Gugle v. Eaton

In the happy summer of 1929, Cyrus Stephen Eaton was a director of 19 companies. In three directorates he was on the executive committee, in four chairman of the board. The companies ranged over a wide field, from Bowman-Biltmore Hotels Corp. to National Refining Co., included steel, rubber, paints and power.

Through his Cleveland Trust Co. and Otis & Co., then a member of the New York Stock Exchange, this "man who never lost a battle" brought his power to bear as brilliantly in the financial world as he had in manufacturing power and light. Cleveland, city of his adoption, had come to look upon him as its most aggressive financier and some midwestern steel interests fancied him their champion against the East. Last December when he broke the proposed merger between Bethlehem Steel Corp. and Youngstown Sheet & Tube Co. by one of the bitterest and most expensive lawsuits in history, the whole nation looked on and Cyrus Eaton stood at the height of his fame. But it proved a Pyrrhic victory, which left the conqueror too weak to continue the fight. Reverses came thick and fast. In April, Continental Shares, Inc. announced the retirement of Mr. Eaton from its chairmanship and the severance of its connection with Otis & Co. (TIME, May 4, 1931). The same week, expansive E. A. Pierce & Co. took over the commission business of Otis, and with a wholesale resignation of partners Otis retired from the New York Stock Exchange.

Last week added another enemy. brought another fight for Cyrus Eaton. "Your company is not yet insolvent, but dangerously near so," advised Lawyer George Linville Gugle, of Columbus, Ohio, in an appeal to the stockholders of Continental Shares, Inc., one of the largest investment trusts in the country and the former Eaton stronghold. Here entered the lists against Cyrus Eaton an adversary of note, a man of accomplishment.

Except for the first three weeks, which he spent in Monmouth, Ill., George Gugle has lived all his 57 years in Columbus. His law degree is from Ohio State University (1896); he married a Columbus girl (Zoa B. Baldwin) in 1904. Lawyer, banker and retired man of affairs in 1926, he had fought successfully to have the State constitution amended to provide a new method of property classification for taxation. The State Supreme Court ruled the amendment out on technicalities, but the reason for the ruling is a story still untold. When he sold out his Columbus Guarantee Title & Trust Co. in 1926, he went into Continental Shares, then in its infancy. Smoking made-to-order cigars, strolling on his 150-acre estate opposite the Columbus Country Club, showing oft his 20 acres of bent grass lawn, Mr. Gugle must have been well pleased with his investment in Continental Shares which grew and grew.

Then came Depression; dividends on Continental Shares ceased; Mr. Gugle spent more time at his law office. Finally he launched his attack in the name of minority stockholders. The meeting came to order last week in the Deshler Hotel, Columbus, with owners of about 10% of Continental's common and preferred shares casting their lot with Gugle. Said he, addressing the meeting on the situation in October, 1930: "The Chase National Bank of New York, the country's largest banking institution, had funds of Continental Shares totaling $38,701,555." He made the claim that $38,364,285 of this was disbursed by the bank on credit memorandums to the Cleveland banks, largely for Otis & Co. and for Foreign Utilities, Ltd., Mr. Eaton's family-owned investment trust.

"While the banks in the above transaction," said Mr. Gugle, "may be perfectly free from suspicion, if it should develop that Mr. Eaton was using the funds of Continental Shares for the payment of indebtedness of Otis & Co. and of Eaton . . . and that the banks did not have knowledge thereof, then it would seem as though your company could recover the sums as borrowed from the banks." Then the Gugle charges became personal, more serious. He continued: "As of December 31st, 1930 and on up to January 30th, 1931, Cyrus Eaton had $37,500,000 of the company's money, which was $2,500,000 more than the company had agreed to pay in cash for the securities sold the company by Foreign Utilities, Ltd.

"However, Mr. Eaton had failed to deliver $12,000,000 worth of the stocks sold because they were already hypothecated with banks for a $5,100,000 loan."

George Gugle was comfortably retired. He has three children, one grandchild, two saddle horses (Bill and Bess) and is proud of his flowers and shrubbery. But now his one ambition is to "pursue restitution for stockholders of Continental Shares from Eaton and his associates."

The next meeting of Continental's belligerent, dissatisfied stockholders will be at the Hotel Hollenden, Cleveland, Sept. 21.

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