Senate Revelations 5:4

When the investigating U. S. Senators resumed writing their book of Wall Street Revelations in Washington last week, they had a lot of fun with their swart, persistent Inquisitor Ferdinand Pecora. He had just taken a drubbing as candidate for District Attorney of New York County (see p. 16). Inquisitor Pecora said he was "relieved." Dampened not a whit he ripped into the ever-widening circle of horrid-sounding facts that his staff had delved from Chase National Bank's voluminous books.

On Chase Bank's list of syndicate loans were found the names of Alfred Emanuel Smith and John Jacob Raskob. Not troubling to learn more, the Press whooped that Al Smith had been caught dabbling his fingers in a stock-market pool. That night Mr. Raskob hopped down to Washington as a voluntary witness to set the Senators aright.

Messrs. Smith & Raskob had indeed been members of a syndicate to buy stock of their pet little Manhattan bank, County Trust Co. In fact they had been members of two pools. One dark Friday in November 1929 President James J. Riordan of County Trust had shot himself to death in his home. "We, with the help of Governor Smith, were able to keep the news of his unfortunate death from the news papers until Saturday noon when the bank closed," related Mr. Raskob. President Riordan's suicide had nothing to do with the bank but the directors were fearful that depositors would so interpret it. Among the steps taken to avert a run was the formation by the directors of a syndicate to support County Trust stock. At a cost of $916,000 the syndicate bought 3,794 shares. All but 230 shares were taken up by the members two years later when the syndicate wound up and the loan was paid off.

Another syndicate was formed in 1930 to buy 1,000 shares of County Trust so that the directors could offer the inducement of an option to Orie Kelly whom they wanted as a successor to Mr. Riordan. The stock declined, however, and Mr. Kelly let his option lapse. Once again the members were called upon to take up their stock and the loan was paid off. So suavely precise, so frank with his facts was Mr. Raskob that even the Senators could find no fault with his story.

Cutten & Sinclair. Inquisitor Pecora's next witness was not so explicit as Mr. Raskob, but the Senators eyed him much more curiously. He was not only the manager of a syndicate which had cleared $12,000,000 without putting up I-c- but also the biggest stock and grain speculator that the Senators had yet beheld. Spare, white-haired, slightly deaf Arthur William Cutten sat with his hand cupped behind his ear throughout most of the long interrogation on the great Sinclair Consolidated Oil pool of 1928-29. Unsmiling he peered through his spectacles at Inquisitor Pecora whom he could not hear half the time and who could hear Mr. Cutten's muffled replies less often than that.

Inquisitor Pecora learned that Oilman Harry Ford Sinclair had asked Mr. Cutten to head a syndicate which was to buy 1,130,000 shares of Sinclair Consolidated from the company at $30 a share. At first, when Sinclair was selling on the New York Stock Exchange at $28 a share, Mr. Cutten was not interested but when it later rose to $32 he accepted. Harry Sinclair, Arthur Cutten, Blair & Co. and Chase Securities each got a 22]% participation in the $33,000,000 syndicate, and the balance was allotted among such friendly interests as the security affiliate of Chicago's Continental National Bank & Trust (now Continental Illinois National Bank & Trust), the bank's Chairman Arthur Reynolds, and Promoter Archie Moulton Andrews. Some of the participations were subdivided and Albert Henry Wiggin's family-owned Shermar Corp. got one-third of Chase Securities' allotment and in the end an $877,000 profit.* No cash was required, for the purchase price was paid as the stock was sold to the public. A separate syndicate was formed to make the market.

Pecora: Was that a device for manipulating the market?

Cutten: No. We didn't have to manipulate the market at that time. It was a perpendicular market--always going up.

Pecora: What was its purpose?

Cutten: To make some money.

And Mr. Cutten volunteered: "When the market goes off a little bit, we buy and then the market goes up. . . . When the market goes up we sell."

Why William Samuel Fitzpatrick, chairman of Prairie Oil, then a Sinclair competitor but later merged, was paid $300,000 out of the pool's profits although he had no interest, Mr. Cutten could not explain. "All we know, then," remarked Inquisitor Pecora, exasperated, "is that it wasn't made at Christmas time, so it couldn't have been a Christmas gift."

Nor could Mr. Cutten recall any of the transactions which the Senators were sure were "wash" sales between the purchasing syndicate and the trading syndicate. His attorney urged that his client's memory was "not of the best." Mr. Cutten had directed the market operations, which sold all 1,130,000 shares in seven months at an average profit of nearly $11 a share, from Chicago. His cousin Ruloff Cutten, a floor member of E. F. Hutton & Co., had executed his orders. Whenever Mr. Cutten felt vague on a point he would refer to "my cousin Ruloff." Cousin Ruloff, a onetime actor whom Speculator Cutten took off the stage and taught the lore of the market, was summoned to appear this week.

Wiggin & Clarke. The Senators had even more trouble following their inquisitor's next revelation, for he led them through the tropical financing of General Theatres Equipment, Inc. Under the swift hand of Harley Lyman Clarke, who had previously garnered a fortune in utility promotion, G. T. E. swelled from a small concern with a promising film projector into an overripe holding company controlling among other things Fox Film Corp. Its decline & fall pulled down the old stock exchange houses of Pynchon & Co. and West & Co. and cost Chase Bank more millions than Mr. Wiggin cares to remember.

Just for a starter on this rank story, Inquisitor Pecora made two points: 1) that Chase Securities turned down the financing of the original International Projector Corp. as too ''unseasoned7" but that Mr. Wiggin's Shermar Corp. did participate; 2) that International Projector's common stock had a book value of $2.22 a share when it was taken over by G. T. E. but that G. T. E. paid $28.50 a share. Mr. Clarke's explanation was that the stock had great potential value: "It was, in my opinion, a careful and well-balanced estimate of the value of the stock."

*Last week a group of Chase stockholders sued Mr. Wiggin and 135 past and present Chase directors for $100,000,000, charging "a grand plan of manipulation culminating in substantial personal profits" and "enormous loss to stockholders." Mr. Wiggin observed that it was probably only the forerunner of other suits.

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