"Sorely Mistaken"

Famed Banker Thomas William Lamont last week fidgeted on the witness stand for two hours in Washington. He was trying to tell SEC Lawyer Gerhard Gesell (whose 28 years of age precisely equalled the period Mr. Lamont has worked for J. P. Morgan & Co.) why he had told nobody about it when he learned last November that Broker Richard Whitney was not only insolvent but also guilty of using customers' funds illegally. When his partner, George Whitney, came to him to borrow $1,082,000 to help his brother Dick "out of a jam," explained Mr. Lamont. "I moved as my heart dictated." It did not occur to him that it was in any way his responsibility to inform the Exchange or anybody else--even though both J. P. Morgan and his son Junius have Exchange seats. Asked Banker Lamont: "Would you expect me to say I will help you out, but you must trot down to the District Attorney's office and denounce your brother?''

SEC lawyer: "Wasn't the matter on your conscience at all?"

"No, it wasn't on my conscience," snapped Thomas Lamont. "I had faith that Richard Whitney, despite what he had done, would come through in character all right. I was glad his brother had gone to his rescue. His brother had faith in him. Everybody had faith in him. . . . We have been very sorely mistaken."

SEC lawyer: "How about your responsibilities as a citizen?"

"I don't know whether you are reading a lecture there or not," retorted Mr. Lamont. "I have been in business for many years and I have tried to discharge my duties as a citizen."

At one point in his testimony, Mr. Lamont became so upset that he made a reference to "my brother, George Whitney," but corrected himself with a gesture of annoyance, saying he meant "my partner."

How sorely mistaken everybody was in Richard Whitney was last week finally on the record in full. Day after Thomas Lamont testified, SEC Accountant J. P. Lyss revealed that he had pushed back as far as 1925 the date of Dick Whitney's first questionable actions. Mr. Lyss also itemized the total losses in the Whitney failure. When he was through testifying, the whole story of Richard Whitney's activities had been told for the first time. The story:

Despite Richard Whitney's Groton & Harvard background, social connections, family tie-up with J. P. Morgan & Co., his brokerage business apparently went from one financial crisis to another. In 1926 he was so hard-pressed for funds that he hypothecated the funds of his wife's trust fund for a firm loan, subsequently repaid it. In 1929 his brother lent him $500,000. In 1930, same year he became president of the Exchange, Richard Whitney began misusing securities of the New York Yacht Club. By 1931, Depression had nicked him so badly that he used his position as a director of the Corn Exchange Bank to get an unsecured loan from it for $500,000. Morgan-Partner Francis Bartow happened to learn of this and arranged to have it exchanged for a $500,000 unsecured loan from J. P. Morgan & Co.

This, plus a reviving stockmarket and occasional other loans from friends, tided Richard Whitney over until 1933. About that time, having taken fliers in a lot of such pip-squeak ventures as Florida fertilizer plants, Dick Whitney took the fatal flier of his life: He got into Distilled Liquors Corp. which bought a plant for making applejack. The public eagerly took the stock he offered, but did not take to the applejack. Needing funds to promote the company, Dick Whitney got large loans against his Distilled Liquors stock, which once sold as high as $45 a share. When the price began falling, he had to put up more collateral. Not having it, he got some two dozen unsecured loans from friends, then went to his brother George in July 1936 and January 1937, borrowed a total of $750,000.

By May last year Dick Whitney again was scratching for pennies. Between May 19 and the end of the year he got a succession of bank loans--$50,000 from the Corn Exchange Bank, $75,000 from the Marine Midland, $75,000 from the National City, $100,000 from the Continental Bank & Trust, $80,000 from Public National--all against worthless stock in defunct companies. Apparently the Whitney front was so impressive that even these hard-boiled Manhattan banks never checked up on him at all. These loans he managed to repay.

But there were problems. As a trustee of the Stock Exchange Gratuity Fund, Dick Whitney in the summer of 1937 handled certain perfectly legal switchings of its portfolio. With the securities in his hands and creditors on every side, Broker Whitney seemingly could not resist the opportunity to hypothecate them for personal loans as he was also doing with the securities of other customers. When Governor Edward H. H. Simmons tried to get the securities back, Dick Whitney stalled for time. Finally Mr. Simmons, who had preceded Whitney as president of the Exchange, forced the issue, got some inkling of the situation. Dick Whitney then asked for time to see his brother George. Mr. Simmons also saw George, who by that time had borrowed $1,082,000 from Thomas Lamont to make good the deficit. Like Messrs. Lamont and George Whitney, Mr. Simmons kept silent about the affair.

Meanwhile, the stockmarket was falling faster than ever before. Dick Whitney got loans on his wife's securities, on those of the Yacht Club. He cadged loans as small as $15,000 from some Wall Street acquaintances, as big as $100,000 from others. He tried to peg Distilled Liquors at about $9 a share, thus eating away his cash. He had already mortgaged his 495-acre estate in Far Hills. N. J.

Then he was trapped, for the Exchange suddenly decided to require financial statements from all its member firms (as a firm having no margin accounts Richard Whitney & Co. had always avoided this). Dick Whitney tried to bluff his way through by submitting fake figures, but the Exchange sent accountants to his office. This time, Brother George was in Florida, so Dick ran to Morgan-Partner Bartow with the whole miserable tale and a request for $280,000 more. Banker Bartow went to Lawyer John W. Davis, who forbade any financial assistance as improper. Bartow then motored out to Long Island to see J. P. Morgan himself. "Mr. Morgan was shocked beyond measure. He gave me his judgment that there was no course for us to follow except to abide by the advice we had received. . . ."

Two days later Dick Whitney was suspended from the Exchange. Later that week he was arrested twice--for misusing his wife's trust fund and the securities of the Yacht Club. Shouldering all the blame and pleading guilty, he went to Sing Sing last month for five to ten years. Last week he was busy scrubbing walls as Accountant Lyss totted up the sum of his deficit--$2,655,000 for Richard Whitney & Co.. $3,007,000 for his own personal obligations. Of the latter figure $2.897,000 is owed to his brother George, $100,000 to Alex B. Gale, $10,000 to Mabon & Co.

The firm's deficit includes:

Balances due customers $724,000

Securities legitimately borrowed 710,000

Securities wrongfully used 452,000

Excess of loan over collateral value 435,000

Unsecured loans 485,000

Loan from J. P. Morgan

& Co. 470,000

Against these whopping liabilities are assets of $189,000 in cash, $361,000 in securities. Not in any attempt to salvage the wreck, but purely to prevent such defalcations from occurring again, SEC is still pushing its inquiry into the ramifications of the case. This week it will call to the stand J. P. Morgan in person.

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