way of fluctuating mining stocks. The
speculating public gets action, likes it, and invests money that might
have been used in margin-trading on the New York Stock Exchange or for
"investment" in the constantly fluctuating low-priced industrials or
higher-priced mining stocks that are sponsored by big interests with
New York Stock Exchange affiliations.
Promptly the machinery of Wall Street is used to crush him. Column
upon column is printed in the magazines and newspapers about
Get-Rich-Quicks. A conviction for crime is obtained of a real
Get-Rich-Quick offender--a little fellow who is guilty, but no more
so than his "licensed" brother higher up, who is doing infinitely
greater damage. The _one_ that a coterie of high-class Wall Street
thimbleriggers are really "after," because he thwarted them in their
swindling operations by exposing them in his newspaper, but against
whom they can not make a case, has a skeleton in his closet. They
bring it forth, dangle it in the air, make the public think he, too,
must be a scoundrel, and he is raided by a Government agent during
the uproar; and they "get away" with it. The "righteous" crusade
against "Get-Rich-Quicks" is press-agented to the limit. The public
"falls" for the "dope." At last the Government has acted to protect
investors!
Wouldn't it wilt you?
Were P. T. Barnum to be reincarnated and his hum-bugging mind by some
miracle expanded a million times, it would still be impossible for him
to conceive such a gigantic faking of the American public as it has
been put to in the last few years.
And the public isn't "on." Shrewd schemers on Wall Street keep pulling
the wool over the eyes of the "sucker-public," and not only see no
reason why they should discontinue the practice but find it very
lucrative to continue doing it.
THE MARKETING OF MINING STOCK
As a rule, it takes much money to make a paying mine out of a promising
prospect. Later on in the mine's progress, through the constructive
period, other very large sums are generally required to pay for the
blocking out of an ore reserve and to supply milling facilities for the
reduction of the ores.
The peripatetic mining prospector of our Western mining empire--the
dauntless finder of mines who laughs at hardship and ridicules the
thought of danger, who makes companions of Gila monsters and the desert
rattler, whose only relief from the everlasting silence of the
untrodden reaches of arid wastes is the sex-call of the coyote--has the
choice of just two markets for the sale of his "find." He may either
accept a comparatively small sum from the agent of a powerful mining
syndicate for his prospect or he may receive a fair speculative price
from the professional promoter.
The great mine financiers of this country rarely compete with one
another for the purchase of any mining property. This is particularly
true if one of the others happens to be operating in the district where
the small mine owner's property lies.
As a rule, the original owner, whose entire fortune is perhaps tied up
in the property, then finds himself in the position where he must
either accept the first offer, however small, which is made to him by
one of these dominant interests, or find that market closed to him.
His alternative, as mentioned, is a sale to the independent mine
promoter of comparatively small means, who incorporates a company to
own and develop the property and finances the operation from start to
finish by selling stock in the enterprise to the general public.
The method of this class of professional promoter--the hope of the
small mine owner--in marketing stock, usually involves the liberal use
of the advertising columns of newspapers. He lacks "pull" or power
sufficient to get his stock and mine talked of favorably in financial
literature of the day to a degree that will excite public interest, and
so he must construct his own publicity forces.
Advertising costs money and the public foots the toll. But if the
promoter is honest, this item of cost is not in itself an argument in
favor of stock offerings of the multi-millionaire mine capitalist who
does not patronize the display advertising columns of the newspapers.
Nor does it establish a case against the wares of the promoter who
does. The promotion expenses incurred by the advertising promoter do
not nearly approach in their totality the difference between cost price
and the price at which the magnate promoter usually invites the public
to participate in similar enterprises.
For example: A few years ago a certain man bought a certain mine for
$1,000,000 on time payments. He has been making a market for the stock
of that mine on the New York Curb at an average of above $8 per share,
or more than $8,000,000 for the property. His firm, members of the New
York Stock Exchange, have been advising people in their widely
circulated market literature to buy the stock at this figure. And yet
the property is without a reduction works, will need $2,500,000 to
$3,000,000 in excess of money now in the company's treasury to erect
one, which money must yet be raised somewhere and somehow, and the
producing era of the company can not possibly begin for two years yet
at the very earliest. I could cite many such instances.
When Nat. C. Goodwin & Company of Reno purchased the control of Rawhide
Coalition, during the exciting Rawhide camp boom early in 1908, the
valuation agreed upon for the property was $700,000. This was
considerably more than the original owners could obtain for it at that
time from any big interest. It, too, needed milling facilities.
As a matter of fact, but for the success of mine promoters of the Nat.
C. Goodwin & Company and B. H. Scheftels & Company class, the great
Comstock lode, which produced over $600,000,000 in gold and silver
bullion, would have likely remained undeveloped. The big public demand
in the early 70's for Comstock mining shares of all descriptions was
created by a series of flamboyant flotations and aggressive
stock-market campaigns. If the Con. Virginia mine had not opened up
into a bonanza ore-body at a depth of 1,400 feet, the frenzy of
speculation in Comstock shares might have gone down in history as
another South Sea bubble.
The "brass-band" promoter, be it understood, is therefore not without
honor in the Far West. Deprive the mine prospector of the services of
this style of enterprise projector, with his operating machinery,
namely, facilities for appealing to the speculating-investing public,
and you hit the small Western mine man a solar-plexus blow. Conversely,
every obstacle placed in the way of the mine promoter of loud methods
and moderate means is an added cause for rejoicing on the part of the
Wall Street multi-millionaire mine capitalist.
When B. H. Scheftels & Company, with whom I was identified, were raided
by the United States Government in September, 1910, a wail went up from
the Western mine operator to his Representative in Congress. The best
sentiment of the Far West, as I was able to gather it, favored the idea
that the last hope of the small Western mine owner had been shattered.
During the short period of B. H. Scheftels & Company's activity in New
York it raised directly nearly $2,000,000 for Western mining properties
and indirectly influenced in that direction at least $10,000,000 more.
The raid was a body-blow to the small Western mine owner who needs
capital to develop his properties and has no affiliations with
capitalists. Since the raid I do not know of a mine owner of any of the
great Far Western States who has successfully financed a mining
proposition in the East except by delivering his property in its
entirety into the hands of some big interest, which has taken it over
for a sum insignificant by comparison with what the public may
ultimately be expected to pay for it when the stock is finally marketed
on the curbs and exchanges.
I BUCK THE WALL STREET GAME
After I had conducted the big camp publicity campaign of Rawhide, which
I had done with a view to centering the attention of the American
investing public on the speculative possibilities of the stock of the
Rawhide Coalition Mines Company, and in that way endeavored to finance
the proposition--after I had failed by this method, in the teeth of the
bankers' panic of 1907-8, to dispose of enough stock to finance the
company for deep mine development, mill equipment and the payment to
the original owners of the price for the control agreed upon, I came to
New York, late in October, 1908, bent on trying to succeed in the
encompassment of my original purpose both by direct appeal to the
public through display advertisements in the newspapers and by making a
deal for part of the enterprise with the "big" fellows.
I found Rawhide Coalition stock listed on the Curb, and the market
quiescent. Public interest in the East had been aroused to some degree,
but the market was not absorbing stock. An effort to induce leading
stock brokers to mention the issue favorably in their market letters
failed. Those who were willing to give the stock some publicity exacted
either a "call" on stock at a low price or an out-and-out reduction
below the market quotation for such stock as they disposed of.
Such concessions were not to be thought of. It was the intention of
Nat. C. Goodwin & Company to support a rising market for Rawhide
Coalition. My Goldfield experience with mining-stock brokers convinced
me that few might be expected to protect the shareholders' interest in
such an enterprise. Commission mining-stock brokers of that period, who
put their customers into a stock at, say, 30, were tempted to advise
profit-taking when the price advanced to, say, 50, because by the
operation they made another commission and often earned an additional,
or third, commission by getting their customers out of the stock at a
profit and into another one, levying a commission on each transaction.
Nat. C. Goodwin & Company decided to "try it on" direct with
mining-stock speculators by appealing to them through the advertising
columns of the newspapers, asking them to purchase the stock on the New
York Curb through their own brokers. Also, Hayden, Stone & Company, the
Boston and New York banking firm, were induced to agree to raise
$1,000,000 for the company for railroad and mill purposes, if their
engineer would report favorably.
Provided with money with which to buy advertising space and furnished
with stock certificates to supply the market, Nat. C. Goodwin & Company
inaugurated an active campaign on the New York Curb.
What happened will be found instructive to the reader in several
particulars; among them these:
(1) The free-lance mining promoter does not always "get the money" when
he succeeds in creating a buoyant market for his stock.
(2) Some stock brokers of seemingly high standing would just as soon
"skin" a mining promoter of this order as they would an ordinary
speculator. They play no favorites.
(3) Be a mine promoter ever so honest, without New York Stock Exchange
affiliations his motives are bound to be misconstrued if he makes an
error. The "big" fellows will sick on to him the newspapers or
newspaper men whom they control or influence. Dust will be thrown into
the eyes of the public so they'll buy the big fellow's wares,
principally for sale on the New York Stock Exchange, and may forever be
prejudiced against the little fellow's.
The campaign in Rawhide Coalition made good progress. It was early in
November, 1908. For six weeks I had been supporting the market for the
stock on the New York Curb for Nat. C. Goodwin & Company of Reno. My
office was an apartment in a Fifth Avenue hotel; our brokers were
members of the New York Stock Exchange. For a month we had used, every
day, display advertisements in the financial columns of New York City
daily newspapers, signed by Nat. C. Goodwin, to boom the stock. About
600,000 shares of the stock were in the hands of the public. The
market, which was on the New York Curb, was "real." Speculative buying
had carried the price from 40 cents up to $1 a share. Mine reports were
rosy. Wide distribution of the stock was taking place.
The public evinced deep interest. The Nat. C. Goodwin advertisements
set forth that $2 ought to look reasonable for the stock by Christmas
day. There were reasons. Several very promising mines had been opened
up. An engineer of high rank was examining the property. If his report
should be favorable, a deal was practically assured that would involve
the expenditure of $1,000,000 for deep mine development, a railroad,
and adequate milling facilities. This, in turn, would mean early
dividends for stockholders. Experienced, conservative mining men had
expressed the opinion that the property bore the unmistakable earmarks
of a big producer.
The stock became the feature of the Curb market. It easily occupied the
center of the stage. Not less than 20 brokers could be counted in the
crowd executing orders at almost any hour during the daily session. The
fact that a New York Stock Exchange house was executing the supporting
orders from the "inside" impressed the "talent." Public buying through
other New York Stock Exchange houses further convinced Curb veterans
that the stock was "the goods." Up went the price under the impulse of
public buying. Curb brokers themselves caught the infection. By
December 7th the price soared to $1.40 per share. This was an advance
of 500 per cent. over the "low" for the stock of half a year prior.
THE "DOUBLE-CROSSING" OF RAWHIDE COALITION
At the close of the day's business on December 7th, our brokers, a
single firm, members of the New York Stock Exchange, reported the
purchase of 17,100 shares in the open market at an average price of
about $1.39, and the sale of 1,800 shares at a little above this
average. For the first time in the campaign there appeared to be
selling pressure. We had quit "long" 15,300 shares. The sum of $21,000
in cash was required to pay for the "long" stock.
On December 8th, the day following, the same firm of brokers reported
that they had purchased 17,800 shares at an average price of $1.37-1/2,
and the sale of 12,800 shares at an average price of $1.40--"long" on
the day 5,000 shares.
On December 9th our purchases through this firm aggregated 16,800
shares at an average price of $1.40, while our sales totalled only
6,400 shares at a slight advance.
Nat. C. Goodwin & Company were now "long" on the three days'
transactions 30,700 shares and had been called upon to throw $43,000
behind the market to hold it. This was a comparatively small load to
carry and did not alarm us. We considered the stock worth the money. We
were curious, however, to learn the reason for the selling.
Nat. C. Goodwin & Company had placed most of the outstanding stock
direct from Reno with the investing public at from 25 cents to $1 per
share, and early buyers were reaping a harvest. But this did not appear
to be the explanation for all of the selling. Interest in the stock was
now widespread. There was free public buying and for every actual
profit-taker there appeared to be a new purchaser. Apparently, somebody
was selling the stock "short."
Late that night a member of our brokerage firm which had been executing
our supporting orders, called on me at my apartment. I inquired of him
what protective orders he thought the stock would need the next morning
to guard against professional attack. He replied:
"I think if you will give us a buying order for 5,000 shares at $1.35
there will be no difficulty."
My understanding was that he wanted to handle the market for me the
next morning and that he would, of course, give me quick notice if
further supporting orders were needed.
The order was given. It was a very ordinary precaution, for there is
hardly a stock on the list that would not be raided by professionals if
supporting orders were not known to be in the market. As Saturday is
only a short two hours' session, I really fell in with the idea.
Retiring late that night, I left a call for 11 A.M. Next morning at
about 10:45 I was awakened by my valet. He said Nat. C. Goodwin wanted
me on the long distance. Mr. Goodwin was in Cincinnati, where he was
playing a week's engagement.
"Hello," said Mr. Goodwin. "Did they get you? Shall I wire the
Knickerbocker Trust Company to pay you $25,000 to support the market?
Reported here they have you in a hole."
"What's up?" I inquired.
"Why, brokers here say the stock broke to 60 cents on the Curb soon
after the opening," he said. This was news to me.
"I do not need more money," I answered. "I have been asleep. Our
brokers have been on the job. I will see what is doing and let you know
in a little while. Don't worry." And I rang off.
I 'phoned our brokers and they reported that they had bought 5,000
shares of stock at $1.35 at the opening and had withdrawn support. "Too
much stock was pressing for sale," they said.
"This is hell. You should not have permitted the market to break that
way. Support the stock!" I said. "Buy 7,500 shares at the market!"
In a few moments this firm of brokers reported that they had rallied
the market to $1.16. The recovery was only temporary, however. Another
drive broke the stock to 60 cents.
Our brokers had bought 7,000 shares at from $1 to $1.16 and then
stopped. The member of their firm who had been handling our orders
throughout this campaign said the purchase of this fresh block of stock
exhausted our cash balance on deposit with his firm. They had a number
of drafts out for collection, attached to stocks sold to Western
brokers, that had not yet been credited to us. There was also a big
block of Coalition stock due us from them. This was the stock they had
bought on our supporting orders. They refused, however, to consider
either the drafts or the stocks as a credit.
We had cash on deposit and credit with a number of other brokers. I
promptly telephoned several of them to buy large blocks of the stock at
a limit of 95 cents. This was 35 points above the quotation that was
given me. Not a single share was reported bought on these orders.
I jumped into a taxi and rode to the office of the brokers who had been
handling our orders.
The situation was critical. I realized fully that a sharp break of this
character in the market price of a stock that had been so widely
exploited must prove shocking to investors. I feared that public
confidence would be shattered completely.
"This is an outrage!" I protested. "Buy 5,000 shares at 95!" I tendered
five $1,000-bills as payment in advance.
It was five minutes to twelve when I gave the order. At noon they
reported that they had purchased 2,000 shares, for which I gave them
the money. The market closed 95 bid for a "wagon load."
On the face of things it appeared that the market had rallied from 60
to 95 on the purchase of 2,000 shares. This was another convincer that
there must somewhere be much that was rotten about the play.
Investigation satisfied me that I had been "double crossed."
The one firm of brokers, members of the New York Stock Exchange, who
had been handling our orders, had acted as our clearing-house, holding
our stocks and our money. They had an advantage, which stock brokers
understand well. Having executed most of our supporting orders, their
agents on the Curb were also in a position accurately to judge the
professional and lay speculation pulse. It was easy for somebody to
"put one over" on us.
Shortly after noon I learned that Hayden, Stone & Company's engineer
had turned down the proposition of advancing $1,000,000 for railroad
and mill construction. A sufficient tonnage of ore had not been blocked
out in the mine. Beyond a question this information was in the
possession of brokers early in the day.
While I slept damage had been done to the market that was irreparable.
By the time the price hit $1 on the way down trading had reached huge
proportions. One clique of Curb brokers were reported to have been
persistent sellers throughout. Their identity made it very plain that
the double-crossing process had been employed to a fare-you-well.
I accused our broker of not protecting our interests--the interests of
stockholders. I raised a howl. He telegraphed another member of his
firm who was away on a hunting-trip, to come back to town. Next night
both of these men, Nat. C. Goodwin and myself met in my apartments
behind closed doors. Their firm agreed to charge to their own account
3,000 of the 5,000 shares reported purchased for us at $1.35. Some
other minor concessions were made.
On the day after the "break" New York newspapers reeked with
sensational flubdub about the causes of the smash in the price of the
stock. In the preceding few months not less than a dozen other
securities had "busted" wide open at various times on the New York Curb
and New York Stock Exchange, but Stock Exchange houses were sponsors
for these and the newspaper kept mum. Never on these occasions was
there a hint in the newspapers that possibly somebody had separated the
public from its money.
Nat. C. Goodwin and I were wrongfully accused of willfully smashing
the market to shake the public out. The New York _Sun_ printed an
account of the "break" on the front page, top of last column. It began
in a strain that indicated to confiding readers that chorus girls had
lost their savings through the recommendations of Mr. Goodwin.
The _Sun_ printed the list of officers of the Rawhide Coalition Mines
Company and emphasized the fact that I "of Sullivan Trust Company
fame" was second vice-president.
The _Sun_ made no mention of the "double cross." Nor did any of the
other newspapers, with the exception of one.
The New York _Tribune_ said:
A Stock Exchange house which has been putting out orders in the
stock was charged with leading the attack on it yesterday, but
members of the firm said that they had been acting merely as
brokers for customers in the regular order of business.
Following the newspaper "roasts," which helped further to destroy
public confidence, two brokers on Logan & Bryan's continental wire
system resorted to tactics of a kind to force lower prices. This wire
has over one hundred out-of-town broker connections. A report was sent
over the wire that Nat. C. Goodwin & Company had failed. Another
followed it that the Rawhide Coalition Mines Company was about to go
into the hands of a receiver. The _Nevada Mining News_ accused Nat.
Boas of San Francisco and J. C. Weir of New York of exchanging
messages to this effect over the Logan & Bryan wire systems, so that
all correspondents on the wire would have the false reports. Both Boas
and Weir were believed to be "short" of the stock. Both were openly
operating for a further decline. These and similar tactics resulted in
a further easing off in price to 40 cents bid on December 24th, which
was the "low" on the movement.
Two weeks after Christmas the stock rallied to 58 bid, 59 asked, and
the market was firm again. On January 14 the price bulged to 70. At
this point the stock again became the center of attack. By January 20
the price had eased back to 50.
Thus far the net result of Nat. C. Goodwin & Company's various
campaigns on Rawhide Coalition was the distribution of some 600,000
shares of stock. The issue had been well exploited. It had a big
following and a broad market. Some excellent judges of mine values had
become stockholders. The company, however, was still unfinanced for a
long period of systematic mine development and mill construction.
We realized very clearly that some arrangement would have to be
perfected to avoid a repetition of the trouble which the New York Stock
Exchange brokerage firm had made us.
"INSIDE" MARKET SUPPORT
The removal to New York of B. H. Scheftels & Company, Chicago stock
brokers, representatives there of Nat C. Goodwin & Company of Reno, and
a merging of brokerage and promotion interests of the two firms took
place.
There was precedent for the move. There are a thousand other
corporation interests in this country that are closely affiliated with
Stock Exchange and other brokerage houses, through one or more of their
directors or owners being partners in the business. As a matter of
fact, it would be difficult to lay your finger on a single big interest
of this kind that has not such a representation. These houses, of
course, make it a rule to recommend the purchase of stocks in which
their principals are interested. Affiliations of this kind are found
essential to successful financing of enterprises. A number of New York
Stock Exchange houses which are headed or controlled by men who are
heavily interested in mining ventures that require financing are
exponents of this method in the mining field.
Most of these have succeeded in promoting projects in which they or
their associates are heavily interested, with the aid of the banking
and brokerage facilities thus afforded. Principally by the use of the
market literature and accompanying market manipulation, these houses
have placed with their customers the securities of their firm members
and associates. They have encompassed this by maintaining a brokerage,
banking and promotion business without parading before the public,
although never denying, the mixed nature of their business.
For the reader to comprehend the necessity for transacting the business
this way, he should understand the underlying principle of financing an
enterprise by the route of the listed stock market.
There are two ways of financing any enterprise with other people's
money. One is by the primitive method of appealing directly to the
public for subscriptions in huckster fashion, taking the money and then
refraining from listing the stock or establishing an open market for
it. You can't finance an enterprise of consequence these days by any
such procedure. It is practically impossible to borrow from banks or
from loan-brokers on any security that has no fixed market value. A
market must be established, for without a market on which to sell,
intelligent investors won't buy.
The method, therefore, in common use, and the only one which has been
found effective by financiers, is to create a demand for the security,
encourage speculation, establish an active market, and dispose of stock
on the market as necessity demands whenever financing is required. This
implies and necessitates that the inside interests must support the
security in the open market. Therefore, it becomes necessary for the
successful marketing of the stock by the promoters, once a demand is
created and public buying is under way, that stockholders shall be kept
in full touch with the latest transpirations on the property and in the
market--be furnished with news concerning their interests so that they
may judge the value of their stockholdings. This process is
particularly essential during the financing period of the company and
the security-digesting period of the public.
In fine, the ultimate purpose in this regard of all the promotion
machinery of Wall Street--the machinery that has been putting out
billions of dollars' worth of securities to investors--is to place
stock where it will "stay put," that is, not come out on the open
market again to embarrass the interests that are behind the enterprise,
and who for a long period are compelled to support the market.
On the question of the ethics of market support by "the inside," a
whole tome could be written. I will not attempt to discuss the subject
at length here. Suffice it to say that in my opinion "inside" support
of a listed security is not base when it is done with a view to
creating a broad market, to stimulate public interest, and to increase
the price to a point within the bounds of intrinsic plus reasonable
speculative worth. Support of the market to the point of stimulation is
moral obliquity, however, when dishonestly performed for the sole
benefit of the "inside" and to the hurt of the stockholder. This sort
of market support is only a shade less reprehensible than manipulation
that has for its purpose the reduction of the market price of a
security to beneath its real value, which, in my opinion, is nearly
always infamous.
I might place myself on record right here to the effect that only once
did I ever "bear" a stock from "the inside," and on that occasion it
was a temporary affair, caused by a desire to secure at a reduced price
a big block of stock that was pressing for sale from a quarter that I
was under no obligation to. Even in that instance I gave the investor
much of the benefit my associates secured by letting him have stock at
the same figure at which "the inside" secured it. Nor have I ever tried
to push the price of a stock to a higher level than that which I
considered warranted by the reasonable speculative and demonstrated
intrinsic value behind the security.