The facts concerning the founding and development of the fortune of the
late J. H. Osterman, as developed by C. B. Cummings, quondam secretary
to Mr. Osterman, special investigator for E. X. Bush, of counsel for
the minority stockholders of the C. C. and Q. L., in their suit to
compel the resale of the road to the original holders and the return
of certain moneys alleged to have been illegally abstracted by J. H.
Osterman and Frank O. Parm, of Parm-Baggott and Company, and by him set
forth in his reminiscences of Mr. Bush and the Osterman-Parm-C. C. & Q.
L. imbroglio.
* * * * *
1. The details of the Osterman-De Malquit matter were, as near as
I have been able to gather, or recall, since I was Mr. Osterman’s
secretary until that time, as follows: De Malquit was one of the many
curb brokers in New York dabbling in rubber and other things at the
time Osterman returned from Honduras and executed his very dubious
coup. The afternoon before De Malquit killed himself—and this fact was
long held against Mr. Osterman in connection with his sudden rise—he
had come to Osterman’s office in Broad Street, and there, amid rosewood
and mahogany and an unnecessary show of luxury which Osterman appeared
to relish even at that time, had pleaded for time in which to meet a
demand for one hundred thousand dollars due for ten thousand shares
of Calamita Rubber, which Osterman then entirely controlled and for
which he was demanding the par or face value. And this in spite of
the fact that it had been selling on “curb” only the day before for
seven and one-fourth and seven and three-fourths. De Malquit was one
of those curb brokers whom Osterman, upon coming to New York and
launching Calamita (which was built on nothing more solid than air),
had deliberately plotted to trap in this way. Unwitting of Osterman’s
scheme, he had sold ten thousand shares of Calamita on margin at the
above low price without troubling to have the same in his safe, as
Osterman well knew. That was what Osterman had been counting on and
it had pleased him to see De Malquit, along with many others just at
that moment, in the very same difficult position. For up to that day
Calamita, like many another of its kind, had been a wildcat stock.
Only “wash sales” were traded in by brokers in order to entrap the
unwary from the outside. They traded in it without ever buying any of
it. It had to fluctuate so that the outsider might be induced to buy,
and that was why it was traded in. But when it did fluctuate and the
lamb approached, he was sold any quantity he wished, the same being
entered upon their books as having been sold or bought on his order.
When a quotation sufficiently low to wipe out the margin exacted had
been engineered among friends, the lamb was notified that he must
either post more money to cover the decline or retire. In quite all
cases the lamb retired, leaving the broker with a neat profit.
This was the very situation upon which Osterman had been counting to
net him the fortune which it eventually did, and overnight at that.
Unknown to the brokers, he had long employed agents whose business it
was to permit themselves to be fleeced for small sums in order that
these several brokers, growing more and more careless and finding this
stock to be easy and a money-maker, should sell enough of it without
actually having it in their safes to permit him to pounce upon them
unexpectedly and make them pay up. And so they did. The promoters of
the stock seeming indifferent or unable to manage their affairs, these
fake sales became larger and larger, a thousand and finally a ten
thousand share margin sale being not uncommon. When the stage was set
the trap was sprung. Overnight, as it were, all those who at Osterman’s
order had bought the stock on margin (and by then some hundreds of
thousands of dollars’ worth had been disposed of) decided that they
would not lose their margins but would follow up their cash with more
and take the stock itself, holding it as an investment. It then became
the duty of these brokers to deliver the stock within twenty-four hours
or take the consequences—say, a petition in bankruptcy or a term in
jail. Naturally there was a scrambling about to find any loose blocks
of the stock. But these had been carefully garnered into the safe of
Mr. Osterman, who was the sole owner of the stock, and they were
compelled to hurry eventually to him. Here they were met by the genial
eye of the cat that is expecting the mouse. They wanted Calamita, did
they? Well, they could have it, all they wanted ... at par or a little
more. Did that seem harsh, seeing that it had been selling only the day
before for seven and three-fourths or seven-eighths? Sorry. That was
the best he could do. They could take it at that price or leave it.
Naturally there was a panic among those who were short. The trick was
obvious, but so was the law. Those who could, pocketed their losses
without undue complaint and departed; some who could not, and were
financially unimportant, decamped, leaving Osterman’s agents to collect
as best they might. Only one, Mr. De Malquit, finding himself faced
by complications which he could not meet, took his own life. He had
unfortunately let himself in for much more money than had the others
and at a time when he could least stand the strain.
The day De Malquit came to see Osterman, he was behind his desk
expecting many, and because, as I afterwards learned from Mr. Osterman
himself, Mr. De Malquit had been so wary, making agreements at first,
which made it hard to trap him, Osterman saw him as one of those who
had made it most difficult for him to win, and therefore deserving to
be sheared the closest. “One hundred per share, take it or leave it,”
was his only comment in reply to Mr. De Malquit’s statement that he
found himself in a bit of a hole and would like to explain how a little
time would see him through.
“But, Mr. Osterman,” I recall De Malquit replying, “I haven’t so much
now, and I can’t get it. These shares were being quoted at seven and
three-fourths only yesterday. Can’t you let me off easier than that,
or give me a few months in which to pay? If I could have six months or
a year—I have some other matters that are pressing me even more than
this. They will have to come first, but I might pull through if I had a
little time.”
“One hundred, on the nail. That’s the best I can do,” Osterman replied,
for I was in the room at the time. And then signaled me to open the
door for him.
But at that Mr. De Malquit turned and bent on him a very troubled look,
which, however, did not move Mr. Osterman any. “Mr. Osterman,” he said,
“I am not here to waste either your time or mine. I am in a corner,
and I am desperate. Unless you can let me have some of this stock at
a reasonable price I am done for. That will bring too much trouble to
those who are near and dear to me for me to care to live any longer. I
am too old to begin over again. Let me have some of it now. To-morrow
will be too late. Perhaps it won’t make any difference to you, but I
won’t be here to pay anybody. I have a wife who has been an invalid for
two years. I have a young son and daughter in school. Unless I can go
on—” He turned, paused, swallowed, and then moistened his lips.
But Mr. Osterman was not inclined to believe any broker or to be worked
by sentiment. “Sorry. One hundred is the best I can do.”
At that De Malquit struck his hands together, a resounding smack,
and then went out, turning upon Osterman a last despairing glance.
That same night De Malquit killed himself, a thing which Osterman had
assumed he would not do—or so he said, and I resigned. The man had
really been in earnest. And, to make matters worse, only three months
later De Malquit’s wife killed herself, taking poison in the small
apartment to which she had been forced to remove once the breadwinner
of the family was gone. According to the pictures and descriptions
published in the newspapers at the time she was, as De Malquit had
said, an invalid, practically bedridden. Also, according to the
newspapers, De Malquit had in more successful days been charitably
inclined, having contributed liberally to the support of an orphan
asylum, the Gratiot Home for Orphans, the exterior appearance of which
Osterman was familiar with. This fact was published in all of the
papers and was said to have impressed Osterman, who was said always
to have had a friendly leaning toward orphans. I have since heard that
only his very sudden death three years ago prevented his signing a will
which contained a proviso leaving the bulk of his great fortune to a
holding company instructed to look after orphans. Whether this is truth
or romance I do not know.
2. The case of Henry Greasadick, another of Mr. Osterman’s competitors,
was similar. Mr. Greasadick has been described to me as a very
coarse and rough man, without any education of any kind, but one who
understood oil prospecting and refining, and who was finally, though
rather unfortunately for himself, the cause of the development by
Osterman of the immensely valuable Arroya Verde field. It is not likely
that Greasadick would ever have made the fortune from this field that
Osterman and his confrères were destined to reap. However, it is
equally true that he was most shabbily treated in the matter, far more
so than was De Malquit in regard to his very questionable holdings
and sales. The details of the Arroya Verde field and Greasadick are
as follows: Greasadick has been described to me as a big, blustery,
dusty soul, uncouth in manners and speech, but one who was a sound and
able prospector. And Osterman, it appears, having laid the foundation
of his fortune by treating De Malquit and others as he had, had come
west, first to the lumber properties of Washington and Oregon, where
he bought immense tracts; and later, to the oil lands of California
and Mexico, in which state and country he acquired very important and
eventually (under him) productive holdings. Now it chanced that in
his wanderings through southern California and Arizona he came across
Greasadick, who had recently chanced upon a virgin oil field which,
although having very little capital himself, he was secretly attempting
to develop. In fact, Greasadick had no money when he discovered this
oil field and was borrowing from L. T. Drewberry, of the K. B. & B.,
and one or two others on the strength of his prospects. It also appears
that Drewberry it was who first called the attention of Osterman to
Greasadick and his find and later plotted with him to oust Greasadick.
Osterman was at that time one of three or four men who were interested
in developing the K. B. & B. into a paying property by extending it
into Arizona.
At any rate, Greasadick’s holdings were one hundred miles from any
main line road, and there was very little water, only a thin trickle
that came down through a cut. True, the K. B. & B. was about to build
a spur to Larston in order to aid him, but Larston, once the line was
built to it, was fourteen miles away and left Greasadick with the
problem of piping or hauling his oil to that point. Once he heard of
it Osterman saw at a glance that by a little deft manœuvring it could
be made very difficult for Greasadick to do anything with his property
except sell, and this manœuvring he proceeded to do. By buying the
land above Greasadick’s, which was a mountain slope, and then because
of a thin wall of clay and shale dividing the Arroya Verde, in which
lay Greasadick’s land, from the Arroya Blanco, which was unwatered
and worthless, being able to knock the same through, he was able to
divert the little water upon which Greasadick then depended to do his
work. Only it was all disguised as a landslide—an act of God—and a very
expensive one for Greasadick to remedy. As for the proposed spur to
Larston—well, that was easy to delay indefinitely. There was Drewberry,
principal stockholder of the K. B. & B., who joined with Osterman in
this adroit scheme. Finally, there was the simple device of buying in
the mortgage given by Greasadick to Drewberry and others and waiting
until such time as he was hard-pressed to force him to sell out. This
was done through Whitley, Osterman’s efficient assistant, who in turn
employed another to act for him. Throughout, Osterman saw to it that he
personally did not appear.
Of course Greasadick, when he discovered what the plot was, roared and
charged like a bull. Indeed before he was eventually defeated he became
very threatening and dangerous, attempting once even to kill Drewberry.
Yet he was finally vanquished and his holdings swept away. With no
money to make a new start and seeing others prosper where he had failed
for want of a little capital, he fell into a heavy gloom and finally
died there in Larston in the bar that had been erected after the K.
B. & B. spur had been completed. Through all of this Mr. Osterman
appears to have been utterly indifferent to the fate of the man he was
undermining. He cared so little what became of him afterwards that
he actually admitted, or remarked to Whitley, who remained one of
his slaves to the end, that one could scarcely hope to build a large
fortune without indulging in a few such tricks.
3. Lastly, there was the matter of the C. C. and Q. L. Railroad, the
major portion of the stock of which he and Frank O. Parm, of the
Parm-Baggott chain of stores, had managed to get hold of by the simple
process of buying a few shares and then bringing stockholders’ suits
under one and another name in order to embarrass President Doremus
and his directors, and frighten investors so they would let go of the
stock. And this stock, of course, was picked up by Osterman and Parm,
until at last these two became the real power behind the road and
caused it to be thrown into the hands of a receiver and then sold to
themselves. That was two years before ever Michael Doremus, the first
president of the road, resigned. When he did he issued a statement
saying that he was being hounded by malign financial influences and
that the road was as sound as ever it had been, which was true. Only
it could not fight all of these suits and the persistent rumors of
mismanagement that were afoot. As a matter of fact, Mr. Doremus died
only a year after resigning, declaring at that time that a just God
ruled and that time would justify himself. But Mr. Osterman and Mr.
Parm secured the road, and finally incorporated it with the P. B. & C.
as is well known.