March 1, 2011

Nevada's Online State News Journal

 

 
 
 
 
 
 
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Nevada History:

 

CHAPTER IX

THE WALL STREET GAME

          A MAN who thinks he knows what happened to me in Wall Street, and why it happened, suggests that the New York section of " My Adventures With Your Money" be prefaced with the following:

          This is the story of an energetic, self-confident, aggressive, optimistic, enthusiastic, nervy, fearless, imprudent, uncompromising, presumptuous fool.

          Maybe he was worthy of a following in that he would cast his own fortunes with those whom he asked to follow him, but withal he was a dangerous leader because he could not see the rents in his own armor and lacked caution, prudence and discretion. He could see a goal ahead and would lead the rush, but always failed to take into his reckoning one circumstance in his youth that left a blot on his escutcheon and placed in the hands of unfair opponents an envenomed weapon ready for use. He failed to see the necessity of making friends of his competitors and of placating his critics as he progressed. Indeed, he reckoned these elements not at all. He made many enemies and few allies. He never compromised. Naturally, he met with disastrous defeat for himself and the loyal ones who placed their faith in him.

          I disagree. I was not a fool. I refused to be a knave, and I am not sorry. I have in mind a man of parts who as a stockholder has been doing the dirty work of unscrupulous multimillionaire Wall Street mining promoters for years. Dishonest in his expressed opinions and a sycophant in his every action, the interest of the Wall

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Street man of power is always his as against that of the unprotected investor. I look upon this man as a vile person. I could not do as he does if my very existence depended upon such conduct. I would rather be out of business and broke for the rest of my life than be he. For me to serve the base purposes of high-class crooks just because they have money and power, would be for me to barter away my soul and lose my peace of mind. I would not sell either for all the money in the world.

          Honesty is the best policy. The type of man I have described can not thrive for long. He must evidently suffer total eclipse. The business of this world is founded and builded upon individual integrity. The business man who allows himself to be used to carry out the base purposes of men in high places forfeits the respect of those whom he serves, is forever afterwards mistrusted by them, and loses caste in the very set he tries to gain favor with.

          I charge that powerful, dishonest interests on Wall Street found it necessary for selfish reasons that I be put out of business. I declare that they bided their time until newspaper clamor against so-called Get-Rich-Quick promoters had been fostered, aroused and stimulated to a point where citizens became imbued with the idea that all promoters who use the advertising columns of newspapers are crooks. And I aver that when the Government used upon me and my associates its rare power of seizure, search and confiscation, it was with no evidence that any Government statute had been violated. In this and the concluding chapter of " My Adventures with Your Money " I state the facts which I believe prove these statements to the last syllable.

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GOOD BIG FISH VS. BAD LITTLE FISH

          ASK the casual newspaper reader to define offhand the compound adjective Get-Rich-Quick and he will tell you it is applied solely to professional promoters who employ flamboyant advertising methods, promise great speculative profits, use other devices which are calculated to separate the public from its money, and are in every instance dishonest. That is the idea which powerful " interests " have inculcated in the public mind by subtle, insistent press-agenting.

          Time and again during the progress of " My Adventures with Your Money " I have endeavored to show that the really dangerous Get-Rich-Quick forces are the men in high places who, by the artful and insidious use of the news columns of " friendly " publications and others which copy from them, divorce the public from millions upon millions.

          I said in my foreword the following:

          The more dangerous malefactors are the men in high places who take a good property, overcapitalize it, appraise its value at many times what it is worth, use artful methods to beguile the thinking public into believing the stock is worth par or more, and foist it on investors at a figure which robs them of great sums of money. There are more than a million victims of this practice in the United States.

          No man has right to assume that a promoter who sells stock by means of display advertising in the newspapers is per se a Get-Rich-Quick operator. There are honest professional promoters of the display advertising variety and there are dishonest ones, just as there are honest promoters of the multimillionaire kind and dishonest ones.

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          The on-the-level, trumpet-tongued mining promoter, who believes in newspaper advertising and successfully finances companies by appealing uproariously to the speculative investing public, performs an actual service and is entitled to a place among honorable men. Indeed, he is the hero of the prospector and " poor " mine owner of the West. He alone stands between these men and grasping monopoly.

          Mine men, stockholders, and financiers the country over understand this, although the Eastern newspaper-reading public has been taught to believe that this type of promoter must be a Get-Rich-Quick operator.

          A broker in Wall Street who speculates in the securities of the New York Stock Exchange for his own account is considered unsafe. E. H. Gary, Chairman of the Executive Board of the Steel Trust, stated under oath at Washington in June that J. P. Morgan never speculates. Ask the average member of the New York Stock Exchange what chances the stock-gambler has. If he is frank, he will shrug his shoulders and reply something like this :

          " If the game could be beaten, do you think I would be a broker? Wouldn't I be a player?"

          The aggregate market value of seats on the New York Stock Exchange is nearly $100,000,000. It costs more than a hundred million dollars more every year to gather and transact through offices and branch offices the speculative business which forms the bulk of the transactions of the members. The " kitty," or " rake-off," is enormous. Who pays it? You hear of the stockbroker going to Europe in his yacht every Summer. How many of his trading customers travel that way?

          Who pays the freight? Can a game be beaten where so many multimillionaires are created among those who

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are on the " inside " and where so large a percentage of the speculator's money must come out every year to pay the enormous cost of maintaining a vast system of stockbrokerage offices, stock exchanges, telegraph and telephone wires, newspapers, publicity bureaus, yachts, Fifth Avenue palaces, huge contributions to national and State political campaigns, etc.?

          You hear a hue and a cry against bucketshops. There is no Federal embargo against bucketshopping. Yet somehow or other the machinery of the Government's Department of Justice is used to crush out this sort of gambling institution. Now, what is the difference in principle between gambling on margin on fluctuations of stocks in a bucketshop and doing the same through a New York Stock Exchange house?

          This is the unimportant difference:

          The bucketshop-keeper takes the other end of the play, pays you out of his pocket when the market goes your way and keeps your money when it goes against you. He never delivers any stocks.

          The New York Stock Exchange member is expected to buy your stocks for you and carry them — some of them do and most of them don't, as is shown farther on — but in this case also no stocks are delivered to you.

          The transaction is the same in principle as the one in the bucketshop, so far as the gambling feature is concerned. The only real difference is that when you gamble on market fluctuations through the bucketshops no contribution is made to the New York Stock Exchange " kitty."

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RIGHTEOUS WALL STREET AND THE " SUCKER " PUBLIC

          THE New York Stock Exchange member will tell you that the evil of bucketshopping is that the bucket-shopper is tempted when the public is long on stocks to depress the market by heavy short sales. On the other hand, the bucketshopper urges upon you that his business is gambling against fluctuations which he has no hand in making and that the financial powers of Wall Street resort to the same trick that he is occasionally accused of. The " interests " know at every hour in the day approximately how many shares of stocks have been borrowed for delivery against " short " sales or are being carried on margin for the long account. They know what the public's short interest or long interest is, and they, too, have it in their power to shake out the public at any moment they choose. Worse, it is common knowledge that this practice is continually resorted to. Stocks are put up and held up on bad news and marked down and held down on good news or no news at all. News is withheld and is manufactured to suit occasions. For years the market has been thimble-rigged to a frazzle. Margin-trading " suckers " have been milked to a finish. George E. Crater, Jr., writes:

          Margin trading on the New York Stock Exchange is the most dangerous and destructive form of gambling known, because, being " legal " and therefore " respectable," it allures hundreds of thousands of people who would never think of risking their money at " faro," " rouge-et-noir," " roulette," or any of the other games of chance. Statistics show that more people are ruined physically, morally and financially by stock gambling than by all the other forms of ordinary gambling combined. Monte Carlo is a Christian philanthropy compared with " Wall Street." You have quite as good, if

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not a better chance to win a fortune at Monte Carlo than you have by putting up " margins " against Stock Exchange bulling and bearing, and if you ruin yourself at Monte Carlo the proprietor will at least refund enough of your money to pay your way home. The man who " goes broke " on " margins " finds no relief at his service on the Stock Exchange or among the brokers. There would not be so many millionaires in this country if there were not so many fools ready to throw their money away on margins.

          A howl of condemnation is raised against horse-racing. Newspapers, periodicals, politicians, enthusiasts, crusaders, and charlatans in every walk of life, are encouraged to make a big noise. Horse-racing, like bucketshopping, is an avenue for speculation gambling — and it keeps much money out of Wall Street. Fakirs, who are the tools of Wall Street, collect from Wall Street for their services and at the same time make moral or political capital of their zealousness in crusading against such Wall Street gambling competition.

          The small fry mining promoter, who is not a member of the Stock Exchange, pays no toll to the big game, is beyond the discipline and control of the governing body of the New York Stock Exchange and is not a part of the machinery, sets up a competitive business which caters to the gambling instinct in the way of fluctuating mining stocks. The speculating public gets action, likes it, and invests money that might have been used in margin-trading on the New York Stock Exchange or for " investment " in the constantly fluctuating low-priced industrials or higher-priced mining stocks that are sponsored by big interests with New York Stock Exchange affiliations.

          Promptly the machinery of Wall Street is used to crush him. Column upon column is printed in the magazines and newspapers about Get-Rich-Quicks. A conviction

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for crime is obtained of a real Get-Rich-Quick offender — a little fellow who is guilty, but no more so than his " licensed " brother higher up, who is doing infinitely greater damage. The one that a coterie of high-class Wall Street thimbleriggers are really " after," because he thwarted them in their swindling operations by exposing them in his newspaper, but against whom they can not make a case, has a skeleton in his closet. They bring it forth, dangle it in the air, make the public think he, too, must be a scoundrel, and he is raided by a Government agent during the uproar ; and they " get away " with it. The " righteous " crusade against " Get-Rich-Quicks " is press-agented to the limit. The public " falls " for the " dope." At last the Government has acted to protect investors!

          Wouldn't it wilt you?

          Were P. T. Barnum to be reincarnated and his humbugging mind by some miracle expanded a million times, it would still be impossible for him to conceive such a gigantic faking of the American public as it has been put to in the last few years.

          And the public isn't " on." Shrewd schemers on Wall Street keep pulling the wool over the eyes of the " sucker-public," and not only see no reason why they should discontinue the practice but find it very lucrative to continue doing it.

THE MARKETING OF MINING STOCK

          AS a rule, it takes much money to make a paying mine out of a promising prospect. Later on in the mine's progress, through the constructive period, other very large sums are generally required to pay for the blocking out of an ore reserve and to supply milling facilities for the reduction of the ores.

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          The peripatetic mining prospector of our Western mining empire— the dauntless finder of mines who laughs at hardship and ridicules the thought of danger, who makes companions of Gila monsters and the desert rattler, whose only relief from the everlasting silence of the untrodden reaches of arid wastes is the sex-call of the coyote — has the choice of just two markets for the sale of his " find." He may either accept a comparatively small sum from the agent of a powerful mining syndicate for his prospect or he may receive a fair speculative price from the professional promoter.

          The great mine financiers of this country rarely compete with one another for the purchase of any mining property. This is particularly true if one of the others happens to be operating in the district where the small mine owner's property lies.

          As a rule, the original owner, whose entire fortune is perhaps tied up in the property, then finds himself in the position where he must either accept the first offer, however small, which is made to him by one of these dominant interests, or find that market closed to him.

          His alternative, as mentioned, is a sale to the independent mine promoter of comparatively small means, who incorporates a company to own and develop the property and finances the operation from start to finish by selling stock in the enterprise to the general public.

          The method of this class of professional promoter —the hope of the small mine owner — in marketing stock, usually involves the liberal use of the advertising columns of newspapers. He lacks " pull " or power sufficient to get his stock and mine talked of favorably in financial literature of the day to a degree that will excite public interest, and so he must construct his own publicity forces.

          Advertising costs money and the public foots the toll.

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But if the promoter is honest, this item of cost is not in itself an argument in favor of stock offerings of the multimillionaire mine capitalist who does not patronize the display advertising columns of the newspapers. Nor does it establish a case against the wares of the promoter who does. The promotion expenses incurred by the advertising promoter do not nearly approach in their totality the difference between cost price and the price at which the magnate promoter usually invites the public to participate in similar enterprises.

          For example: A few years ago a certain man bought a certain mine for $1,000,000 on time payments. He has been making a market for the stock of that mine on the New York Curb at an average of above $8 per share, or more than $8,000,000 for the property. His firm, members of the New York Stock Exchange, have been advising people in their widely circulated market literature to buy the stock at this figure. And yet the property is without a reduction works, will need $2,500,000 to $8,- 000,000 in excess of money now in the company's treasury to erect one, which money must yet be raised somewhere and somehow, and the producing era of the company can not possibly begin for two years yet at the very earliest. I could cite many such instances.

          When Nat. C. Goodwin & Company of Reno purchased the control of Rawhide Coalition, during the exciting Rawhide camp boom early in 1908, the valuation agreed upon for the property was $700,000. This was considerably more than the original owners could obtain for it at that time from any big interest. It, too, needed milling facilities.

          As a matter of fact, but for the success of mine promoters of the Nat. C. Goodwin & Company and B. H.

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Scheftels & Company class, the great Comstock lode, which produced over $600,000,000 in gold and silver bullion, would have likely remained undeveloped. The big public demand in the early 70's for Comstock mining shares of all descriptions was created by a series of flamboyant flotations and aggressive stock-market campaigns. If the Con. Virginia mine had not opened up into a bonanza ore-body at a depth of 1,400 feet, the frenzy of speculation in Comstock shares might have gone down in history as another South Sea bubble.

          The " brass-band " promoter, be it understood, is therefore not without honor in the Far West. Deprive the mine prospector of the services of this style of enterprise projector, with his operating machinery, namely, facilities for appealing to the speculating-investing public, and you hit the small Western mine man a solar-plexus blow. Conversely, every obstacle placed in the way of the mine promoter of loud methods and moderate means is an added cause for rejoicing on the part of the Wall Street multimillionaire mine capitalist.

          When B. H. Scheftels & Company, with whom I was identified, were raided by the United States Government in September, 1910, a wail went up from the Western mine operator to his Representative in Congress. The best sentiment of the Far West, as I was able to gather it, favored the idea that the last hope of the small Western mine owner had been shattered. During the short period of B. H. Scheftels & Company's activity in New York it raised directly nearly $2,000,000 for Western mining properties and indirectly influenced in that direction at least $10,000,000 more.

          The raid was a body-blow to the small Western mine owner who needs capital to develop his properties and has no affiliations with capitalists. Since the raid I do not

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know of a mine owner of any of the great Far Western States who has successfully financed a mining proposition in the East except by delivering his property in its entirety into the hands of some big interest, which has taken it over for a sum insignificant by comparison with what the public may ultimately be expected to pay for it when the stock is finally marketed on the curbs and exchanges.

I BUCK THE WALL STREET GAME

          AFTER I had conducted the big camp publicity campaign of Rawhide, which I had done with a view to centering the attention of the American investing public on the speculative possibilities of the stock of the Rawhide Coalition Mines Company, and in that way endeavored to finance the proposition — after I had failed by this method, in the teeth of the bankers' panic of 1907-8, to dispose of enough stock to finance the company for deep mine development, mill equipment and the payment to the original owners of the price for the control agreed upon, I came to New York, late in October, 1908, bent on trying to succeed in the encompassment of my original purpose both by direct appeal to the public through display advertisements in the newspapers and by making a deal for part of the enterprise with the " big " fellows.

          I found Rawhide Coalition stock listed on the Curb, and the market quiescent. Public interest in the East had been aroused to some degree, but the market was not absorbing stock. An effort to induce leading stock brokers to mention the issue favorably in their market letters failed. Those who were willing to give the stock some publicity exacted either a " call " on stock at a low price or an out-and-out reduction below the market quotation for such stock as they disposed of.

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          Such concessions were not to be thought of. It was the intention of Nat. C. Goodwin & Company to support a rising market for Rawhide Coalition. My Goldfield experience with mining-stock brokers convinced me that few might be expected to protect the shareholders' interest in such an enterprise. Commission mining-stock brokers of that period, who put their customers into a stock at, say, 30, were tempted to advise profit-taking when the price advanced to, say, 50, because by the operation they made another commission and often earned an additional, or third, commission by getting their customers out of the stock at a profit and into another one, levying a commission on each transaction.

          Nat. C. Goodwin & Company decided to " try it on " direct with mining-stock speculators by appealing to them through the advertising columns of the newspapers, asking them to purchase the stock on the New York Curb through their own brokers. Also, Hayden, Stone & Company, the Boston and New York banking firm, were induced to agree to raise $1,000,000 for the company for railroad and mill purposes, if their engineer would report favorably.

          Provided with money with which to buy advertising space and furnished with stock certificates to supply the market, Nat. C. Goodwin & Company inaugurated an active campaign on the New York Curb.

          What happened will be found instructive to the reader in several particulars ; among them these:

          (1) The free-lance mining promoter does not always " get the money " when he succeeds in creating a buoyant market for his stock.

          (2) Some stock brokers of seemingly high standing would just as soon " skin " a mining promoter of this

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order as they would an ordinary speculator. They play no favorites.

          (3) Be a mine promoter ever so honest, without New York Stock Exchange affiliations his motives are bound to be misconstrued if he makes an error. The " big " fellows will sick on to him the newspapers or newspaper men whom they control or influence. Dust will be thrown into the eyes of the public so they'll buy the big fellow's wares, principally for sale on the New York Stock Exchange, and may forever be prejudiced against the little fellow's.

          The campaign in Rawhide Coalition made good progress. It was early in November, 1908. For six weeks I had been supporting the market for the stock on the New York Curb for Nat. C. Goodwin & Company of Reno. My office was an apartment in a Fifth Avenue hotel ; our brokers were members of the New York Stock Exchange. For a month we had used, every day, display advertisements in the financial columns of New York City daily newspapers, signed by Nat. C. Goodwin, to boom the stock. About 600,000 shares of the stock were in the hands of the public. The market, which was on the New York Curb, was " real." Speculative buying had carried the price from 40 cents up to $1 a share. Mine reports were rosy. Wide distribution of the stock was taking place.

          The public evinced deep interest. The Nat. C. Goodwin advertisements set forth that $2 ought to look reasonable for the stock by Christmas day. There were reasons. Several very promising mines had been opened up. An engineer of high rank was examining the property. If his report should be favorable, a deal was practically

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assured that would involve the expenditure of $1,000,000 for deep mine development, a railroad, and adequate milling facilities. This, in turn, would mean early dividends for stockholders. Experienced, conservative mining men had expressed the opinion that the property bore the unmistakable earmarks of a big producer.

          The stock became the feature of the Curb market. It easily occupied the center of the stage. Not less than 20 brokers could be counted in the crowd executing orders at almost any hour during the daily session. The fact that a New York Stock Exchange house was executing the supporting orders from the " inside " impressed the " talent." Public buying through other New York Stock Exchange houses further convinced Curb veterans that the stock was " the goods." Up went the price under the impulse of public buying. Curb brokers themselves caught the infection. By December 7th the price soared to $1.40 per share. This was an advance of 500 per cent. over the " low " for the stock of half a year prior.

THE " DOUBLE-CROSSING " OF RAWHIDE COALITION

          AT the close of the day's business on December 7th, our brokers, a single firm, members of the New York Stock Exchange, reported the purchase of 17,100 shares in the open market at an average price of about $1.39, and the sale of 1,800 shares at a little above this average. For the first time in the campaign there appeared to be selling pressure. We had quit " long " 15,300 shares. The sum of $21,000 in cash was required to pay for the " long " stock.

          On December 8th, the day following, the same firm of brokers reported that they had purchased 17,800 shares at an average price of $1.374, and the sale of 12,800

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shares at an average price of $1.40 — " long " on the day 5,000 shares.  On December 9th our purchases through this firm aggregated 16,800 shares at an average price of $1.40, while our sales totalled only 6,400 shares at a slight advance.

          Nat. C. Goodwin & Company were now " long " on the three days' transactions 30,700 shares and had been called upon to throw $43,000 behind the market to hold it. This was a comparatively small load to carry and did not alarm us. We considered the stock worth the money. We were curious, however, to learn the reason for the selling.

          Nat. C. Goodwin & Company had placed most of the outstanding stock direct from Reno with the investing public at from 25 cents to $1 per share, and early buyers were reaping a harvest. But this did not appear to be the explanation for all of the selling. Interest in the stock was now widespread. There was free public buying and for every actual profit-taker there appeared to be a new purchaser. Apparently, somebody was selling the stock " short."

          Late that night a member of our brokerage firm which had been executing our supporting orders, called on me at my apartment. I inquired of him what protective orders he thought the stock would need the next morning to guard against professional attack. He replied:

          " I think if you will give us a buying order for 5,000 shares at $1.35 there will be no difficulty."

          My understanding was that he wanted to handle the market for me the next morning and that he would, of course, give me quick notice if further supporting orders were needed.

          The order was given. It was a very ordinary precau-

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tion, for there is hardly a stock on the list that would not be raided by professionals if supporting orders were not known to be in the market. As Saturday is only a short two hours' session, I really fell in with the idea.

          Retiring late that night, I left a call for 11 A. m. Next morning at about 10:45 I was awakened by my valet. He said Nat. C. Goodwin wanted me on the long distance. Mr. Goodwin was in Cincinnati, where he was playing a week's engagement.

          " Hello," said Mr. Goodwin. " Did they get you? Shall I wire the Knickerbocker Trust Company to pay you $25,000 to support the market? Reported here they have you in a hole."

          " What's up? " I inquired.

          " Why, brokers here say the stock broke to 60 cents on the Curb soon after the opening," he said. This was news to me.

          " I do not need more money," I answered. " I have been asleep. Our brokers have been on the job. I will see what is doing and let you know in a little while. Don't worry." And I rang off.

          I 'phoned our brokers and they reported that they had bought 5,000 shares of stock at $1.85 at the opening and had withdrawn support. " Too much stock was pressing for sale," they said.

          " This is hell. You should not have permitted the market to break that way. Support the stock! " I said. " Buy 7,500 shares at the market !"

          In a few moments this firm of brokers reported that they had rallied the market to $1.16. The recovery was only temporary, however. Another drive broke the stock to 60 cents.

          Our brokers had bought 7,000 shares at from $1 to

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$1.16 and then stopped. The member of their firm who had been handling our orders throughout this campaign said the purchase of this fresh block of stock exhausted our cash balance on deposit with his firm. They had a number of drafts out for collection, attached to stocks sold to Western brokers, that had not yet been credited to us. There was also a big block of Coalition stock due us from them. This was the stock they had bought on our supporting orders. They refused, however, to consider either the drafts or the stocks as a credit.

          We had cash on deposit and credit with a number of other brokers. I promptly telephoned several of them to buy large blocks of the stock at a limit of 95 cents. This was 35 points above the quotation that was given me. Not a single share was reported bought on these orders.

I jumped into a taxi and rode to the office of the brokers who had been handling our orders.

          The situation was critical. I realized fully that a sharp break of this character in the market price of a stock that had been so widely exploited must prove shocking to investors. I feared that public confidence would be shattered completely.

          " This is an outrage ! " I protested. " Buy 5,000 shares at 95 !" I tendered five $1,000-bills as payment in advance.

          It was five minutes to twelve when I gave the order. At noon they reported that they had purchased 2,000 shares, for which I gave them the money. The market closed 95 bid for a " wagon load."

          On the face of things it appeared that the market had rallied from 60 to 95 on the purchase of 2,000 shares. This was another convincer that there must somewhere be much that was rotten about the play.

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          Investigation satisfied me that I had been " double crossed."

          The one firm of brokers, members of the New York Stock Exchange, who had been handling our orders, had acted as our clearing-house, holding our stocks and our money. They had an advantage, which stock brokers understand well. Having executed most of our supporting orders, their agents on the Curb were also in a position accurately to judge the professional and lay speculation pulse. It was easy for somebody to " put one over " on us.

          Shortly after noon I learned that Hayden, Stone & Company's engineer had turned down the proposition of advancing $1,000,000 for railroad and mill construction. A sufficient tonnage of ore had not been blocked out in the mine. Beyond a question this information was in the possession of brokers early in the day.

          While I slept damage had been done to the market that was irreparable. By the time the price hit $1 on the way down trading had reached huge proportions. One clique of Curb brokers were reported to have been persistent sellers throughout. Their identity made it very plain that the double-crossing process had been employed to a fare-you-well.

          I accused our broker of not protecting our interests — the interests of stockholders. I raised a howl. He telegraphed another member of his firm who was away on a hunting-trip, to come back to town. Next night both of these men, Nat. C. Goodwin and myself met in my apartments behind closed doors. Their firm agreed to charge to their own account 8,000 of the 5,000 shares reported purchased for us at $1.35. Some other minor concessions were made.

          On the day after the " break " New York newspapers

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reeked with sensational flubdub about the causes of the smash in the price of the stock. In the preceding few months not less than a dozen other securities had " busted " wide open at various times on the New York Curb and New York Stock Exchange, but Stock Exchange houses were sponsors for these and the newspaper kept mum. Never on these occasions was there a hint in the newspapers that possibly somebody had separated the public from its money.

          Nat. C. Goodwin and I were wrongfully accused of willfully smashing the market to shake the public out. The New York Sun printed an account of the " break " on the front page, top of last column. It began in a strain that indicated to confiding readers that chorus girls had lost their savings through the recommendations of Mr. Goodwin.

          The Sun printed the list of officers of the Rawhide Coalition Mines Company and emphasized the fact that I " of Sullivan Trust Company fame " was second vice-president.

          The Sun made no mention of the " double cross." Nor did any of the other newspapers, with the exception of one.

          The New York Tribune said:

          A Stock Exchange house which has been putting out orders in the stock was charged with leading the attack on it yesterday, but members of the firm said that they had been acting merely as brokers for customers in the regular order of business.

          Following the newspaper " roasts," which helped further to destroy public confidence, two brokers on Logan & Bryan's continental wire system resorted to tactics of a kind to force lower prices. This wire has over one hundred out-of-town broker connections. A report was sent over the wire that Nat. C. Goodwin & Company had failed.

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          Another followed it that the Rawhide Coalition Mines Company was about to go into the hands of a receiver. The Nevada Mining News accused Nat. Boas of San Francisco and J. C. Weir of New York of exchanging messages to this effect over the Logan & Bryan wire systems, so that all correspondents on the wire would have the false reports. Both Boas and Weir were believed to be " short " of the stock. Both were openly operating for a further decline. These and similar tactics resulted in a further easing off in price to 40 cents bid on December 24th, which was the " low " on the movement.

          Two weeks after Christmas the stock rallied to 58 bid, 59 asked, and the market was firm again. On January 14 the price bulged to 70. At this point the stock again became the center of attack. By January 20 the price had eased back to 50.

          Thus far the net result of Nat. C. Goodwin & Company's various campaigns on Rawhide Coalition was the distribution of some 600,000 shares of stock. The issue had been well exploited. It had a big following and a broad market. Some excellent judges of mine values had become stockholders. The company, however, was still unfinanced for a long period of systematic mine development and mill construction.

          We realized very clearly that some arrangement would have to be perfected to avoid a repetition of the trouble which the New York Stock Exchange brokerage firm had made us.

" INSIDE " MARKET SUPPORT

          THE removal to New York of B. H. Scheftels & Company, Chicago stock brokers, representatives there of Nat C. Goodwin & Company of Reno, and a merging

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of brokerage and promotion interests of the two firms took place.

          There was precedent for the move. There are a thousand other corporation interests in this country that are closely affiliated with Stock Exchange and other brokerage houses, through one or more of their directors or owners being partners in the business. As a matter of fact, it would be difficult to lay your finger on a single big interest of this kind that has not such a representation. These houses, of course, make it a rule to recommend the purchase of stocks in which their principals are interested. Affiliations of this kind are found essential to successful financing of enterprises. A number of New York Stock Exchange houses which are headed or controlled by men who are heavily interested in mining ventures that require financing are exponents of this method in the mining field.

          Most of these have succeeded in promoting projects in which they or their associates are heavily interested, with the aid of the banking and brokerage facilities thus afforded. Principally by the use of the market literature and accompanying market manipulation, these houses have placed with their customers the securities of their firm members and associates. 'They have encompassed this by maintaining a brokerage, banking and promotion business without parading before the public, although never denying, the mixed nature of their business.

          For the reader to comprehend the necessity for transacting the business this way, he should understand the underlying principle of financing an enterprise by the route of the listed stock market.

          There are two ways of financing any enterprise with other people's money. One is by the primitive method of appealing directly to the public for subscriptions in huckster fashion, taking the money and then refraining from

286 MY ADVENTURES WITH YOUR MONEY

listing the stock or establishing an open market for it. You can't finance an enterprise of consequence these days by any such procedure. It is practically impossible to borrow from banks or from loan-brokers on any security that has no fixed market value. A market must be established, for without a market on which to sell, intelligent investors won't buy.

          The method, therefore, in common use, and the only one which has been found effective by financiers, is to create a demand for the security, encourage speculation, establish an active market, and dispose of stock on the market as necessity demands whenever financing is required. This implies and necessitates that the inside interests must support the security in the open market. Therefore, it becomes necessary for the successful marketing of the stock by the promoters, once a demand is created and public buying is under way, that stockholders shall be kept in full touch with the latest transpirations on the property and in the market — be furnished with news concerning their interests so that they may judge the value of their stockholdings. This process is particularly essential during the financing period of the company and the security-digesting period of the public.

          In fine, the ultimate purpose in this regard of all the promotion machinery of Wall Street — the machinery that has been putting out billions of dollars' worth of securities to investors — is to place stock where it will " stay put," that is, not come out on the open market again to embarrass the interests that are behind the enterprise, and who for a long period are compelled to support the market.

          On the question of the ethics of market support by " the inside," a whole tome could be written. I will not attempt to discuss the subject at length here. Suffice it

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to say that in my opinion " inside " support of a listed security is not base when it is done with a view to creating a broad market, to stimulate public interest, and to increase the price to a point within the bounds of intrinsic plus reasonable speculative worth. Support of the market to the point of stimulation is moral obliquity, however, when dishonestly performed for the sole benefit of the " inside " and to the hurt of the stockholder. This sort of market support is only a shade less reprehensible than manipulation that has for its purpose the reduction of the market price of a security to beneath its real value, which, in my opinion, is nearly always infamous.

          I might place myself on record right here to the effect that only once did I ever " bear " a stock from " the inside," and on that occasion it was a temporary affair, caused by a desire to secure at a reduced price a big block of stock that was pressing for sale from a quarter that I was under no obligation to. Even in that instance I gave the investor much of the benefit my associates secured by letting him have stock at the same figure at which " the inside " secured it. Nor have I ever tried to push the price of a stock to a higher level than that which I considered warranted by the reasonable speculative and demonstrated intrinsic value behind the security.

  George Graham Rice, My Adventures With Your Money (1911); Chapter I (Title Page, Table of Contents, The Rise & Fall of Maxim & Gay); Chapter II (Mining Finance at Goldfield); Chapter III (The Brewing of a Saturnalia of Speculation); Chapter IV (The Greenwater Fiasco); Chapter V (On the Eve of the Great Goldfield Smash); Chapter VI (Nipissing and Goldfield Con); Chapter VII (Rawhide); Chapter VIII (The Press Agent and the Public's Money); Chapter IX (The Wall Street Game); Chapter X (Enter, B. H. Scheftels and Company); Chapter XI (A Fight to the Death); Chapter XII (The Lesson of It All)