Bear Hunt (Cont'd)

Though bald, pop-eyed William Fox, ousted founder of Fox Film Corp., journeyed to Washington last week to explain his stockmarket manipulations to Senator Peter Norbeck's Bear-hunting Banking & Currency Committee (TIME, April 18, et seq. he promptly took to his bed. said he had a bilious attack. His physician said he had diabetes. Skeptical, Counsel William A. Gray sent two other physicians. They agreed Mr. Fox was indeed sick. Still doubtful, Counsel Gray scoffed: "The only thing they find is his own statement that he's dizzy."

Charging that Cineman Fox had "wrecked" his companies through stock-market operations, Counsel Gray attempted to piece the story together from bits which his prowling investigators had unearthed in 22 Manhattan brokerage houses. In some firms, to cover his tracks Cineman Fox maintained as many as seven different accounts in his own name or those of kith & kin. Counsel Gray's mass of evidence was further confused by the sudden disappearance of Cineman Fox's personal accountant.

Before he was ousted by his bankers in 1930, William Fox held dictatorial sway over both Fox Film and Fox Theatres, Inc. through majority ownership of small issues of voting stock. The stocks traded on exchanges were impotent, class A. Because of this practical proprietorship. Fox often dealt in his own name instead of the companies'. While the companies were mushrooming, capital for expansion was largely provided by sale of class A stock to the public. Almost continuous pool operations were necessary to facilitate its distribution, in most of which Cineman Fox joined to his profit. Bradford Ells worth, absentee co-manager of the 1929 Radio pool (TIME, May 30), testified that the Fox pools run through M. J. Meehan & Co. alone were too numerous to remember, but that there had been "five or six important ones." Mrs. Caroline Leah Taussig, Cineman Fox's daughter, once joined in too, received a cut of $441,000 as her share of an underwriting fee. Much of Fox's stock exchange business was handled by Stevens & Legg. Kind Mr. Fox once presented the firm with $45,000 for distribution among employes as compensation for the overtime he had caused them. To Partner Byam Stevens, floor specialist in Fox, he gave $10,000 cumshaw "in appreciation of the work ... in running an orderly market." The Senators pricked up their ears when Counsel Gray reported that the biggest Fox pool had been a Bear pool. Among its members were John Jacob Raskob, the late Nicholas Frederic Brady, William Frank Kenny, Walter P. Chrysler, Broker Michael J. ("Mike") Meehan (through his wife Elizabeth). Manager Ellsworth patiently explained that this pool had been formed to market Fox stock to finance Fox expansion. Holding an option on 500,000 shares from Cineman Fox, the pool sold 466,000 shares "technically" short against the option. Then 300,000 shares were delivered under the option, the balance covered in the open market. Manager Ellsworth said the additional short interest had been built up to enable the pool to support the market, if necessary, not to depress it. He pointed out that the pool could have covered from the option at all times. On the total operation the pool cleared $1,937.000. Manager Ellsworth admitted having spent $24,000 for publicity, advising the public that "they could buy for $30 a share of stock which we thought would sell at $60."* When Senator Couzens asked why the pool itself did not wait for the profit, Witness Ellsworth snapped: "My business isn't to wait--it's to sell!" Frustrated in its attempt to prove that Cineman Fox's market manipulations had destroyed his companies, or that he had been a bad Bear, the Committee pounced on alleged income tax evasions. Counsel Gray said that Cineman Fox deducted market losses from his personal returns which had been paid by Fox Film. Chairman Norbeck, announcing that the Committee had voted to continue the stock-market investigation, exulted: "The recovery of evaded income tax will offset the expense 100 times." Cleveland's Eaton-- While the Committee was waiting for Cineman Fox to get well, Counsel Gray subpoenaed Cyrus Stephen Eaton, Cleveland industrialist, to tell the Committee about the collapse of his iso-million-dollar investment trust. Continental Shares, Inc. When he failed to appear, Counsel Gray put one of his own investigators, David Stock, on the stand to tell the story. Ohio's Senator Bulkley protested that the Committee was setting bad precedent in calling an investigator to testify. Witness Stock charged Industrialist Eaton with obtaining $57,000,000 in irregular loans from Continental Shares to save his own skin in 1930, bolster up his firm of Otis & Co. Witness Stock asserted that Mr. Eaton had "dummy directors." Senator Bulkley exploded: "Some of the people in Cleveland would be surprised to hear that!"/- Industrialist Eaton's attorney branded some of these charges as false, "some of the inferences drawn impossible."**

* Last week Fox Film sold for $1.50.

/- Directors in 1929 were: W. R. Burwell, president of Continental; F. H. Hobson, vice president of Cleveland Trust; David Sinton Ingalls, now Republican nominee for Governor of Ohio; Richard Inglis, president of Kanawha & Hocking Coal & Coke; R. V. Mitchell, president of Harris-Seybpld-Potter Co.; Phillip Wick of Youngstown's Wick & Co.

** In previous hearings Committee Members were interested in the fact that specialists on the Exchange often make money by trading against the orders they receive--selling short when given a buying order, buying for themselves when given a selling order. Last week; both the Exchange and the Curb amended their trading rules to check this practice. Now when a floor broker receives an order he cannot fill it himself unless he first offers it to one-and-all at a price 12 1/2-c- better: 1/8th higher in the case of a selling order, 1/8th lower in the case of a buying order. As before, the acceptance of any order is contingent upon the price being "justified by the condition of the market." This provision is aimed against attempts to demoralize trading.

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