A FIGHT TO THE DEATH
In professional quarters the Scheftels corporation was regarded as an
interloper from the day it set foot in the financial district.
Its first offense was to reduce its commission rates. This move set
the whole Curb against the enterprise. But as the play progressed it
proved to have been unimportant in comparison to the unspeakable
crime of telling the truth about other people's mining propositions
that were candidates for public money. The Scheftels corporation
had laid it down as a set rule that an established reputation for
accuracy of statement was a great asset for any promoter or broker
to have. To gain such prestige the principle was followed in the
nation-wide publicity which emanated from the house that, no
matter whom the truth hurt or favored, it must be told always, when
publishing information regarding the value of any listed or unlisted
security. Space in the Scheftels Market Letter or the news columns of
the _Mining Financial News_ was unpurchasable.
The enforcement of this rule was a wide departure from prevailing
methods. But that didn't make us hesitate. Having felt the speculative
pulse for years, I knew its throb. The public, after losing billions of
dollars, were becoming "educated." The rank and file of mining
promoters--high and low--in Wall Street still believed that "one is
born every minute and none dies." But I and my associates didn't. An
uneducated public had been unmercifully "trimmed" in scores of
enterprises backed by great and respected names. Speculators were
ravenous for the truth. We decided to give it to them. We gave it to
them straight.
This publicity system brought about the ruin of the Scheftels
corporation through the powerful enemies it made. The policy was right
all the same. Persisted in, nothing was or is better calculated to
strengthen the demand for all descriptions of meritorious securities.
The Scheftels corporation was the pioneer in the exploitation of this
principle as a fundamental and underlying basis of brokerage and
promotion. In pioneering this policy, however, the Scheftels company
was sacrificed to the prejudices and wrath of the old school of
promoters.
THE FIRING OF THE FIRST GUNS
Before the Scheftels corporation was on the Street three months it
almost came a cropper. On the strength of excellent mine news it
purchased nearly 300,000 shares of Rawhide Coalition in the open
market, up to 71 cents per share. A determined drive was made against
the stock by mining-stock brokerage firms which had sold it short.
Bales of borrowed stock were thrown on the market by the crowd
operating for the decline. The Scheftels company took it all in.
Letters and telegrams were sent broadcast by market enemies urging
stockholders to sell. A powerful clique had been losing big sums on the
rise.
The Scheftels company published advertisements calling upon margin
traders to demand delivery of their certificates. This expedient proved
of small utility. The brokers continued to hold off deliveries to
customers and sold and delivered to us all the stocks that they could
borrow or lay hands on. The continued selling finally made inroads on
the Scheftels corporation's cash-reserve to a point that forced it one
day to stand aside and leave the market to the sharpshooters. That day,
in a few hours, approximately half a million shares of Rawhide
Coalition changed hands out of a capitalization of 3,000,000 shares.
The corporation's loans were called. This forced it to throw large
blocks of stock on the market. A sharp break ensued. That was just what
was wanted by the interests which were gunning for us. They covered
their short sales at great profit.
In the midst of the mêlée the Scheftels company tendered a Stock
Exchange house of great prominence, which had loaned it for the account
of a Salt Lake firm of brokers $12,500 on 50,000 shares of Rawhide
Coalition, the money to take up the loan. A representative of the Stock
Exchange house sheepishly stated that his firm had loaned part of the
pledged stock to out-of-town brokers. He asked for time. Under threat
of dire consequences the Stock Exchange firm bought stock back from us
in the open market that afternoon to supply the deficiency, and then
made delivery of this stock back to us in lieu of that which they had
parted with. It had been specifically stipulated by the Scheftels
company when the loan was made that the certificates must be held
intact and that the stock must not be loaned out or sold while the
money loan was in force.
This experience was repeated frequently during the Scheftels career on
the Curb. It cost B. H. Scheftels & Company more than one million
dollars, during the nineteen months of its existence, in giving loyal
market support, in times of "professional" attack, to the stocks it had
fathered or promoted and felt moral responsibility for.
Time and again the Scheftels company found among stocks delivered to
it, against purchases made in the open market, the identical
certificates it had pledged with loan-brokers as collateral for loans,
and which had been hypothecated by it with the specific proviso that
the certificates were not to be used. It opened our eyes to one of the
most commonplace practices, not only on the Curb, but also on the Stock
Exchange. Hardly a failure occurs on any of the Exchanges or on the
Curb that does not reveal customers' certificates, which were
originally pledged with the understanding that they were not to be
"used," in the strong-boxes of others.
The first grievous offense of the publicity forces of the Scheftels
corporation against Wall Street's "Oh-let-us-alone" promotion combine
was a wallop in April and May, 1909, through the Scheftels market
literature, at Nevada-Utah.
The combination which owned control took with bad grace the strictures
on the property. We heard an awful underground roar. At that time the
price of Nevada-Utah stock was around $3. The Scheftels Market Letter
said that there was probably not 30 cents of share value behind the
property. The price immediately began to crumble. It has been
tobogganing ever since. The stock at the beginning of September of this
year was quoted at 37-1/2 to 50 cents.
Such a thing as printing facts which would enlighten stockholders and
the public as to the actual value and condition had not before been
heard of when such enlightenment ran contrary to the plans of strongly
entrenched promoters on the Street.
The campaign against Nevada-Utah, therefore, directed widespread
attention to B. H. Scheftels & Company and the _Mining Financial
News_.
Following the Nevada-Utah disclosure, the Daily Market Letter and the
Weekly Market Letter of the Scheftels corporation and the _Mining
Financial News_ took a good, strong, husky "fall" out of the La Rose
Mines Company, capitalized for $7,500,000. The La Rose owns one of the
greatest producing mines in the Cobalt silver camp. A market scheme was
in progress, with La Rose as the medium, and W. B. Thompson, of
Nipissing fame, as a chief manipulator. We called a halt to the game
when the price reached a "high" of $8.50, and saved the public a huge
sum of money. Under our campaigning the stock declined to $4, a
decrease of $6,750,000 in the market value of the capitalization. This
made W. B. Thompson and his associates the implacable enemies of the
Scheftels company and myself. We didn't worry much. We were catering to
the public. Indeed, we were pleased with our work.
Following this incident, the Scheftels Market Letter and the _Mining
Financial News_ took a smash at a mining-stock deal in which W. B.
Thompson and the Guggenheims were jointly interested. It was the now
notorious Cumberland-Ely-Nevada Consolidated merger. Later the merger
was enlarged and took in the Utah Copper Company, or rather the Utah
Copper Company took in the others, and the Scheftels propaganda found
another opportunity to do a great service for the stockholders of
Nevada Consolidated.
Our attack hurt the Guggenheim reputation among investors all over the
country and contributed to reduce their influence over the large
stockholding body--more than 6,000 men and women--of Nevada
Consolidated. Though finally successful, the Guggenheims were sore from
the lashing and exposures to which they had been subjected. As for the
Scheftels company and the _Mining Financial News_, they had still
further established the honesty and value of their publicity service.
A market scheme to balloon the price of Ray Central Copper Company
shares to several times their value was a precious enterprise against
which we trained our publicity guns and fired several effective
broadsides. The effort of the promoters to connect with the public
purse here would not have been half so sensational if men of lesser
prominence were identified with the operation. In our "bear" publicity
on this one we minced no words. In doing so we again hit another
powerful interest--the Lewisohns.
Later the exposure by the _Mining Financial News_ and the Scheftels
Market Letter of market manipulations of the Lewisohn-controlled Kerr
Lake still further "endeared" the members of these two organizations
to that powerful faction, and more closely cemented the ties of
fellowship between the ruling powers.
Keystone Copper, another Lewisohn "baby," was put through its courses
on the Curb while Kerr Lake was being played in a stellar rôle. The
deal in Keystone was an unobtrusive little thing, but awful good as far
as it went from the one-sided point of view. I turned the searchlight
of publicity on Keystone.
The Scheftels Market Letter and _Mining Financial News_ disclosures
in the interests of speculators and investors regarding Nevada-Utah,
La Rose, Cumberland-Ely, Nevada Consolidated, Utah Copper, Ray
Central, and Kerr Lake were sensational enough, but they by no means
included all of the work in this line. During 1909 this publicity
literature took in practically every important mining company whose
shares were traded in on the New York Curb. The unpleasant truths
these forces were obliged to tell from time to time touched the
delicate sensibilities of many leading lights on the Street. These
had grown accustomed to an unvarying diet of sweets.
It would seem that their appetite for saccharine provender would have
become cloyed and that a change would be a grateful relief. It was not.
The truth was distasteful. It interfered with the noble industry of
mining the public and it cut down the profits of that end of the game.
In keeping up the record of day-by-day market and mine developments
these publicity agents punctured many a rainbow-tinted balloon. Very
frequently they gave to the public its first definite and intelligent
idea of real value behind promotions and in properties. Where market
prices represented an overplus of hopes and expectations the truth was
told. The aim was to take mining speculation out of the clouds and
plant its feet firmly on earth.
In this laudable effort we ran counter to the plans of the mighty. We
also violated the vulgar unwritten rule of some of the Wall Street
fraternity--"never educate a sucker." Our publicity work caused a
readjustment of judgment and market values, besides those already
mentioned, on such stocks as First National, Butte & New York, Trinity
Copper, Micmac, Ohio Copper, United Copper, Davis-Daly,
Montgomery-Shoshone, Goldfield Consolidated, Combination Fraction,
British Columbia, Granby, Cobalt Central, Chicago Subway, and sixty to
eighty others.
The live wires of our publicity service blistered the flesh of the
Guggenheims, the Thompsons and the Lewisohns, and perturbed their
widely diffused affiliations, connections and allies, including John
Hays Hammond, J. Parke Channing, and E. P. Earle; also Charles M.
Schwab, E. C. Converse, B. M. Baruch, United States Senator George S.
Nixon, George Wingfield, Hooley, Learned & Company, many other New York
Stock Exchange houses, a group of powerful corporation law firms, a
noted crowd of influential politicians, Curb stockbrokers who had grown
fat executing manipulative orders for the "inside," bankers who carried
on deposit the cash balances of the mining companies, and even J. P.
Morgan & Company, who were partners of the Guggenheims in their Alaska
ventures and were for a time said to be meditating a merger of the
copper companies of the country with those controlled by the
Guggenheims as a nucleus.
THE STORY OF ELY CENTRAL
By keeping speculators out of stocks that were selling at inflated
prices, the Scheftels corporation and the _Mining Financial News_
became endeared to a great popular moneyed element. The public was
saved huge sums of money.
This, however, only carried out the negative end of a grand idea. The
affirmative demanded that the Scheftels corporation must put its
followers into a stock or stocks where they could actually make money.
The Scheftels corporation was on the eager lookout for a genuinely
high-classed copper-mining proposition. It found what it was looking
for in Ely Central, a property that is sandwiched in between the very
best ground of the Nevada Consolidated, is bordered by the Giroux and
occupies a strategic position in the great Nevada copper camp of Ely,
birthplace of what is probably the greatest lowest-cost porphyry copper
mine of America.
By invading the Ely territory as promoter and annexing Ely Central, the
Scheftels corporation committed what was probably, to the interests
among whom our publicity work had wrought greatest havoc, an
unpardonable crime. We butted into the very heart of the game, and
became a disturbing factor in their mining operations.
The Ely Central property consists of more than 490 acres. Years before,
in the early days of the camp, it had been passed over by the
geologists and promoters who selected the ground for the Nevada
Consolidated, Giroux and Cumberland-Ely, because it was covered by a
non-mineralized formation called rhyolite. As development work
progressed and the enormous value of the surrounding mines was
disclosed, it dawned on their owners that they might have made a
mistake and that it would be just as well to obtain possession of the
Ely Central property.
The ground was especially valuable to the Nevada Consolidated, if for
no other reason, as mere acreage to connect up and make compact the
properties owned by them. The second demonstration of their bad
judgment was the fact that, having planned to mine the Copper Flat
ore-body by the steam-shovel method, they overlooked the value of the
Ely Central property as affording them the only practical means of
access to the lower levels of that pit for operation by the steam
shovels.
Investigation had disclosed to me that the evidence which had been
adduced by mine developments on neighboring properties was all in favor
of copper ore underlying the Ely Central area. The rhyolite, which
covered Ely Central, was a "flow," covering the ore, and not a "dyke,"
coming up from below and cutting it off.
Why was the property idle? Inquiry revealed that the Ely Central Copper
Company was $89,000 in debt, and that a pre-panic effort to finance the
corporation for deep mine development had failed. The panic of 1907-8
had crimped the promoters and they could not go ahead.
The Scheftels corporation entered into negotiations with the Pheby
brothers and O. A. Turner, who held the control, for all the stock of
the Ely Central company that was owned by them. During the progress of
negotiations, early in July, 1909, I heard that the Guggenheims and W.
B. Thompson were very much put out to learn that the Scheftels company
was about to finance the company. They had belittled the value of the
property, as would-be buyers are prone to do the world over.
Before I entered upon the scene the Pheby brothers had found themselves
objects of persistent and mysterious attacks. Their credit was assailed
in every quarter and they found themselves ambushed and bushwhacked in
every move they made. They were forced into a position where it was
believed they would accept anything that might be offered them for
their interest in Ely Central. As fate would have it, the Scheftels
company entered the race at this psychological moment.
Summed up, the Scheftels company actually contracted for 1,280,571
shares out of 1,600,000, which represented the increased capitalization
for a total sum of $1,158,916, or at an average price of 90-1/2 cents
per share. The time allowed for the payment of all the money was nine
months, stipulated payments being agreed upon at regular intervals in
between. The immediate effect of the arrangement was this: A dormant
property, in debt and lying fallow, was metamorphosed into a going
concern with good prospects of soon becoming a proved great copper
mine, with an assured income to defray the expenses of deep mine
development on a large scale, and a market career ahead of it that
might be expected to match any that had preceded it in the Ely district
from the standpoint of public interest.
During the progress of the negotiations the stock sold up to $1 per
share. The selling for Philadelphia account of a large block of stock
in the open market dropped the price back, of a sudden, to 50 cents.
The Scheftels company bought stock on this break and urged its
customers to do likewise. On the day the deal was concluded the market
had rallied to 75 cents. Fully six weeks before the deal was arranged
the Scheftels Market Letter and the _Mining Financial News_ had begun
to urge the purchase of the stock. The Scheftels organization was not
hoggish. The establishment was willing that the public should get in on
the cellar floor. There were nearly 300,000 shares outstanding, which
the Scheftels corporation had not corralled in its contract.
Readers of the Market Letter and the _Mining Financial News_ fell
over one another to get in on the good thing. Therein they were wise.
By early September the price had advanced in the market to $1. The
Scheftels publicity was strong in favor of the stock. But it had not
yet put on full steam. It was waiting for an engineer's report to make
doubly sure it was right.
Col. Wm. A. Farish, a mining engineer of many years' experience and a
man with a high reputation throughout the whole of the Western mining
country, had been sent by the Scheftels company to make a report on the
Ely Central. Years before Colonel Farish had reported on the Nevada
Consolidated properties and outlined the very methods now being used
for recovering its ores. But Colonel Farish had been ahead of his time,
and the capitalists in whose interest he was acting were not prepared
for such a radical step in advance of the then-existing methods, nor to
believe that copper ores of such low grade could be mined at a profit,
especially 140 miles from the nearest railroad. Times and conditions
changed, and the 140 miles were spanned by a well-equipped rail
connection.
Colonel Farish's opinion verified our fondest expectations. The report
set forth that the mine possibilities of Ely Central were nearly as
great as those of the Nevada Consolidated itself. On the basis of this
report, which was made in September, the project acquired a new
significance. Development operations were undertaken to prove up the
ground in an endeavor to demonstrate the existence of the 33,000,000
tons of commercial porphyry ore which Colonel Farish indicated in his
report would likely be found within the boundaries of the southern part
of the Ely Central property.
The prospect fairly took the Scheftels organization off its feet. We
were dazzled. We saw ourselves at the head of a mine worth $25,000,000
to $40,000,000. No time was lost in organizing a campaign to finance
the whole deal. Having no syndicated multi-millionaires to back it up,
the Scheftels corporation went to the public for the money, the same as
hundreds of other notable and successful promoters had done. The
ensuing publicity campaign to raise capital has been described in
hundreds of columns of newspaper space as one of the most spectacular
ever attempted in Wall Street.
I had absolute faith in the great merits of Ely Central, a faith that
has not been dimmed in the slightest degree by the vicissitudes through
which the company, the Scheftels corporation, and myself personally
have passed. Within thirteen months the Scheftels corporation caused to
be spent for mine development more than $150,000, and on mine and
company administration an additional $75,000. When the Scheftels
company was raided by the Government on September 29, 1910, and a stop
put to further work the expenses at the mine had averaged for the nine
months of that year above $15,000 a month. Work was going on night and
day. Every possible effort was being made to prove-up the property in
short order. Core-drills sent down from the surface had already
revealed the presence of ore at depth, and I am sublimely certain that
another month or two would have put the underground air-drills into
contact with a vast ore-body identical in quality and value with that
lying on either side in Nevada Consolidated acreage.
Ely Central was the New York Curb sensation in 1909-1910. I used the
publicity forces which had been so successful in protecting the public
against the rapacity of multi-millionaire mining-wolves to educate them
up to the speculative possibilities of Ely Central.
Up went the price. Between the first of September and the middle of
October the market advanced to $2 3-8. On October 13th advices reached
us that 30 per cent. copper ore had been struck in the Monarch shaft.
The Monarch is an independent working, far removed from the area that
is sandwiched in between the main ore-bodies of the Nevada
Consolidated. We were highly elated. The prospect looked exceedingly
bright to us, and there was no longer any hesitation in strongly
advising our following to take advantage of an unusually attractive
speculative opening.
The market boomed along in a most satisfactory way. By October 26th the
price reached $3; on November 3d it was $4 a share, and three days
thereafter $4-1/4 was paid.
The expenses of the Scheftels company on publicity work at this time
amounted to about $1,000 a day. Money for mine development on Ely
Central was being spent as fast as it could be employed. We were trying
to sell enough stock at a profit over the option price to defray the
publicity expenses, keep the mine financed, and meet our payments on
the option, but no more. We were not making any effort to liquidate on
a large scale, a fact which was reflected in the advancing quotations.
When the price of Ely Central hit $4 in the market, the Scheftels
company rated itself as worth from $3,000,000 to $4,000,000. I had
visions of leading the Guggenheims and Lewisohns and Thompsons up the
Great White Way with rings in their noses. Nat. C. Goodwin, who had a
25 per cent. interest in the Scheftels enterprise, enjoyed similar
visions, only his fancy ran to building new theaters for all-star
casts.
While Ely Central stock was going skyward and all the speculating world
was making money in it, our publicity forces were busily driving the
bald facts home regarding La Rose, Cumberland-Ely, Nevada-Utah and
other pets of the mighty. Our batteries never let up for a moment.
These various attacked interests were getting ready to strike back. If
their movements had been directed by an individual general they could
not have worked with more community of interest. One day the sky fell
in on us. The plans had been beautifully laid for our complete ruin.
That we escaped utter annihilation was almost a miracle.
On Wednesday, November 3d, the result of our market operations on the
New York Curb was that we quit long on the day nearly 8,000 shares of
Ely Central at an average price of $4. On the same day our customers
ordered the purchase of nearly twice as much stock as they ordered
sold. This indicated to us that the Curb selling was professional.
There was nothing very remarkable about this performance because
brokers doing business on the Curb very frequently play the market for
a fall.
On Thursday, the day following, the Scheftels company was again
compelled to purchase stock on the Curb in excess of sales to the
extent of 7,600 shares, while on the same day the buy orders of house
customers exceeded their orders to sell at least three to one. The
professional selling was now accompanied by rumors on the Curb which
spread like the smell of fire that trouble of some dire sort was
pending for the Scheftels company. Most of this emanated from an
embittered brokerage quarter and we paid little attention to it.
On the succeeding day, Friday, November 5th, the professional selling
was quieted to a point that compelled the Scheftels company to go long
of only 6,600 shares on the day in its Curb market operations. The
purchase of so small a block of stock excited no suspicion in the
Scheftels camp, although it should have, because Scheftels' customers
on this day purchased more than four times as much stock as they
ordered sold, pointing conclusively to a great public demand and much
shorting by professionals.
Then came the _coup de main_.
THE ASSAULT ON ELY CENTRAL
The 6th day of November fell on a Saturday. The New York _Sun_ of that
morning published under a scare head a vicious attack on the Ely
Central promotion. The attack was based on an article which was
credited in advance to the _Engineering & Mining Journal_ and appeared
in the _Sun_ ahead of its publication in that weekly. The _Sun_ had
been furnished with advance proofs. The Ely Central project was
stamped as a rank swindle. Everybody identified with it was raked over
and I, particularly, was pictured as an unprincipled and dangerous
character, entirely unworthy of confidence and at the moment engaged
in plucking the public of hundreds of thousands. It was stated that
the Ely Central property had been explored in the early days of the
Ely camp and found of no value whatsoever from a mining standpoint.
The Scheftels corporation was accused of setting out in a cold-blooded
way to swindle investors on a bunco proposition.
I was in my apartment at the Hotel Marie Antoinette at 9 A.M.
when I read the _Sun's_ story. The Scheftels company had thrown
$85,000 behind the market during the three preceding market days to
hold it against the attack of professionals.
I called the Scheftels office on the 'phone and gave instructions that
a certified check for $40,000 be sent to Wasserman Brothers, members of
the New York Stock Exchange, with orders to purchase 10,000 shares of
Ely Central at $4-1/8, which was the quotation at the close on the
afternoon before. Orders to buy 15,000 shares more at the same figure
were distributed among other brokers. The single order was given to
Wasserman Brothers because I thought it good strategy. They are a house
of undoubted great responsibility and it seemed to me that their
presence in the market on the buying side would have an excellent tonic
effect.
During the two hours' session I held the 'phone, receiving five minute
reports from the scene of action. Mr. Goodwin was at my side. At ten
minutes to twelve the brokers had reported the purchase, on balance, of
24,225 shares. Had they purchased 675 shares more they would have
completed the orders that were outstanding and it would have been up to
me to decide whether to lend further support or not. By that time my
figures showed that the Scheftels corporation had thrown behind the
market $200,000 in four days to hold it and I was beginning to have
"that funny feeling." During the last few minutes of the Saturday Curb
session the selling ceased and it seemed that possibly my fears were
unfounded.
On Sunday, the 7th, my hopes went a-glimmering. All the New York
papers featured scathing articles, using as authority the _Engineering
& Mining Journal's_ attack, which had appeared on the previous
afternoon. Dispatches indicated, too, that the papers of Boston,
Chicago, Los Angeles and San Francisco had played it up on the front
page as the most shocking mining-stock scandal of the century.
By Monday, the whole country had been plastered with the sensation. Of
course my early Past, all of which was a family affair and had
transpired fourteen years prior, long before I essayed to enter the
mining promotion field, was dragged out of the skeleton-closet. It lent
verisimilitude to the stories.
After reading the Sunday newspapers, I grasped the meaning of the move
and marshalled our forces. It was plain that we had been marked for the
sacrifice. It looked as though we hadn't a chance in a million of
weathering the onslaught if we lent the market further support. There
were about 500,000 shares of Ely Central in the public's hands, and,
without close to $2,000,000 in ready cash to throw behind the market,
we could not be certain of staying the tide. We didn't have anything
like that sum. Personally I did not give up the fight, but the outlook
was mighty blue.
All day Sunday trusted clerks of the Scheftels company worked on
the books, making a statement of the "stop-loss" orders and
"good-till-cancelled" orders of customers. On Monday morning the
newspapers contained aftermath stories of the _Engineering & Mining
Journal's_ arraignment. The air was surcharged with the impending
calamity.
THE CLASH OF BATTLE
With a line of defense carefully outlined, I approached the fray.
First, the Scheftels corporation placed with reliable brokers written
orders to sell at the opening the stocks that were specified in the
stop-loss and good-till-cancelled orders of customers. Not an order to
sell a share of inside stock was given. It was also decided not to
place any supporting orders until after the market opened and it could
be determined with some degree of accuracy what the volume of stock
amounted to that was pressing for sale.
Just before the market opened I could see from my office window a dense
crowd of brokers assembled around the Ely Central specialists. Although
ominously silent, they were struggling for position and were tensely
nervous. It was plain that the over-Sunday anti-Scheftels newspaper
publicity had racked Ely Central stockholders and created a panicky
movement to liquidate, which was about to find vent in violent
explosion. It was evident that the Scheftels corporation would have to
conserve every resource if the day was to be saved.
The market opened. Instantly there was terrific action. Hundreds of
hands were waving wildly in the air. Everybody wanted to sell and
nobody wanted to buy. The chorus was deafening. Screams rent the air.
The tumult was heard blocks away. Every newspaper had a man on the
spot. Brokers from the New York Stock Exchange left their posts and
came to see the big show; the Stock Exchange was half emptied. The
spectacle had been advertised widely and everybody was keenly awake and
wrought up to a high pitch of excitement over what had been scheduled
to occur.
Had the Scheftels brokers been supplied with orders to buy one-quarter
of a million shares of stock at the closing market price of the
Saturday before, $4 1-8, it was very apparent that they would have been
unable to hold the market. The opening sale was at $4. Downward to the
$3 point the stock traveled, breaking from 25 to 50 cents between
sales. Through $3 and on down to the $2 point the price crashed. Blocks
of 10,000 shares were madly thrown into the vortex of trading. The Curb
was a struggling, screaming, maddened throng of brokers. Every trader
appeared to be determined to crush the market structure. At $2 a share
there was a temporary check in the decline, but the bears renewed their
onslaught, gaining confidence by the outpour of selling orders. Within
less than an hour after the opening the stock hit $1 1-2 a share. At
this juncture the Scheftels broker in Ely Central reported that he had
executed all the stop-loss and good-till-cancelled orders entrusted to
him with the exception of 19,000 shares.
"The Scheftels company will take the lot at $1 1-2," I said.
In lending succor at $1 1-2 per share I was really stretching a point,
although at this figure the net market shrinkage of the Ely Central
capitalization was in excess of $3,000,000. This melting of market
value was awful to contemplate. On the other hand the newspaper
agitation was unmitigated in its violence, stockholders were convulsed,
a break of serious proportions was certain, and it was up to me to
conserve every dollar. The moment the Scheftels bid of $1.50 a share
made its appearance on the Curb and the selling from the same source
for the account of customers was discontinued, it was seen that the
force of the drive had spent itself, at least for the time being.
Support now came from the "shorts." They started to cash their profits
on their short sales of the days previous. Crazed selling was
transformed to frantic buying.
The scene at this juncture was dramatic. It was the momentary
culmination of a cumulative, convulsive cataclysm. In refraining from
selling for its own account the Scheftels corporation violated one of
the sacred rules and privileges not only of the New York Curb but of
the New York Stock Exchange. In both of these markets it is the custom,
where brokers have advance information of an impending calamity, to
beat the public to the market and get out their own lines first,
leaving customers to take care of themselves.
By deftly feeding stock to bargain hunters and to the "shorts" at
intervals and buying stock when it pressed for sale from frightened
holders at other periods the Scheftels company was able to support the
market that afternoon to a close with sales recorded at $2 a share. The
cash loss of the Scheftels company on its Curb transaction in Ely
Central that day was $60,000. This fresh sacrifice was needed to steady
the market.
Tuesday, the following day, the daily newspapers belched forth further
tirades of abuse and calumny. The market crash in Ely Central was held
up to the public as proof positive that the project was a daring
swindle. The raid on the stock in the market was renewed. A Johnstown
flood of liquidation ensued. Fluctuations were violent. Opening at $2,
the price was forced down to $1. It afterward rebounded to $2, but the
waters would not subside, the stock was hammered again and it closed at
$1 per share. To meet the oncoming emergencies the Scheftels
corporation was obliged to fortify its cash reserve in the only one way
that offered. It was compelled to convert a large part of its reserves
of securities into cash and it had to sell on a declining market. Many
accounts were withdrawn by timid customers, and the Scheftels company
was further called upon to give stability to Rawhide Coalition and
Bovard Consolidated, other stocks which it had been sponsoring in the
markets. Loans were called by brokers with whom the Scheftels company
was carrying stocks, deliveries were frantically tendered to the
Scheftels company of stocks it had purchased at previous high levels,
and a financial onslaught made generally that would undoubtedly have
sunk the Scheftels' ship but for the fact that we had backed-up in the
nick of time, had measured our distance, had gone just so far and not
too far, and had kept on the firing-line.
An exceedingly gratifying feature of the sensational day was the way in
which our friends stood by us. The venom and selfishness of the
overwhelming assaults that had been made upon us convinced many of the
public that we were being made the victims of a special attack, and
with the natural impulse that governs honorable men they gave testimony
to their confidence in us.
On Wednesday the campaign terminated. Ely Central weakened an eighth
from the $1 point, the closing of the day before, recovered to sales at
$1-3/4 and closed at $1-1/2 bid; $1-5/8 asked.
All day long our offices were thronged with newspaper reporters and
with pale-faced and agitated customers. Our clients felt their
helplessness in such a tumult of warring forces. The only thing they
could do was to stand by and watch developments as the battle waged. It
was a proud moment for me when, at the end of the day's market, I
mounted the platform in the Scheftels customers' trading-room, gave
voice to a shrill cheer of triumph and wrote on the blackboard the
following:
"We have not closed out a single margin account! We are carrying
everybody!"
The scene which followed warmed the cockles of my heart. I was
literally mobbed, but it was a friendly mob. We all joined in a season
of noisy rejoicing. That we should have been able to survive the
three-days' siege with minimum losses to customers and without
sacrificing a single margin account was a signal achievement. I doubt
if there are many cases like it in the history of Wall Street.
Scores of telegrams were received from out-of-town customers to whom
the margin respite was wired. One of these read:
You may look for a tidal wave of business. Your princely action
warrants 21 guns for the House of Scheftels.
Another one was to this effect:
The whole situation was greased for your descent. It was a
shoot-the-chutes and a bump-the-bumps proposition. Congratulations
on your survival.
Hundreds of letters of a similar tenor poured in upon us. Many of these
came from the camp of Ely itself, where large blocks of the stock were
held by mining men on the ground.
Thursday the stock closed at $l-3/4; Friday it advanced to sales at
$1-7/8 and hung there.
The Scheftels organization now drew its first long breath. Friends and
enemies alike marveled how the corporation had managed to survive. We
had held the fort, but at murderous cost.
I got busy with the publicity forces at my command. Through the
Scheftels Market Letter and the _Mining Financial News_ the story
was told of the whole dastardly campaign.
The Weekly Market Letter of the Scheftels company on November 13, 1909,
devoted 24 columns to the story of the raid.
That the Guggenheim-managed Nevada Consolidated was well pleased with
the publication of the _Engineering & Mining Journal's_ attack seemed
clear to me. The reason was this: In its attack the _Engineering &
Mining Journal_ stated that two drillholes put down by the Nevada
Consolidated in the immediate vicinity of Ely Central had failed to
show better than nine-tenths of one per cent. copper ore which, the
article said, was below commercial grade. (At this late date, October,
1911, they are mining ore in the steam-shovel pit of the Nevada
Consolidated that will not average more than eight-tenths of one per
cent. copper transporting it to the concentrator, more than twenty
miles away, and treating it at a profit. But this is not the point.)
An engineer of international prominence telegraphed the Scheftels
company from Ely as follows:
Two drill holes mentioned in _Engineering & Mining Journal_
article were completed only last week. Results must have been
telegraphed to New York.
These holes gave great trouble on account of caving ground. I heard
drill runners say they were stopped on that account and were in ore
in bottom. In any case, it is not conclusive of unpayable ore in
vicinity. This condition often occurs.
I could write a book in reply to the _Engineering & Mining Journal's_
tirade, showing the utter flimsiness of the statements it made. Limited
space forbids anything more than an outline.
Charles S. Herzig was employed to report confidentially on the
property. Mr. Herzig's report was later checked up by Dr. Walter
Harvey Weed, a great copper geologist of known high standing who was
formerly one of the principal experts of the United States Geological
Survey and was himself a frequent contributor to the _Engineering &
Mining Journal_. Dr. Walter Harvey Weed wired to the C. L. Constant
Company, the metallurgists and mining engineers, from Ely, as follows:
After making a most thorough examination my opinion is Southern
part Ely Central property is covered by rhyolite capping.
Geological evidence demonstrates that the porphyry extends eastward
(through Ely Central) from steam-shovel pit and with excellent
chance of containing commercial ore beneath a leached zone. A well
defined strong Fault separates steam-shovel ore from rhyolite area
and this Fault Plane may carry copper glance (very rich copper ore)
of recent origin, due to descending solutions. The iron-stained
jasperoid croppings in the limestone areas give promise of making
ore in depth on Ely Central property as they do in Giroux.
The _Engineering & Mining Journal_ said in its article that the
northern portion of Ely Central showed the Arcturus limestone of the
district. It stated that in this limestone at various places there is a
little mineralization but never during the history of the district were
any profitable results obtained. As against this, Engineers Farish,
Herzig and Weed reported that the limestone areas on Ely Central would
likely show the presence of mines. As a matter of fact, Giroux,
neighbor of Ely Central, had sunk through this limestone and opened one
of the richest bodies of copper ore ever disclosed.
The _Engineering & Mining Journal_ said that in representing that
pay ore is likely to exist in the area of Ely Central sandwiched in
between the two big mines of Nevada Consolidated, the Scheftels company
was practicing deception. Not only did Messrs. Farish, Herzig and Weed
report in favor of the likelihood, but it is now a commonly accepted
fact that, unless all known geological indications are deceptive, Ely
Central has the ore in this stretch of territory. A report made as late
as September, 1911, by engineer Richard T. Pierce, for the
reorganization committee of Ely Central, expresses the opinion that an
area 1,300 feet by 1,900 feet at the south-east end of the Eureka
workings "will be found to contain mineralized porphyry, with
reasonable assurance that commercial ore will be had in it."
Mr. Herzig's first telegram from Ely after examining the Ely Central
property was to this effect:
There is no question that the rhyolite was deposited in Ely Central
after the enrichment of the porphyry. The Fault that limits the
rhyolite in the Nevada Consolidated pit is indicated by several
feet thickness of crushed mineralized porphyry-rhyolite ore, which
is a positive evidence that the porphyry was enriched before the
faulting. The limestone and contact areas owned by the company, in
my opinion, have great potential value. The indications are in
every way similar to Bisbee. Rich carbonate ore has been
encountered on the Clipper and Monarch claims of Ely Central and I
look forward to seeing big ore bodies opened up at these places.
Reports of both these engineers, many thousand words in length,
made later, confirm these messages.
What probably convinced me more than anything else of the inaccuracy of
the statement regarding the Ely Central property by the _Engineering
& Mining Journal_ was the attitude of Charles S. Herzig. He is my
brother.
Up to within thirty days of the appearance of the attack in the
_Engineering & Mining Journal_ I had not set eyes on him in fifteen
years. A graduate of the Columbia School of Mines, he had in the
interim examined mining properties in South Africa, Egypt, Australia,
the East Indies, Siberia, every European country, Canada, Mexico,
Central America, South America and the United States in the interests
of some of the world's greatest financiers. These expert examinations
had covered deposits of gold, silver, copper, lead, zinc, coal and
other minerals. In the engineering profession he is known as an expert
who has his first failure yet to record. His standing is unquestioned
as an engineer and a mine-valuer.
I had heard some criticism of the Farish report, made by engineers of
the modern school, in which it was pointed out that Colonel Farish had
failed to give scientific reasons for all of his deductions. I asked
Captain W. Murdoch Wiley, then a member of the C. L. Constant Company,
assayers, metallurgists and mining engineers, whether he could induce
my brother to make an examination. I did not approach Charles myself,
because we had been estranged. So it was that when he returned from
Europe after an absence of many years, he had not even looked me up.
Captain Wiley arranged for a meeting at the Engineers' Club. I went
there, and was formally introduced by Captain Wiley to my brother
across a table.
"What will you take to make a report on Ely Central?" I asked in the
same matter-of-fact way I would have addressed a stranger.
"What's the purpose of the report?"
"The Scheftels company wants confidential, expert information such as
you are qualified to give as to the value and prospects of the
property," I answered.
"I'll take $5,000," he said, "but only on one condition. I am going to
the Ely and Ray districts to report for English capitalists, and I can
take your property in at the same time. My report is not to be
published and I reserve the right to make a verbal instead of a written
one. If you really want to know what I think of the property, I am
quite willing to give it a careful examination and let you know.
Because of the stock-market campaign you are making, I would not accept
your offer if, did I report favorably, your idea would be to make use
of the report in the market."
The bargain was struck. A few days later Mr. Herzig received $2,500
from the Scheftels company, on account, and a check for traveling
expenses. He left for Ely.
On the Saturday morning when the New York _Sun_ article appeared
containing the excerpts from the _Engineering & Mining Journal's_
onslaught, I wired my brother substantially as follows:
Savage attack in _Engineering & Mining Journal_ on Ely Central. If
your report on property is favorable, I beg you to let us have it
by wire and allow the use of it to counteract.
An hour later I followed it up with another message telling him not to
wire any report. I set forth that because he was my brother, it might
prove of little avail, now that the publication had been made, and
that it might only tend to do him personal damage in the profession
because of the unqualified manner in which the _Engineering & Mining
Journal_ had taken a stand against the property. In reply he wired
Captain W. Murdoch Wiley the short but decisive report already quoted
herein, regarding the geological reasons why Ely Central should have
the ore, which afterward was fully verified by Dr. Walter Harvey Weed
in the message also reproduced in the foregoing. In a letter from Ely
to Captain Wiley confirming the message, the original of which is in
my possession, Mr. Herzig said:
I have formed a very favorable opinion of the property. I feel that
it has the making of a big mine, and under the circumstances I am
willing to stand a little racket for a time.
The same day he wired Captain Wiley to buy for his account 2,500 shares
of Ely Central at the market price, which order was executed through
the Scheftels company.
Editor Ingalls of the _Engineering & Mining Journal_ and my brother
had been friends for years. My brother had been employed early in his
career by the Lewisohns, Guggenheims and the Anaconda Copper Company,
and later in Europe, Australia and India by mine operators of even
higher class. Up to the time when the _Engineering & Mining Journal's_
attack appeared he had not committed himself on Ely Central. When he
did commit himself it was with the foreknowledge that in doing the
unselfish and courageous thing his name would be besmirched if under
development Ely Central turned out to be what the _Engineering &
Mining Journal_ had declared probable. In that event his relationship
with me would be held up as positive proof of duplicity and it would
look bad for him. The fact that under all these circumstances he
jumped into the breach satisfied me that the attack of the
_Engineering & Mining Journal_ was unjustified.
A BOMBSHELL IN THE ENEMY'S CAMP
As soon as the Scheftels corporation was able to obtain a copy of the
corroborative report of Dr. Walter Harvey Weed, which the great copper
geologist made to the C. L. Constant Company, it filed a libel suit
against the _Engineering & Mining Journal_ for $750,000 damages.
Simultaneously Mr. Scheftels filed another suit for an additional
$100,000 in his own behalf.
The filing of the Scheftels libel suits against the _Engineering &
Mining Journal_ was a bombshell. It was formal notice to the forces
arrayed against us that we did not propose to be made victims of an
unholy hostility and that we were determined to proceed along old lines
and not abate in the slightest our wide-open publicity measures. It was
also noticed that we proposed to go through with the Ely Central deal.
After it became evident that we intended to keep on fighting, the
Scheftels offices were openly visited and inspected in detail one day
by the late Police Inspector McCafferty. In a bullying manner this
police official let it be known that we were in official disfavor with
him. His manner could hardly have been more offensive if he had been
invading a den of counterfeiters. Mr. McCafferty did not specify just
what he was after or just what he expected to find, but he made it
plain to us that we were marked and that he had it in for us. He
stalked scowlingly through the entire establishment and made vague
threats of what was in store for us.
Late that night I learned that the Inspector had invaded the
living-rooms of my associate, Nat. C. Goodwin, where he delivered
himself somewhat as follows:
"What are you fellows trying to do, anyway? What are you trying to put
across on us? Do you think we are going to stand for any such newspaper
notoriety as you are getting and watch it with our arms folded? Do you
think we are fools or crazy, or what? I want you to understand that you
fellows have got your nerve with you. Get busy or the police will be on
your backs to-morrow!"
I told Mr. Goodwin that our enemies had evidently sicked the Inspector
on to us, but that I didn't think any action would be taken. We were
victims and not culprits, and unless, indeed, the United States was
Russia, nothing untoward could happen.
I promised Mr. Goodwin, however, that I would attend to the matter
without delay. I laid all of the facts regarding the newspaper attack
before a prominent citizen who promised forthwith to convey the
information in person to the Inspector or one of his superiors. He did
so. That was the last we heard of the matter.
The _Engineering & Mining Journal's_ lawyers addressed themselves
to customers of the Scheftels company, who had lost money in the market
break in Ely Central from $4 to $1.50. By letter they urged them to
send on a full statement of facts and suggested that they might be of
service, and without charge.
Letters of this character were sent to large numbers of our customers,
many of whom simply sent them to us. In some cases, however, customers
who had read the attack in the _Engineering & Mining Journal_ or
quotations from it in widely circulated daily newspapers, needed but
the letter from the lawyers to induce them to come forward with a
complaint.
On the whole, this fishing expedition must have been something of a
water-haul and a disappointment, for the attorneys of the
_Engineering & Mining Journal_.
The Post-office Department at New York, in January and February, sent
letters broadcast to readers of the Scheftels Weekly Market Letter,
asking whether the business carried on was satisfactory--the usual form
that is used where a firm is under investigation. Scores of these
letters were forwarded to us by customers with remarks to the effect
that evidently "somebody was after us." An inquiry of this sort is
calculated to do terrible damage to the reputation and standing of any
house that does a quasi-banking business. Our attorneys complained to
Inspector Mayer of the New York division of the Post-office that an
injustice was being done. No more letters of the character described
were sent out, because the early replies that were received by the
Inspector to his circular letter brought forth no serious complaints.
However, it was afterward disclosed that the investigation did not
cease here and that the Post-Office Department continued to conduct a
searching inquiry only finally to abandon its enterprise.
Enters upon the scene an associate of the _Engineering & Mining
Journal's_ lawyers defending that publication against our suit for
libel. He called at the Scheftels offices and demanded from Mr.
Scheftels information with regard to the account of C. H. Slack of
Chicago. He got it. It showed that Mr. Slack had purchased 50,000
shares of Bovard Consolidated at 10 cents per share, for which he had
paid cash, and that Mr. Slack had purchased an additional 100,000
shares at 14-1/4 and 14-3/4 cents per share; and that Mr. Slack had
refused, after the market declined to below the purchase price, to pay
the balance due, because of delayed delivery.
The delay in delivery was accidental. The Scheftels company actually
had in its possession two million shares of the stock or more, and the
delivery would have been tendered earlier but for the fact that the
raid on Ely Central had piled up so much work for the clerical force
that everything was set back. We knew of no legitimate excuse for Mr.
Slack, because he could have ordered the stock sold at any time,
delivery or no delivery. The Slack transaction receives amplification
here, because later, when the Scheftels corporation was raided by a
Special Agent of the Department of Justice, it figured as one of the
cases cited by the Agent in the warrant sworn to by him against B. H.
Scheftels & Company as proving the commission of crime.
Another case about which Mr. Scheftels was asked to give full
information was that of D. J. Szymanski, a corn doctor at 25 Broad
Street. Mr. Scheftels had urged the Doctor to buy Ely Central when it
was selling at 75 cents before the rise. Later, when the advance was
well under way, above the $3 point, the Doctor bought some stock
through the Scheftels corporation. When the price hit $4 he was urged
to take profits. He refused to do so. When the attack began and the
price broke badly the Doctor saw a big loss ahead.
He called at the Scheftels' office and begged for the return of the
money he had lost in his Ely Central speculation.
The investigation was heralded among the brokers and caused much market
pressure on the stocks fathered by the Scheftels company. We were not
dismayed. To strengthen our position and to give added token of our
good faith we increased our development operations at the mines. Our
expenses in that quarter were swelled to the limit of working capacity
on our underground explorations, as I realized that our salvation might
depend on making good in quick order with Ely Central from a mining
standpoint. We knew the ore was there and that it was up to us to get
it before our enemies got us.
A GOVERNMENT RAID IS RUMORED
Out of a blue sky late in the month of June came news to the Scheftels
office that a newspaper reporter on the New York _American_ had
stated that he had seen a memorandum in the city editor's
assignment-book to watch out for a Scheftels raid by the United States
Government. The information was reliable and it gave us a shock. Yet
the thought that the powers of a great government like the United
States could be used to crush us without giving us a hearing seemed
unbelievable.
To be on the safe side Mr. Scheftels, accompanied by an attorney of
high standing, visited Washington. They went direct to the Department
of Justice, where Attorney-General Wickersham's private secretary,
after a friendly conversation, referred them to the chief clerk. He
reported, after a search of twenty-five minutes' duration, that there
was no charge against B. H. Scheftels & Company. He even volunteered
the information that he did not know that such a firm was in existence.
It afterward developed that at the very time Mr. Scheftels and the
attorney were at the Department of Justice a special rubber-shoe
investigation was on under the dual direction of a young Washington
lawyer on Attorney-General Wickersham's personal staff, and a Special
Agent of the Department of Justice. The latter had been given
extraordinary powers as a special agent of the Department of Justice,
ostensibly to "clean out Wall Street."
Satisfied they were in the wrong place, Mr. Scheftels and the
counsellor departed from the Attorney-General's office for the
Post-Office Department. They were referred to Chief Inspector Sharp.
The lawyer requested that the Scheftels corporation be given a hearing
before any action was taken on any complaints that might reach the
department. Mr. Sharp agreed to this on condition that the attorney
would agree for the Scheftels company that an inspection of the books
of the corporation would be permitted on demand at any time. There was
a ready assent. A memorandum to this effect was left with Inspector
Sharp.
Mr. Scheftels left the Department with positive assurance that no snap
judgment would be taken. Edmund R. Dodge of Nevada, personal counsel of
B. H. Scheftels & Company, then addressed a letter to U.S. Senator
Newlands with the request that he take the matter up direct with the
Postmaster-General.
Senator Newlands, under date of July 2, wrote Mr. Dodge that he had
addressed a letter to the Postmaster-General with the request that
notice be given to Mr. Dodge in case any complaint or information was
lodged against the Scheftels corporation. A few days later Senator
Newlands sent Mr. Dodge a letter from Theodore Ingalls, Acting Chief
Inspector of the Post-Office Department, in which Mr. Ingalls said it
was the practice of the Department in case of alleged use of the mails
for fraudulent purposes to give individuals against whom complaint has
been made full opportunity to be heard either through person or
counsel, should adverse action be contemplated as a result of the
investigation of such allegation.
Feeling that our house had been securely safeguarded against surprise
parties, I at this junction took a trip to Nevada, where urgent
business matters required my attention. While I was in the West
telegrams were sent me that the premier mail-order mining-stock
bucket-shop firm on Broad Street was flooding the mail and burdening
the telegraph wires with urgent appeals to stockholders of Rawhide
Coalition, one of our specialties, to sell out their holdings, as a
severe break in the price of the shares was impending. Forewarned of
this attack, I telegraphed instructions from Reno to meet the onslaught
with a notice in the _Mining Financial News_ addressed to investors,
telling them to be on their guard.
My trip to the West made a pocketful of money for investors by my
purchase of the control in the Jumbo Extension company on a monthly
payment plan. The price of the stock tripled in the market. My
re-entrance into the Goldfield camp was especially distasteful to the
Nixon-Wingfield interests. Before I left Goldfield I was actually
warned that the vengeance wreaked on the Sullivan Trust Company would
be visited on the Scheftels company for daring to reinvade the
Goldfield district.
Late in August the Scheftels company endured what was probably the most
severe strain it had been put to since its incorporation. We had been
making heroic efforts to rally the price of our specialties on the New
York Curb market. We were meeting with unusual resistance from
professional sources. At the period of which I narrate, Ely Central had
registered a low quotation of 62-1/2 cents and we had successfully
strengthened it to around $1. All the way up we met with heavy sales.
One day deliveries crowded in so fast that three cashiers working in
the "cage" were unable to keep up with the transactions. The business
of the corporation had been heavy in the general list as well as in the
house specialties. There was more than sufficient money on hand to
finance all the transactions that day, but not, however, unless
deposits were made in bank as rapidly as our own deliveries were made
and collected for by our messengers.
About 2 o'clock in the afternoon a report reached the Curb that the
bank checks of B. H. Scheftels & Company were not being promptly
certified. As this rumor gained currency the excitement on the Curb
increased. The Curb concluded that we were at last "busted." Motley
throngs began to assemble in front of the offices. The fierce yells of
brokers could be heard bidding for and offering Scheftels checks below
their face value. A throng of the riffraff of the Street swarmed in
front of the building.
One or two individuals, implacable enemies who had repeatedly led the
market onslaught against the Scheftels stocks, offered Scheftels checks
for small sums at as low as 50 cents on the dollar. These were licked
up by our friends who had been assured that we were financially all
right and that some mistake must have been made at the bank.
Investigation showed that dilatory message service was responsible for
the bank's delay in certifying. Our deposits did not reach the bank as
promptly as they should have. As a special favor to us that afternoon,
while the tumult in front of our doors was greatest, the bank continued
to certify checks until 3:30 o'clock, extending the closing time 30
minutes. Then they reported that a comfortable cash balance was still
on hand.
The next morning the newspapers started a jamboree. First-page,
last-column, double-leaded, scare-head stories greeted every New Yorker
for breakfast, telling him about the panic among Curb brokers to sell
the Scheftels checks the afternoon before. Needless to say it was the
kind of notoriety that was likely to do greatest injury to the House of
Scheftels. If anything half as bad had been printed about the strongest
bank in New York, that bank would have been forced to close its doors
before the day was half over.
Nor did I for a moment underrate the danger of our position. Between
two suns I managed to assemble $50,000 in addition to our cash
reserves, with promises of as much more as was needed. We easily held
the fort. At the end of the day's business I created a diversion by
appearing in the Scheftels board-room, flourishing a handful of $1,000
bills before the newspaper men. The scribes found the Scheftels
corporation meeting all demands, and, at the end of the session, with a
small bale of undeposited money in its possession.
The strain, however, was great. Confidence was again impaired. Many
accounts were withdrawn by customers. We were compelled to ease our
load by selling accumulated stocks at a loss. The price of Ely Central
and other Scheftels promotions dropped. The decline was assisted by
general weakness in other Curb stocks.
Peculiarly enough, at the time when the market for Ely Central shares
was lowest, during the latter part of September, fourteen months after
the Scheftels company had taken hold of the proposition, mine reports
were most favorable. Underground development work and churn drilling
had set at rest for all time the question of whether or not mineralized
porphyry underlies the rhyolite cap or flow extending eastward through
Ely Central ground from the steam-shovel pit of the Nevada
Consolidated. Upward of $240,000 had been paid out for administration,
mine equipment and for miners' wages to make this demonstration.
The Scheftels company was now informed that the Nevada Consolidated was
actually meditating a trespass on the Juniper claim of the Ely Central
company, in order to secure an outlet from the lower levels of its
giant steam-shovel pit. Warning in writing had already been served on
the Nevada Consolidated officials against such a course. On September
25th attorneys of the Ely Central Copper Company secured from a Nevada
court an order restraining the Nevada Consolidated from proceeding with
this trespass and citing it to show cause why it should not cease to
trespass on other Ely Central ground.
The attorney telegraphed to New York that a bond was required before
the injunction could be made operative. On September 27th and 28th
telegrams were exchanged between the Ely Central offices in New York
and the Nevada attorneys of the company at Reno as to providing
sureties for the bond.
The sureties never qualified. A catastrophe befell us and brought to an
earthquake finish the house of B. H. Scheftels & Company and all its
ambitious plans.
The constant turmoil in which the House of Scheftels had found itself,
from the day the _Engineering & Mining Journal's_ attack appeared,
had made it impossible for the Scheftels company to hold the markets
for Ely Central and Rawhide Coalition. Impairment of credit, money
stringency and a general declining market were partly responsible. But
there was another important factor. Because of the time-limit of its
options, the Scheftels company was forced, from time to time, to throw
stock on the market at prices which showed an actual loss.
It had one market winner which showed customers and the corporation
itself a large profit, namely, Jumbo Extension. I held an option on
approximately 450,000 shares of this stock at an average price of 35
cents, which I had turned over to the corporation. The market advanced
to 70. Following the tactics employed in Ely Central at the outset of
that deal, the Scheftels corporation had urged all its customers to buy
Jumbo Extension at the very moment when I was negotiating for the
option in Goldfield, with the result that purchases were made in the
open market by readers of our market literature at from 25 cents up,
with accompanying profit-making.
As the price soared, a short interest of 150,000 shares of Jumbo
Extension had developed among brokers in San Francisco and New York,
and it was very apparent from the demands of stock for borrowing
purposes that it would be impossible for the short interests to cover
excepting upon our terms. The Scheftels company was making ready for a
"squeeze" of the shorts such as had not been administered before in the
history of the Curb. At the very moment of victory, however, when we
were making ready to execute a magnificent market coup in Jumbo
Extension in the markets of San Francisco and New York, we were plunged
without warning to complete ruin.
THE RAID ON B. H. SCHEFTELS & CO.
The destruction of the Scheftels structure was consummated on the 29th
day of September, 1910. I was standing on the front stoop of the
Scheftels offices, watching the markets for the Scheftels specialties.
A broker with San Francisco connections made me a bid of 68 cents for
10,000 shares of Jumbo Extension. I promptly refused. At that very
moment my attention was called to the violent slamming of a door behind
me. Turning to a Scheftels employee who was standing by my side, I
learned that a number of strangers had filed into the customers' room
without attracting any particular attention. I tried to get in. The
door was locked. Undoubtedly something serious was transpiring. I
walked a full block through the hallway to the New Street entrance
of the building where the offices of the _Mining Financial News_
adjoined those of the Scheftels corporation. I tried the door there
with similar result. It was locked against me.
That settled it. I concluded that the ax had fallen.
The shock of realization that our offices were being raided by the
Government did not for a moment throw me off my balance or put fear in
my heart, nor did the sense of the outrage affect me at the moment.
There was but one sickening thought--the ruin of the edifice I and my
associates had labored day and night for so many months to build and
the fate of our customers who had invested their money in the companies
we had promoted.
In three seconds I was on my way to the place where I thought succor
could be found--the offices of the Scheftels attorneys. I walked across
the street to the New Street entrance of a building that extends from
Broadway to New Street, ambled across to the Broadway side, jumped on a
surface car, rode three blocks to Broadway and Cedar Street, jumped
into an elevator, and in a few minutes entered the offices of House,
Grossman & Vorhaus.
"Go over to the Scheftels offices," I said, "and be quick! I think we
are being raided."
In a moment two members of the law firm were on their way. Within ten
minutes after the raiders had entered the offices the lawyers were on
the spot. They were denied admittance and had to content themselves
with waiting outside the door until the prisoners were taken out.
The moment the lawyers left their offices I began to use the 'phones to
provide for the release on bail of the men arrested. I found it
necessary to go in person and so I left the lawyers' offices and walked
down Broadway. My attention was attracted by the clanging of the bell
of the police-patrol wagon. As it wheeled past me on the run I could
see my associates huddled together in the Black Maria on their way to
the bastile.
For the moment, I lost full sense of the gravity of what was
transpiring and was overcome by a feeling of joy that I had been spared
that ignominy. That self-felicitating slant of an intensely serious
situation passed. My associates were in trouble and it was up to me to
help them. I was at large and I knew that I could do more for my
friends and myself by not immediately surrendering.
I returned to the lawyer's office, where I remained. All this time the
thought never entered my mind that we were in any sense guilty of any
intent to defraud anybody, or that we had committed any offense against
law or the rules of fair conduct. The one consuming and controlling
idea in my mind was that somebody had put one over on us and that it
was up to me to organize for defense against the abominable outrage.
What transpired behind the closed doors while the Scheftels lawyers
were attempting to gain an entrance for the instruction of the
corporation, its officers and employees as to their rights, beggars
description. Gentle reader, you would not conceive the reality to be
possible. Armed with a warrant which conferred upon him the right to
arrest, seize, search and confiscate, the Special Agent of the
Department of Justice had secured from the local police headquarters a
detail of fifteen heavily armed plain-clothes men.
Once inside the Scheftels establishment, the doors were locked and
egress barred. The main body of invaders then took possession of the
front offices, while others searched through the back rooms and
boisterously commanded everybody to remain where they were until given
permission to depart. The establishment was under seizure, every foot
of it, and every person found within its doors was held prisoner. The
Special Agent took pains to impress upon everybody within hearing that
he was in supreme command. Leaving police guards in the front room, he
stalked into the telegraph-cage where two or three operators were
sitting at tables.
Pressing the muzzle of a revolver into the face of Chief Operator
Walter Campbell--a quiet and inoffensive man--the Special Agent
commanded:
"Cut off that connection!"
Mr. Campbell didn't at first see the gun because it was pointed at his
blind eye. When he got his first peep he concluded that a maniac had
invaded his sanctum and he almost expired with apoplexy on the spot.
Returning to the front office, the Agent entered the cashier's cage and
took possession of the company's pouch containing its securities.
He gave no receipt to any responsible employee of the Scheftels company
for anything. When Mr. Stone, one of the cashiers, suggested to him
that he was there to safeguard the securities, he thundered,
"Come out of there!"
"What authority have you for this?" demanded Mr. Stone. The Agent
thereupon showed his badge.
A moment later one of the deputies pried open the cash-drawer. The
Special Agent was at his elbow.
"Oh, look what's here!" cried the deputy.
Thereupon the Agent of the Department of Justice impounded the contents
of the cash-drawer, without counting the cash, checks, money-orders,
etc., or giving any member of our firm a receipt for them.
Turning to the Scheftels officers and employees who had been placed
under arrest, he ordered them removed from the room.
It was about as raw a performance as was ever witnessed in a peaceful
brokerage firm's banking-room.
Bookkeepers were ordered to close up books. United States mail in the
office was impounded, including mail that had been received in the
office for delivery to others.
The Scheftels employees were commanded to stand in their places with
arms folded. The desperadoes among them--those for whom a warrant had
been issued and who had been jerked out and huddled together in the
outer room--were then searched for deadly weapons. One penknife and the
stub of a lead-pencil were found on their persons. The deadly knife was
hardly sharp enough to serve the purpose of nail-manicuring. Not one of
the men under arrest would have known how to use a revolver if it had
been placed in his hands.
The men taken into custody were: Mr. Scheftels, aged 54, quiet and
inoffensive, rounding out an honorable business career without a
blemish of any kind on his character or standing; Charles F. Belser,
one of the cashiers of the corporation and a 32d degree Mason, who
never before in his life had been so much as charged with the violation
of the spirit of a minor ordinance; Charles B. Stone, aged 60, another
cashier whose sons and sons-in-law had served their country in the army
and who, himself, was as peaceful as a class leader in a Sunday-school;
John Delaney, Clarence McCormick, William T. Seagraves and George
Sullivan, clerks of the establishment, who were as likely to offer
resistance that would require gun-play to combat as were a quartette of
psalm-singing children.
Mr. Scheftels protested in a dignified and self-respecting way against
the brutal demonstration. He asked to see the authority for the raid.
This was refused until after he and the other desperate characters were
collected in another room. His demand to see the officers' warrant was
met by a vulgar exclamation from the Special Agent, to the effect that,
"If you don't shut up, we will put the irons on you! If you are looking
for any trouble, you ---- ---- stiff, you will get what you are looking
for!"
The absurdity of the armed invasion appealed to everybody but the
ringleader of the raiders. It was a ludicrous situation from a service
viewpoint. There had been no time up to the moment of the raid when a
single man armed with proper authority could not have accomplished with
decency and in good order everything and more than was done by the
"rough house" and brutal invasion of the armed band.
Private papers were grabbed and bundles of certificates of stock,
packages of money, checks, receipts and everything that came in sight
were carried away. No complete record was made at the time of the raid
of the documents and other valuables seized. The temporary receiver for
B. H. Scheftels & Company, before his discharge later on, was able to
gather together and take an accounting of part of the seized assets of
the corporation, but I have no doubt that many thousands of dollars
worth of securities and money were hopelessly lost.
When the wreck was complete the prisoners were driven like malefactors
out of the front entrance, down the steps and loaded into the Black
Maria. Five thousand people witnessed the act. The prisoners pleaded in
vain to be allowed to pay for taxicabs to convey them before the United
States Commissioner. They urged that as yet they had had no hearing and
were innocent in the eyes of the law, and until convicted of some
offense they were entitled to decent treatment. This request was
refused. The delay in the start to the Federal building was just long
enough to give the dense crowd that had filled the block time to insult
the victims of the atrocity to the fullest extent. Friends of the
arrested men boiled over with indignation and several fights occurred.
Men were knocked down, trampled upon and the clothing torn from their
backs in the desperate mêlée. The scene was disgraceful.
An army of newspaper reporters, attended by a camera brigade, were on
the spot and snapshotted the prisoners as they entered the Black Maria.
With bells clanging and whips lashing, a start was made up Broad Street
to Wall. Then the vehicle turned up Broadway and ding-donged on to the
Federal building. There the men were arraigned. Bail aggregating
$55,000 was demanded. Later several of the men taken into custody in
this brutal manner were not even indicted.
Called upon to identify the prisoners, the Special Agent of the
Department of Justice was unable to point out any of them except Mr.
Scheftels. A stenographer in the employ of the corporation was forced
to single them out.
The warrant proved to have been sworn to by the Special Agent and had
been granted on his affidavit that the corporation had committed crimes
against some few of its customers. Two of them have already been
mentioned in this article as Slack and Szymanski, whose statements had
been furnished to the attorneys of the _Engineer & Mining Journal_.
From the Court House to the Tombs, the Scheftels desperadoes, in
shackles, were escorted up Broadway. Later in the day when bail was
ready and the prisoners were sent for, they were handcuffed again and
marched in parade up streets and down avenues of the densest section of
New York City.
I had worked all afternoon in the lawyers' offices with one object in
view, namely, the securing of bail for the imprisoned men. I succeeded.
I now got busy with my own bail, the court having fixed it in advance
at $15,000. In the morning I walked from my lawyers' offices to the
Post-Office Building and surrendered myself, being immediately released
on surety which was waiting in the office of the United States
Commissioner. As I left the building I recognized scores of Scheftels
customers. Several grasped my hand.
My indignation grew as the circumstances came up under review and I had
time to connect and collate the facts. Gradually the whole truth
revealed itself. I can relate only part of it. The full, detailed story
would extend itself into a volume, and the space here at my command is
limited. I learned that from the moment the Special Agent had been put
on the scent with permission to put us out of business he had never
slackened his effort to turn the trick.
His efforts attracted the attention of sundry newspaper editors with
Wall Street affiliations and also enemies generally who hastened to
coöperate with him. His office as a Special Agent of the Department of
Justice gave to his statements weight which would not have been given
to them had he as an individual sponsored the charges. His official
position imparted exaggerated importance to his statements in the eyes
of newspaper men, and, after the raid, to the public.
A person whom we shall characterize as the Tool now appears on the
scene with alleged information which he placed at the service of the
Special Agent to back him up before the Assistant United States
attorneys in New York with testimony since recanted over the signature
of the false witness.
In the preceding chapter I called attention to some of the atrociously
false statements that were published on the day following the raid. I
gave only an inkling. The newspapers declared that Ely Central had cost
the Scheftels company 5 cents per share, that the capital stock was
over-issued, and that the property was worthless. Jumbo Extension,
which has since distributed $95,000 in dividends to its stockholders,
has still a treasury reserve of $100,000 and is selling to-day in the
markets at a share valuation of about one-quarter of a million dollars
for the property, was also described as a "fake stock." Rawhide
Coalition, which has produced upward of $400,000 in bullion, and which
is to-day recognized as one of the substantial gold mines of the Far
West, was labeled plain junk. Bovard, which represented an investment
of nearly $100,000 for property account and mine development and which
had been promoted at 10 cents per share on representations that it was
a "prospect," was stated to be a raw steal.
The Scheftels corporation was said to have got away with millions of
dollars by selling "fake mining stocks." It was also stated that I had
profited to the extent of millions for my personal account. The
Scheftels mailing-list was described as a regulation "sucker list,"
notwithstanding the fact that the principal names that were on it were
stockholders in Guggenheim companies.
The ringleaders were pictured as myself--"a man with an awful
Past"--and the "notorious character," "Red Letter" Sullivan. Mr.
Sullivan was styled as the facile letter-writer who had addressed the
"suckers" and hypnotized them, principally widows and orphans, to
withdraw their money from the savings-banks and send it to the
Scheftels sharks. "Red Letter" Sullivan was also referred to as a man
with a "Past."
The true facts regarding Mr. Sullivan's connection with the Scheftels
company were these: A few months before, he had applied for a position.
He was then employed as manager of a Boston stock-brokerage office. He
was awarded the job of time-clerk in the stenographers' department.
His job, while employed with the Scheftels company, was to see that the
stenographers reported on time, did their work properly and were not
paid for any services they did not render. He had little or nothing
whatever to do with the correspondence department. He never dictated
any answers to letters received by the Scheftels company. Never was he
employed in an executive capacity by the Scheftels company. We knew
little or nothing of the "Red Letter" title with which he had been
decorated. The first we learned of it was in the newspapers after the
raid. Investigation revealed that ten years before, while a broker in
Chicago, he had issued a weekly market letter which was printed on red
paper.
I have thus far not given space to one of the greatest wrongs connected
with this disgraceful proceeding--the wrong and damage inflicted upon a
multitude of helpless stockholders. While the Special Agent of the
Department of Justice and his armed followers were wrecking the
Scheftels offices and terrorizing the place, the Scheftels group of
mining stocks was being savagely raided on the Curb and enormous losses
were inflicted on the public. Thousands of margin accounts were wiped
out in less time than it takes to tell of the massacre. Declines in Ely
Central, Jumbo Extension, Rawhide Coalition and Bovard Consolidated
exceeded $2,000,000. This loss was distributed among approximately
fourteen thousand shareholders of record and as many more not of
record.
This large army of innocent shareholders was helpless. From such
species of confiscation the law affords no relief or recourse, except
actual acquittal of the arrested persons, in whom lies the confiding
investor's only chance for the market rehabilitation of his securities.
A TOOL'S CONFESSION
The signed confession of the Tool of the Special Agent, who appeared
before Assistant Attorneys Dorr and Smith at the United States
Attorney's office in New York, which says he gave false testimony, and
the voluntary statement of John J. Roach, a stock broker who was
employed by the now defunct firm of Frederick Simmonds, regarding the
relations between the Special Agent and that firm, while Special Agent
of the Government, reveal the weak foundations of the Government's
charges.
The Tool, prior to the raid, had been in the Scheftels employ. For a
few months he had been a traveling business-getter for the firm. Then
he was discharged. He associated himself with Frederick Simmonds, a
member of the Consolidated Stock Exchange. Mr. Simmonds was badly in
debt. The Tool had no money. The Agent, when he was trying to get the
United States Attorney's office in New York to agree that the
information collected was sufficient to warrant a raid, prevailed upon
the Tool to appear before the assistant attorneys and give testimony.
In this story the chief value of the Tool himself is that he has no
value. He made his statements against us to Mr. Dorr, assistant U.S.
district attorney. Then he gave me a statement, signed in the presence
of witnesses, recanting the statements made to Mr. Dorr. To this he
later added a written postscript enforcing his recantation. Then he
re-recanted and said that a large part of his first recantation, signed
by him and initialed by him on each page with his initials was false.
The reader is left to judge just which one of the Tool's three
positions is the one in which he tells the truth. It is obvious that he
must be lying in the two others, and it is not impossible that he may
be lying in all three--except that some of the stuff in his first
recantation, which he later denies in his second, has been verified
from other sources.
Here is the main point to bear in mind concerning the Tool,--the
sovereign power of seizure, search and confiscation brought into play
by our great Government without due process of law, was based in part
on the flimsy testimony of such a person. Thousands of investors
suffered from the blow, as well as myself and associates.
It would appear from the Roach statement that he was largely
instrumental in bringing about the crisis that resulted in the
suspension of the Simmonds firm and in the disclosures of the Special
Agent's relations therewith. These facts have become, in most
instances, matters of public record. They came out during the hearings
before the receiver for the bankrupt concern. It was found that the
liabilities of the "busted" firm were $85,000 and the assets 100 shares
of cheap mining stock and between $1,500 and $2,000 in cash. It was at
this conjunction that the Special Agent was allowed to resign from the
Department of Justice. The Tool he had foolishly used had proved to be
a two-edged one. The Agent had been "hoist by his own petard."
THE GUGGENHEIMS
Probably the most surprised branch of the Government at the time of the
Scheftels raid was the Post-Office Department. The crime charged was
misuse of the mails. Why, if the Scheftels aggregation were guilty,
didn't the Post-Office Department do the raiding? Why didn't it issue a
fraud order? The Scheftels company has since been declared solvent by
the courts and the temporary receiver discharged. To this day no fraud
order has been issued. Only a short period before the raid, a
presentation on the part of the Post-Office Department of all of the
evidence in the case had been met with a decision that there was no
ground for action.
That the Guggenheim interests did not fail to take advantage of the
plight of the House of Scheftels immediately after the raid finds
conclusive proof in the transpirations in the Ely mining camp. Soon
after the Special Agent descended on the Scheftels offices, an
application in Ely was made for a receiver to take charge of the assets
of the Ely Central Copper Company. The attorneys making the application
were Chandler & Quale, attorneys for the Nevada Consolidated Copper
Company, a Guggenheim enterprise. When the court appointed a receiver
he named this firm as attorneys for the receiver. Attorney J. M.
Lockhart for the Ely Central made a protest that these lawyers, because
of their connection with the Nevada Consolidated were not the proper
persons to protect the interests of the now defenseless Ely Central
stockholders. Then the court appointed another attorney, named Boreman.
Shortly after the receiver was appointed, he applied to the courts for
permission to sell to the Nevada Consolidated for $30,000, which
represented the entire cash indebtedness so far as the receiver knew,
the surface rights to a large acreage of Ely Central and the rights
through Juniper Canyon. This, if accomplished, would have given to the
Nevada Consolidated a railroad right of way that would have solved the
problem confronting it of the transportation of the ores from the lower
levels of the steam-shovel pit. Without such an outlet these ores could
not have been handled without great expense and much difficulty. The
benefits that would have accrued to Nevada Consolidated were almost
incalculable. At the same time, such action would effectually cut the
Ely Central property into two parts. According to the petition it was
stipulated that in selling the surface rights the Ely Central should
cede to the Nevada Consolidated practical ownership, because it was
specified that Ely Central could not interfere in its mining operations
with any rights granted. Attorney Lockhart of Ely Central fought the
receiver and his attorneys and won a victory. The Ely Central property
was saved intact for the stock-holders.
Later, an application was made to the court to sell the entire property
of the Ely Central for $150,000. This was believed to be in the
interests of the Nevada Consolidated. In answer, a petition was filed
to discharge the receiver on the ground that the court originally
appointing him had no jurisdiction. The court finally decided that it
was without jurisdiction, because neither fraud nor incompetency had
been proved, and the property had not been abandoned. The receiver was
discharged.
What has been the attitude of the Department of Justice since the raid
was made? Since the raid the Government has spent several hundred
thousand dollars to disclose sufficient evidence from the books to make
a case of any kind. One stand after another has been taken only to be
abandoned after exhaustive research for evidence to sustain the
original excessive pretenses. Grand Jury after Grand Jury has thrashed
over masses of evidence presented them. Armies of accountants have
worked day and night for weeks and months in an effort to substantiate
the action of the authorities who were led into the commission of a
grave wrong.
The charge that the Scheftels corporation sold fake mining stocks has
fallen to the ground. Government examinations of the properties have
revealed them to be all that they were cracked up to be. Careful and
industrious reading of the mass of market literature sent through the
mails by the Scheftels corporation has failed to disclose deliberate
misrepresentation regarding the potentialities of any of the mining
properties.
The Scheftels corporation transacted considerable margin business with
its customers in the stocks which it sponsored--Ely Central, Jumbo
Extension, Rawhide Coalition and Bovard Consolidated. If the Scheftels
corporation was run by rascals wouldn't they have been tempted
frequently to throw their weight on top of the market and endeavor to
break the price of stocks to wipe out the margin traders? Did the
Government find any evidence of this in the books? No. It found
evidence--overwhelming and cumulative--that on nearly all occasions the
Scheftels corporation actually exhausted its every resource to support
the market in its stocks and hold up the price in the interests of
stockholders. Evidence was also found in quantity that the Scheftels
company discouraged the practice of margin-trading.
The superseding indictment handed down by the Grand Jury late in
August, 1911, eleven months after the raid, eliminated the charge of
mine misrepresentation regarding the Scheftels promotions and reduced
it practically to one of charging commissions and interest without
earning them.
Not less than 85 per cent. of the total brokerage transactions of the
Scheftels corporation were in their own stocks, and at nearly all times
in the Scheftels history it had on hand, put up on loans or in banks
under option, anywhere from three million to seven million shares of
these securities. It actually bought, sold and _delivered_ in this
period over fifteen million shares of stock!
As already stated, the Scheftels corporation made it a practice to sell
stocks on the general list as an insurance against declines in the
market which might carry down the price of its own securities, and
this, in the finality, was what the Government, after the expense of
hundreds of thousands of dollars and the employment of the wisest of
counsel, was compelled to tie to in order to justify in the eyes of the
great American public the use of the rare power of seizure, search and
arrest and of its denial of a prayer for a hearing to the victims which
was made before the arbitrary power was used.