Ex-Knight

"Not since the darkest days of the depression have Wall Street and Park Avenue been so agitated as by yesterday's announcement that the New York Stock Exchange has suspended the firm of Richard Whitney & Co. By luncheon time the dismal word had penetrated even such frivolous retreats as the Colony Restaurant and '21.' For once, Mrs. Harrison Williams' clothes, Carrie Munn's crazy hats and Bob Topping's latest escapade ceased to be favorite topics of conversation. . . . Not in our time, in our fathers' time nor in our grandfathers' time has there been such a social debacle. . . ."

This, on the word of knowing Nancy Randolph, society reporter of the proletarian New York News, was what cafe society thought about the Whitney crash last week. Cafeteria society was shocked, too, and downtown they were taking it harder than any other financial scandal of the century. True, Joseph Wright Harriman and Bernard K. Marcus had misapplied bank funds and been sent to jail. Charley Mitchell was penalized for tax deficiencies and Al Wiggin had paid off stockholders to stop their suits. There was old Sam Insull, too, although Wall Street is never very surprised at the shenanigans of a Chicagoan. But Dick Whitney was a Morgan broker. He was the President of the New York Stock Exchange for five years. ''The terrible thing about the Whitney scandal.'' wrote Financial Editor Leslie Gould of the New York Journal & American, "is . . . that the broker was the White Knight of the financial district. Whitney was Sir Richard when he went into battle in shining armor against the 1929 crash and again when he stood up and defied Washington and the reformers. Now it turns out that this Great White Knight was an optical illusion. . . ."

Small wonder that while ex-White Knight Whitney pleaded guilty to a New York County indictment for grand larceny and was arrested as well by New York State last week, the bar of the Stock Exchange, on the word of the presiding keep, enjoyed an increase in business calculated at exactly 275%.

Grottie's Gesture, From birth Dick Whitney was destined for financial importance. Descended from a family which landed at Salem on the good ship Arabella in 1630, he was no relation to the famed and even richer Long Island Whitneys (Jock & Sonny) but his father was president of a Boston bank, his Uncle Edward Whitney a partner in J. P. Morgan & Co. Big, arrogant Dick Whitney followed the typical career of his patrician class-- Groton, where he was a good student and captain of the baseball team, Harvard, where he made the Varsity crew and Porcellian Club, then a year in the top-notch Boston firm of Kidder, Peabody & Co., finally to New York in 1912. Soon after, Dick Whitney's elder brother George, also Porcellian at Harvard, married the daughter of a Morgan partner, was soon to be one himself. Dick presently married beautiful Mrs. Samuel Sands, whose father, George Sheldon, had been president of the Union League Club. After that the House of Morgan was ever open to the eminently reliable looking Grottie and when he formed Richard Whitney & Co. in 1916, he landed a large share of Morgan's brokerage business. Thirteen years later it was as a Morgan broker that he made himself a national legend over-night--though it is apparently little more than a myth, he was reported to have made a spectacular attempt to halt the market crash by loudly bidding $205 a share for 10,000 shares of U. S. Steel.

It was this grandstand play which made Dick Whitney president of the Exchange next year. He was hailed as an intrepid strongman and for five years he played the role to the hilt. During the panic he refused to close the Exchange. Later when the Government began its legislative lassoing of the Exchange, Dick Whitney led the fight against it in a manner which gave him a reputation as the most arrogant and supercilious witness ever to attend a Senate hearing. A large portion of Wall Street feels Dick Whitney lost the fight largely because he was so uncompromising, so obstinate in the face of reform. Until last week, another large section of Wall Street literally regarded Dick Whitney as its idol and leader even though he was no longer head of the Exchange.

Hard & Soft. Having served for five years. President Whitney was squeezed out in 1935 by a group which had tired of Whitney's resistance to change. One of the leaders of the revolt was John W. Hanes, now a Securities & Exchange Commissioner. For a time it looked as though Dick Whitney would run as an independent candidate when the Stock Exchange election committee nominated "liberal" Charles Richard Gay for the presidency. But Dick Whitney took a seat as an Exchange Governor instead, settled down to what Wall Street supposed was an enviable business in Richard Whitney & Co. On his 495-acre estate near Far Hills, N. J. he raised champion Ayrshire cattle, stabled 18 horses, was Master of Fox Hounds for the Essex Hunt. Socially he was as hard as a Swiss bond. His two daughters enjoyed eminently correct debuts, his wife helped organize the Butlers' Ball, devoted much time to correct charities.

In reality, however, Richard Whitney has had plenty to worry about for a long time. Nobody ever regarded Dick Whitney as a financial genius. He was a broker, not a banker. But with an immaturity usually found only in younger and less well-connected brokers, he had been trying for years, it now appears, to parlay himself a fortune out of one peewee project after another. At the age of 49, the ex-President of the New York Stock Exchange was a director in no important U. S. industrial corporation. Horse gamblers are not the only ones that die broke. The horse that threw M. F. H. Whitney and the White Knight of Wall Street was something called Distilled Liquors Corp.

Like many & many another stock punter in 1933 when liquor was about to come back, Dick Whitney was frantic to get in the liquor business. But instead of grabbing off some good brands and making himself a pile as Joe Kennedy is said to have done with Somerset Importers (Haig & Haig, King William IV, Gordon's Dry Gin), Dick Whitney went bargain hunting in the applejack business. This New Jersey product had been made for years by distilleries only a few miles from Dick Whitney's Far Hills estate. "Jersey Lightning" had been popular during Prohibition; it was said to require little aging to be potable. So Dick Whitney and his partner, Ferdinand Kingsley Rodewald, organized Distilled Liquors Corp. which bought the 40-year-old Hildick cider and vinegar plants, eventually sold 148,750 shares of stock.

The public took the stock so eagerly that the price shot to $45.40 a share, but applejack, contrary to Whitney's dream, did not become the nation's favorite drink. Dick Whitney & friends then bought 106,000 gallons of Canadian rye whiskey to bottle and merchandise, paid for it in Distilled Liquors stock and warrants. The rye did not sell well either, and the stock tumbled to $13 a share. The Canadian company began howling about its warrants. Dick Whitney bought them in for $15 a share. Meanwhile banks which had taken Distilled Liquors stock from Whitney at a high price as collateral on loans began asking for more collateral as the price fell. Dick Whitney then began a long, desperate and, in the end, disastrous effort to keep the price of Distilled Liquors stock up on the New York Curb Exchange. He tried to peg it at about $9 a share with a standing bid. When the market began to crack last fall Dick Whitney was forced to buy more & more Distilled Liquors stock. Presently he had 139,400 shares, virtually all of it pledged as collateral for loans. To conceal the situation, the stock was listed under the names of Dick Whitney's several partners.

"Conduct Contrary. . . ." It has long been the custom of the New York Stock Exchange to require financial statements from all member-firms doing business with the public. Late in 1937, apparently eager to beat SEC to the gun, the Exchange extended this rule to firms such as Richard Whitney's which do business with brokers and banks. First report was due on Feb. 15. With his company virtually insolvent. Dick Whitney asked for an extension of time. This naturally piqued the Exchange's curiosity. When the Whitney report arrived, the Exchange scrutinized it carefully and immediately sent its own accountant over to the Whitney offices to verify the figures. What made the Exchange so alert it would not reveal last week, but there was good reason to suppose that some of the Governors already suspected Whitney irregularities.* In November Governor Edward Henry Harriman Simmons had had difficulty getting Whitney to return certain securities of the Exchange Gratuity Fund.

What the Exchange accountant found in the Whitney records resulted in a hurried meeting of the Exchange governing committee. In open-mouthed horror, it heard the charges against Dick Whitney and then preferred the Exchange's most serious accusation -- "conduct apparently contrary to just and equitable principles of trade." Next morning, well knowing it might mean the end of the Exchange's claim that it requires no added SEC supervision, President Gay grimly mounted the rostrum of the Exchange and suspended Richard Whitney & Co. for insolvency (TIME, March 14). Wall Street's first reaction was outright incredulity that "The Corner" had not bailed out its favorite broker. But it was speedily apparent that The House of Morgan had known nothing of the pending debacle. In fact George Whitney had just gone off for a two-weeks' vacation in Florida. Day after Dick Whitney's failure he rushed back to town, but by then there was nothing anyone could do.

"I Alone." Investigations were begun by the Stock Exchange, the SEC and State Attorney General John James Bennett Jr. Distilled Liquors stock flopped on the Curb to $3.50 a share. The Attorney General's office called in Robert J. Rosenthal, cashier of Richard Whitney & Co. Cashier Rosenthal revealed that Richard Whitney had established "Richard Whitney's stock control account" in January, had transferred big batches of customers' securities to it, then apparently hypothecated them for personal loans. The first such transfer revealed was $125,000 worth of securities belonging to the New York Yacht Club. Other revelations: Dick Whitney had an unsecured loan of $474,000 from J. P. Morgan, his Far Hills estate was mortgaged in September for $300,000 and the total Whitney loss on Distilled Liquors was about $1,600,000. Said Dick Whitney that evening: "I want to say emphatically that the difficulties in which my firm has become involved are the result of actions as to which I alone have responsibility -- I fully realize that certain of my actions have been wrong. . . ."

Next day J. P. Morgan & Co. announced that its $474,000 unsecured loan to Whitney dated from 1932. This made it evident that in that year Dick Whitney must have had what amounted to a private failure. Then to the stand came various of Dick Whitney's partners to say that they were all in ignorance of the situation, that Dick Whitney had literally been dictator of company affairs.* By this time the Attorney General's office had the total of Whitney "transferences" up to $798,376.

Here was a case worth a prosecutor's diving into, and in dove New York County's ambitious District Attorney Thomas E. Dewey in unprecedented style. Although the State's Attorney General had the case well in hand. Prosecutor Dewey secretly called before his Grand Jury Dick Whitney's sister-in-law while he himself queried Mrs. Whitney. Then Prosecutor Dewey suddenly snatched Dick Whitney from under Lawyer Ambrose V. McCall's astounded nose with an indictment charging that Richard Whitney had appropriated another $105,000 in securities from the trust fund left by his father-in-law to Mrs. Whitney and her sister (Harvard University and St. Paul's School are residuary legatees). Richard Whitney was co-trustee of this fund. According to Mr. Dewey, in 1932, 1937 and 1938 Dick Whitney hypothecated its securities for loans of $100,000, $100,000 and $400,000. The first two loans were repaid, but not the third, which was obtained through Public National Bank in January.

The Attorney General's office snapped, "We won't fight over the body." Dick Whitney surrendered, was booked at the Elizabeth St. police-station while a group of Bowery derelicts were momentarily herded from the desk. After the prisoner had been searched, Desk Lieutenant Simon P. Breen remarked as though one of the neighborhood boys had gone wrong: "Mr. Whitney, I'm sorry to see you in this trouble and wish you luck."

"Thank you," said Richard Whitney.

"The Whitneys have always had a good name," continued Lieutenant Breen.

"Thank you again," said Mr. Whitney. Later he was released on $10,000 bail.

But next day, while Dick Whitney was consulting his lawyer -- Charles Henry Tuttle, 1930 G. O. P. candidate for Governor of New York--the Attorney General's office did make a grab for his body. Commodore William A. Stewart of the Yacht Club wanted the club's securities back. Missing now was a total of $109,384 in securities the club had trusted to Treasurer Whitney. Assistant Attorney General McCall found them at Public National Bank as part collateral for the Whitney loan, and, as the Daily News's news section put it, "Richard Whitney ... for the second time in 24 hours [was] fingerprinted and mugged like a Hell's Kitchen package thief and held in $25,000 bail."

This time the fallen financier was taken to the Criminal Courts Building. While photographers ran ahead of the poker-faced broker, snapping his long, elegantly dressed frame and the little Porcellian pig glistening at his watch chain, several hundred idlers trailed in his wake. "Who is it?" cried a woman. "It's Whitney!" screamed a group of giggling schoolchildren.

At the station Magistrate Thomas A. Aurelio had just booked a 26-year-old Negro charged with assaulting his 16-year-old stepsister. As Richard Whitney waited his turn, he spent ten minutes alone in the bull pen, actually under lock and key for the first time. Then he was led before Magistrate Aurelio. After accepting bail from the impassive prisoner, the magistrate could not resist the opportunity to deliver a few quotable remarks from the bench. Remarked he: "My little experience in life has been that it's a whole lot easier to make money than to hold on to it, even in hard times. I guess that applies to all of us."

Richard Whitney said nothing, and Magistrate Aurelio sighed to himself: "Well, it's all in a lifetime."

Three days later Richard Whitney had plenty to say. In General Sessions Court he pleaded guilty with extraordinary alacrity to Prosecutor Dewey's charge of stealing $105,000 in stocks and bonds from his wife's and sister-in-law's trust fund, thus making himself liable to a five-to-ten year prison sentence. In a 700-word statement, Mr. Whitney again took all the blame, volunteered to help straighten his firm's muddled affairs. Sentence was therefore withheld until next week and his bail was continued.

* In Wilmington, Del. last week a lawyer for Mrs. Margery Pyle Montgomery Jr., rich, redheaded, fox-hunting widow with whom Mr. Whitney has been especially friendly for several years, made this extraordinary statement for his client: "If any duly authorized and properly constituted investigating group that is inquiring into the general Whitney situation wishes a statement from Mrs. Montgomery, she will give it. "She is fully aware that so long as Mr. Whitney's name is prominent in the news, some degree of spotlight will be turned upon her."

* Richard Whitney's participation in his firm was 49 1/2%. The other partners--F. K. Rode-wald 21 1/2%, Edwin D. Morgan Jr. (no relation to J. P. Morgan) 21 1/2%, Daniel G. Condon 3%, Henry D. Mygatt 3%, John J. McManus 1 1/2%. Net indebtedness of all the partners to the firm was fixed at $817,000 by Cashier Rosenthal last week.

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