Here is a typical case—a mining property recently exploited on the curb market, the shipyard of many of these pirate craft: a prospect located not far from one of the bonanza mines of the West was capitalized by a number of men who, after they had convinced themselves that it would not pay, dropped it and gave little thought to the company they had organized.One day they received through a lawyer an offer of four thousand dollars for the even million shares of stock they had prepared to issue at a face value of five dollars a share. They were told that a wealthy young man was willing to take a four-thousand-dollar flier on the property, on the outside chance that it might develop ore. The deal was made. Soon after a well-known man was named as a part owner of the mine, which "promised" to enrich all those interested in it.That was not the first time that the marketable value of a name that is known had been used to exploit a corporation. Any man of standing has many such offers.The shares of stock that had been purchased for four cents each were peddled on the curb at fifty cents. Then they were advanced to sixty cents. Soon a "market"—so called—was made and the stock found a ready sale. Point by point it was advanced until it actually was eagerly sought by investors, who were not only willing but eager to pay four dollars a share for it.
Here is a typical case—a mining property recently exploited on the curb market, the shipyard of many of these pirate craft: a prospect located not far from one of the bonanza mines of the West was capitalized by a number of men who, after they had convinced themselves that it would not pay, dropped it and gave little thought to the company they had organized.
One day they received through a lawyer an offer of four thousand dollars for the even million shares of stock they had prepared to issue at a face value of five dollars a share. They were told that a wealthy young man was willing to take a four-thousand-dollar flier on the property, on the outside chance that it might develop ore. The deal was made. Soon after a well-known man was named as a part owner of the mine, which "promised" to enrich all those interested in it.
That was not the first time that the marketable value of a name that is known had been used to exploit a corporation. Any man of standing has many such offers.
The shares of stock that had been purchased for four cents each were peddled on the curb at fifty cents. Then they were advanced to sixty cents. Soon a "market"—so called—was made and the stock found a ready sale. Point by point it was advanced until it actually was eagerly sought by investors, who were not only willing but eager to pay four dollars a share for it.
Mr. Hungerford states in the foregoing: "This mine was capitalized by a number of men who dropped out after they convinced themselves that it would not pay." The statement is false if it refers to Ely Central, as I believe it does. The chief owners and organizers attempted to promote it through a New York Stock Exchange house on the New York Curb at above $7 per share, or at a valuation of more than $8,000,000 for the mine, but the bankers' panic of 1907-8 intervened, and forthat reasonthey quit. The stock sold in 1906 at above $7.50 a share on the New York Curb, two years before I became identified with it.
Mr. Hungerford says that one day these menreceived through a lawyer AN OFFER OF $4,000 FOR A MILLION SHARES OF STOCK, and they sold.
How cruelly false this statement is nobody can feel more than myself. The average price paid by my associates in hard money for the controlling interest in the 1,600,000 shares of capitalization, as already mentioned, was above 90 cents, or considerably more than one million dollars in all. An additional $600,000 or more was used to protect the market for the stock, making our cost, without adding a cent for promotion expenses, about $1.50 per share instead of four cents—more than $2,000,000 for the property and not $5,000.
Line by line and word for word I could analyze the statement of Mr. Hungerford and show that 95 per cent. of it is false both in premise and deduction. But this would be only cumulative on the one point. My excuse for mentioning the item is to give a striking example of the startling force and power which attaches to insidious newspaper publicity of the kind quoted from the New YorkTimes. Mr. Hungerford "fell" for it, and innocently lent himself to the purposes of the men who sponsored the story by himself passing it on to the readers of theSaturday Evening Post.
The purpose here has been to show the imposition on the American public which is being practiced every day in the news columns of daily newspapers and other publications, but I have been able to convey to the reader only the barest kind of suggestion as to the depths to which this perception is practiced. Limitations of space prohibit further encroachment, or I would fain extend my list of examples indefinitely.
We hear much these days about the abuses of journalism. Much of the criticism is leveled at publishers who lend the use of their columns for "boosting" that is calculated to help their advertisers. But little attention is paid to that other evil namely, the use of the news columns for the purpose of destroying business rivals, political rivals and enemies generally of men who wield sufficient influence to employ the method.
This ramification of the subject appeals to me as of at least as much consequence to citizens as is the one of inspired puffery. I believe the public is going to hear much more of this feature of newspaper abuse in the future than it has in the past. The community is waking up and is manifesting a desire to learn more about the heinous practice.
To return to Rawhide. As a result of the "scientific" press-agenting which the camp received, a frenzied stampede ensued. The rush was of such magnitude that it stands unparalleled in Western mining history. Not less than 60,000 people journeyed across the desolate, wind-swept reaches of Nevada's mountainous desert during the excitement. Not less than 12,000 of these remained on the ground for a period of several months.
Mining-camp records were broken. The maximum population of Goldfield during the height of its boom was approximately 15,000, but it had taken more than three years and the discovery of the world's highest grade gold mine to attract this number of people. Cripple Creek for two years after its discovery was little more than a hamlet. Leadville during its first year was hardly heard of.
The scenes enacted in Rawhide when the boom was at its height beggar description. Real estate advanced in value in half a year in as great degree as Goldfield's did in three years. Corner lots on the Main Street sold as high as $17,000. Ground rent for plots 25×100 feet commanded $300 a month. During the day as well as at night the gaming-tables of the pleasure-palaces were banked with players, and the adventuresome were compelled literally to fight their way through the serried ranks of onlookers to take a hand in the play. The miners were flush. Many assay offices, accessories of "high-graders," were turning out bullion from extraordinarily rich ore easily hypothecated by a certain element among the men working underground.
The opening of "Tex" Rickard's gambling-resort in Rawhide was celebrated by an orgy that cut a new notch for functions of this kind in Southern Nevada. The bar receipts aggregated over $2,000. The games were reported to have won for Mr. Rickard $25,000 on the first day. Champagne was the common beverage. Day was merged into night and night into day. Rouged courtesans of Stingaree Gulch provided the dash of ¯ On the densely crowded streets fashionably tailored Easterners, digging-booted prospectors, grimy miners, hustling brokers, promoters, mine operators and mercantile men, with here and there a scattering of "tin horns," jostled one another and formed an ever shifting kaleidoscopic maelstrom of humanity.
In the environing hills could be heard the creak of the windlass, the clank of the chain, and the buzz and chug of the gasoline hoist, punctuated at frequent intervals by sharp detonations of exploding dynamite.
Outgoing ore-laden freighters, hauled by ten-span mule teams, made almost impassable the roads connecting the camp with near-by points of ingress. Coming from the opposite direction, heavily laden wagons carrying lumber and supplies, and automobiles crowded to the guards with human freight, blocked the roadways.
Rawhide's publicity campaign from a press-agent's standpoint was a howling success. From the standpoint of the promoter, however, results were mixed. Nat. C. Goodwin & Company were enabled to make more than a financial stand-off of their promotion of the Rawhide Coalition Mines Company, but they did not profit to the extent they might have, had the times been propitious.
I was not long in discovering that my first deductions, made at the inception of the Rawhide boom, namely, that the country was in no financial mood to consider favorably the claims to recognition of a new mining camp, were right, and that it would have been better had the birth of Rawhide been delayed for a period or until the country could catch its financial breath again. Crowds came to Rawhide, but few with money. Flattering as was the extent of the inrush, it was easy to see that if the publicity campaign had been suppressed for a while, the result in harvest would have been immeasurably greater. Had financial conditions been right, the effort to give the camp "scientific" publicity would undoubtedly have been crowded with results for "the inside" of a character that would have meant much larger sums of money in the bank.
Nat. C. Goodwin & Company recognized, too, that they had been working at a great disadvantage by attempting to finance a great mining enterprise at so great a distance from Eastern financial centers as Reno. We were hardly a match for the Eastern promoter who, because of the handy location of his offices, was enabled to keep in close personal contact with his following.
The usual happening in mining took place at Rawhide. The extraordinary rich surface deposits opened up into vast bodies of medium and low-grade ore at depth. Rawhide's one requirement appeared to be a railroad, and a milling plant of 500 or 600 tons a day capacity. It was decided that I should come East and attempt to finance the company for deep mine development, mill and railroad construction, and also to go through with the deal made with the vendors of the controlling interest. The time period for payments had been extended for Nat. C. Goodwin & Company, and the option to purchase was now valued by the Goodwin company at a fortune.
In New York, over the signature of Nat. C. Goodwin the firm for a while, under my direction, conducted a display advertisement newspaper campaign in favor of the issue, which was now listed on the New York Curb. Hayden, Stone & Company, bankers, of Boston and New York, who have since successfully financed the Ray Consolidated and Chino copper companies, undertook to send their engineer to Rawhide to make an examination of the property with a view to financing the company for railroad and milling equipment amounting to upward of a million dollars. Under the impetus of this news and the Nat. C. Goodwin advertising campaign the market price of the shares shot up to $1.46, or a valuation in excess of four million dollars for the property.
A few weeks later a sharp market break occurred. Some one got the news before Nat. C. Goodwin & Company did that the million-dollar financing proposition had been acted upon adversely by the engineer. The company had done no systematic underground development work. An enormous amount of work had been done, but it was accomplished under the leasing system. The leasers, who, because of lack of milling facilities, were unable to dispose of a profit of ore that assayed less than $40 per ton, had bent all of their efforts toward bringing to the surface high-grade shipping ore and had made no effort at all to block out and put into sight the known great tonnages of medium and low-grade. Engineers take nothing for granted and this one reported that the proposition of spending a million dollars should be turned down because a commensurate tonnage had not been blocked out and put in sight.
To this day the camp has struggled along without adequate milling facilities, but has been practically self-sustaining. From a physical standpoint the mines to-day are conceded to be of great promise. The company is honestly and efficiently managed. The president, from the day of incorporation to this hour, has been E. W. King, formerly president of the Montana Society of Mining Engineers, a director of a number of Montana banks, and recognized as one of the ablest gold-mine managers of the West. M. Scheeline, president of the Scheeline Banking & Trust Company of Reno, who ranks as the oldest and most conservative banker in the State of Nevada, has been treasurer from the outset.
The history of Rawhide is still in the making and its final chapter has not yet been written by any manner of means. Nor is it within the pale of possibility that such latent productive potentialities as have been established at Rawhide can long remain in great part dormant.
In Wall Street Nat. C. Goodwin & Company's deal with the venders of the control of Rawhide Coalition was later financed to a successful finish. It was done by appealing to the speculative instinct of that class of investors who habitually gamble in mining shares. The effort to finance the mining company itself, to a point where it might take rank with the great dividend-paying gold mines of the West, was not so successful.
A man who thinks he knows what happened to me in Wall Street, andwhy it happened, suggests that the New York section of "My Adventures With Your Money" be prefaced with the following:
This is the story of an energetic, self-confident, aggressive, optimistic, enthusiastic, nervy, fearless, imprudent, uncompromising, presumptuousfool.Maybe he was worthy of a following in that he would cast his own fortunes with those whom he asked to follow him, but withal he was a dangerous leader because he could not see the rents in his own armor and lacked caution, prudence and discretion. He could see a goal ahead and would lead the rush, but always failed to take into his reckoning one circumstance in his youth that left a blot on his escutcheon and placed in the hands of unfair opponents an envenomed weapon ready for use. He failed to see the necessity of making friends of his competitors and of placating his critics as he progressed. Indeed, he reckoned these elements not at all. He made many enemies and few allies. He never compromised. Naturally, he met with disastrous defeat for himself and the loyal ones who placed their faith in him.
This is the story of an energetic, self-confident, aggressive, optimistic, enthusiastic, nervy, fearless, imprudent, uncompromising, presumptuousfool.
Maybe he was worthy of a following in that he would cast his own fortunes with those whom he asked to follow him, but withal he was a dangerous leader because he could not see the rents in his own armor and lacked caution, prudence and discretion. He could see a goal ahead and would lead the rush, but always failed to take into his reckoning one circumstance in his youth that left a blot on his escutcheon and placed in the hands of unfair opponents an envenomed weapon ready for use. He failed to see the necessity of making friends of his competitors and of placating his critics as he progressed. Indeed, he reckoned these elements not at all. He made many enemies and few allies. He never compromised. Naturally, he met with disastrous defeat for himself and the loyal ones who placed their faith in him.
I disagree. I was not a fool. I refused to be a knave, and I am not sorry. I have in mind a man of parts who as a stockholder has been doing the dirty work of unscrupulous multimillionaire Wall Street mining promoters for years. Dishonest in his expressed opinions and a sycophant in his every action, the interest of the Wall Street man of power is always his as against that of the unprotected investor. I look upon this man as a vile person. I could not do as he does if my very existence depended upon such conduct. I would rather be out of business and broke for the rest of my life than be he. For me to serve the base purposes of high-class crooks just because they have money and power, would be for me to barter away my soul and lose my peace of mind. I would not sell either for all the money in the world.
Honesty is the best policy. The type of man I have described can not thrive for long. He must evidently suffer total eclipse. The business of this world is founded and builded upon individual integrity. The business man who allows himself to be used to carry out the base purposes of men in high places forfeits the respect of those whom he serves, is forever afterwards mistrusted by them, and loses caste in the very set he tries to gain favor with.
I charge that powerful, dishonest interests on Wall Street found it necessary for selfish reasons that I be put out of business. I declare that they bided their time until newspaper clamor against so-called Get-Rich-Quick promoters had been fostered, aroused and stimulated to a point where citizens became imbued with the idea that all promoters who use the advertising columns of newspapers are crooks. And I aver that when the Government used upon me and my associates its rare power of seizure, search and confiscation, it was with no evidence that any Government statute had been violated. In this and the concluding chapter of "My Adventures with Your Money" I state the facts which I believe prove these statements to the last syllable.
Ask the casual newspaper reader to define offhand the compound adjective Get-Rich-Quick and he will tell you it is applied solely to professional promoters who employ flamboyant advertising methods, promise great speculative profits, use other devices which are calculated to separate the public from its money, and are in every instance dishonest. That is the idea which powerful "interests" have inculcated in the public mind by subtle, insistent press-agenting.
Time and again during the progress of "My Adventures with Your Money" I have endeavored to show that the really dangerous Get-Rich-Quick forces are the men in high places who, by the artful and insidious use of the news columns of "friendly" publications and others which copy from them, divorce the public from millions upon millions.
I said in my foreword the following:
The more dangerous malefactors are the men in high places who take a good property, overcapitalize it, appraise its value at many times what it is worth, use artful methods to beguile the thinking public into believing the stock is worth par or more, and foist it on investors at a figure which robs them of great sums of money. There are more than a million victims of this practice in the United States.
The more dangerous malefactors are the men in high places who take a good property, overcapitalize it, appraise its value at many times what it is worth, use artful methods to beguile the thinking public into believing the stock is worth par or more, and foist it on investors at a figure which robs them of great sums of money. There are more than a million victims of this practice in the United States.
No man has right to assume that a promoter who sells stock by means of display advertising in the newspapers isper sea Get-Rich-Quick operator. There are honest professional promoters of the display advertising variety and there are dishonest ones, just as there are honest promoters of the multimillionaire kind and dishonest ones.
Theon-the-level, trumpet-tongued mining promoter, who believes in newspaper advertising and successfully finances companies by appealing uproariously to the speculative investing public, performs an actual service and is entitled to a place among honorable men. Indeed, he is the hero of the prospector and "poor" mine owner of the West. He alone stands between these men and grasping monopoly.
Mine men, stockholders, and financiers the country over understand this, although the Eastern newspaper-reading public has been taught to believe that this type of promoter must be a Get-Rich-Quick operator.
A broker in Wall Street who speculates in the securities of the New York Stock Exchange for his own account is considered unsafe. E. H. Gary, Chairman of the Executive Board of the Steel Trust, stated under oath at Washington in June that J. P. Morgan never speculates. Ask the average member of the New York Stock Exchange what chances the stock-gambler has. If he is frank, he will shrug his shoulders and reply something like this:
"If the game could be beaten, do you think I would be a broker? Wouldn't I be a player?"
The aggregate market value of seats on the New York Stock Exchange is nearly $100,000,000. It costs more than a hundred million dollars more every year to gather and transact through offices and branch offices the speculative business which forms the bulk of the transactions of the members. The "kitty," or "rake-off," is enormous. Who pays it? You hear of the stockbroker going to Europe in his yacht every Summer. How many of his trading customers travel that way?
Who pays the freight? Can a game be beaten where so many multimillionaires are created among those who are on the "inside" and where so large a percentage of the speculator's money must come out every year to pay the enormous cost of maintaining a vast system of stock-brokerage offices, stock exchanges, telegraph and telephone wires, newspapers, publicity bureaus, yachts, Fifth Avenue palaces, huge contributions to national and State political campaigns, etc.?
You hear a hue and a cry against bucketshops. There is no Federal embargo against bucketshopping. Yet somehow or other the machinery of the Government's Department of Justice is used to crush out this sort of gambling institution. Now, what is the difference in principle between gambling on margin on fluctuations of stocks in a bucketshop and doing the same through a New York Stock Exchange house?
This is the unimportant difference:
The bucketshop-keeper takes the other end of the play, pays you out of his pocket when the market goes your way and keeps your money when it goes against you. He never delivers any stocks.
The New York Stock Exchange member is expected to buy your stocks for you andcarrythem—some of them do and most of them don't, as is shown farther on—but in this case also no stocks are delivered to you.
The transaction is the same in principle as the one in the bucketshop, so far as the gambling feature is concerned. The only real difference is that when you gamble on market fluctuations through the bucketshops no contribution is made to the New York Stock Exchange "kitty."
The New York Stock Exchange member will tell you that the evil of bucketshopping is that the bucketshopper is tempted when the public is long on stocks to depress the market by heavy short sales. On the other hand, the bucketshopper urges upon you that his business is gambling against fluctuations which he has no hand in making and that the financial powers of Wall Street resort to the same trick that he is occasionally accused of. The "interests" know at every hour in the day approximately how many shares of stocks have been borrowed for delivery against "short" sales or are being carried on margin for the long account. They know what the public's short interest or long interest is, and they, too, have it in their power to shake out the public at any moment they choose. Worse, it is common knowledge that this practice is continually resorted to. Stocks are put up and held up on bad news and marked down and held down on good news or no news at all. News is withheld and is manufactured to suit occasions. For years the market has been thimble-rigged to a frazzle. Margin-trading "suckers" have been milked to a finish. George E. Crater, Jr., writes:
Margin trading on the New York Stock Exchange is the most dangerous and destructive form of gambling known, because, being "legal" and therefore "respectable," it allures hundreds of thousands of people who would never think of risking their money at "faro," "rouge-et-noir," "roulette," or any of the other games of chance. Statistics show that more people are ruined physically, morally and financially by stock gambling than by all the other forms of ordinary gambling combined. Monte Carlo is a Christian philanthropy compared with "Wall Street." You have quite as good, if not a better chance to win a fortune at Monte Carlo than you have by putting up "margins" against Stock Exchange bulling and bearing, and if you ruin yourself at Monte Carlo the proprietor will at least refund enough of your money to pay your way home. The man who "goes broke" on "margins" finds no relief at his service on the Stock Exchange or among the brokers. There would not be so many millionaires in this country if there were not so many fools ready to throw their money away on margins.
Margin trading on the New York Stock Exchange is the most dangerous and destructive form of gambling known, because, being "legal" and therefore "respectable," it allures hundreds of thousands of people who would never think of risking their money at "faro," "rouge-et-noir," "roulette," or any of the other games of chance. Statistics show that more people are ruined physically, morally and financially by stock gambling than by all the other forms of ordinary gambling combined. Monte Carlo is a Christian philanthropy compared with "Wall Street." You have quite as good, if not a better chance to win a fortune at Monte Carlo than you have by putting up "margins" against Stock Exchange bulling and bearing, and if you ruin yourself at Monte Carlo the proprietor will at least refund enough of your money to pay your way home. The man who "goes broke" on "margins" finds no relief at his service on the Stock Exchange or among the brokers. There would not be so many millionaires in this country if there were not so many fools ready to throw their money away on margins.
A howl of condemnation is raised against horse-racing. Newspapers, periodicals, politicians, enthusiasts, crusaders, and charlatans in every walk of life, are encouraged to make a big noise. Horse-racing, like bucketshopping, is an avenue for speculation—gambling—and it keeps much money out of Wall Street. Fakirs, who are the tools of Wall Street, collect from Wall Street for their services and at the same time make moral or political capital of their zealousness in crusading against such Wall Street gambling competition.
The small fry mining promoter, who is not a member of the Stock Exchange, pays no toll to the big game, is beyond the discipline and control of the governing body of the New York Stock Exchange and is not a part of the machinery, sets up a competitive business which caters to the gambling instinct in the way of fluctuating mining stocks. The speculating public gets action, likes it, and invests money that might have been used in margin-trading on the New York Stock Exchange or for "investment" in the constantly fluctuating low-priced industrials or higher-priced mining stocks that are sponsored by big interests with New York Stock Exchange affiliations.
Promptly the machinery of Wall Street is used to crush him. Column upon column is printed in the magazines and newspapers about Get-Rich-Quicks. A conviction for crime is obtained of a real Get-Rich-Quick offender—a little fellow who is guilty, but no more so than his "licensed" brother higher up, who is doing infinitely greater damage. Theonethat a coterie of high-class Wall Street thimbleriggers are really "after," because he thwarted them in their swindling operations by exposing them in his newspaper, but against whom they can not make a case, has a skeleton in his closet. They bring it forth, dangle it in the air, make the public think he, too, must be a scoundrel, and he is raided by a Government agent during the uproar; and they "get away" with it. The "righteous" crusade against "Get-Rich-Quicks" is press-agented to the limit. The public "falls" for the "dope." At last the Government has acted to protect investors!
Wouldn't it wilt you?
Were P. T. Barnum to be reincarnated and his hum-bugging mind by some miracle expanded a million times, it would still be impossible for him to conceive such a gigantic faking of the American public as it has been put to in the last few years.
And the public isn't "on." Shrewd schemers on Wall Street keep pulling the wool over the eyes of the "sucker-public," and not only see no reason why they should discontinue the practice but find it very lucrative to continue doing it.
As a rule, it takes much money to make a paying mine out of a promising prospect. Later on in the mine's progress, through the constructive period, other very large sums are generally required to pay for the blocking out of an ore reserve and to supply milling facilities for the reduction of the ores.
The peripatetic mining prospector of our Western mining empire—the dauntless finder of mines who laughs at hardship and ridicules the thought of danger, who makes companions of Gila monsters and the desert rattler, whose only relief from the everlasting silence of the untrodden reaches of arid wastes is the sex-call of the coyote—has the choice of just two markets for the sale of his "find." He may either accept a comparatively small sum from the agent of a powerful mining syndicate for his prospect or he may receive a fair speculative price from the professional promoter.
The great mine financiers of this country rarely compete with one another for the purchase of any mining property. This is particularly true if one of the others happens to be operating in the district where the small mine owner's property lies.
As a rule, the original owner, whose entire fortune is perhaps tied up in the property, then finds himself in the position where he must either accept the first offer, however small, which is made to him by one of these dominant interests, or find that market closed to him.
His alternative, as mentioned, is a sale to the independent mine promoter of comparatively small means, who incorporates a company to own and develop the property and finances the operation from start to finish by selling stock in the enterprise to the general public.
The method of this class of professional promoter—the hope of the small mine owner—in marketing stock, usually involves the liberal use of the advertising columns of newspapers. He lacks "pull" or power sufficient to get his stock and mine talked of favorably in financial literature of the day to a degree that will excite public interest, and so he must construct his own publicity forces.
Advertising costs money and the public foots the toll. But if the promoter is honest, this item of cost is not in itself an argument in favor of stock offerings of the multi-millionaire mine capitalist who does not patronize the display advertising columns of the newspapers. Nor does it establish a case against the wares of the promoter who does. The promotion expenses incurred by the advertising promoter do not nearly approach in their totality the difference between cost price and the price at which the magnate promoter usually invites the public to participate in similar enterprises.
For example: A few years ago a certain man bought a certain mine for $1,000,000 on time payments. He has been making a market for the stock of that mine on the New York Curb at an average of above $8 per share, or more than $8,000,000 for the property. His firm, members of the New York Stock Exchange, have been advising people in their widely circulated market literature to buy the stock at this figure. And yet the property is without a reduction works, will need $2,500,000 to $3,000,000 in excess of money now in the company's treasury to erect one, which money must yet be raised somewhere and somehow, and the producing era of the company can not possibly begin for two years yet at the very earliest. I could cite many such instances.
When Nat. C. Goodwin & Company of Reno purchased the control of Rawhide Coalition, during the exciting Rawhide camp boom early in 1908, the valuation agreed upon for the property was $700,000. This was considerably more than the original owners could obtain for it at that time from any big interest. It, too, needed milling facilities.
As a matter of fact, but for the success of mine promoters of the Nat. C. Goodwin & Company and B. H. Scheftels & Company class, the great Comstock lode, which produced over $600,000,000 in gold and silver bullion, would have likely remained undeveloped. The big public demand in the early 70's for Comstock mining shares of all descriptions was created by a series of flamboyant flotations and aggressive stock-market campaigns. If the Con. Virginia mine had not opened up into a bonanza ore-body at a depth of 1,400 feet, the frenzy of speculation in Comstock shares might have gone down in history as another South Sea bubble.
The "brass-band" promoter, be it understood, is therefore not without honor in the Far West. Deprive the mine prospector of the services of this style of enterprise projector, with his operating machinery, namely, facilities for appealing to the speculating-investing public, and you hit the small Western mine man a solar-plexus blow. Conversely, every obstacle placed in the way of the mine promoter of loud methods and moderate means is an added cause for rejoicing on the part of the Wall Street multi-millionaire mine capitalist.
When B. H. Scheftels & Company, with whom I was identified, were raided by the United States Government in September, 1910, a wail went up from the Western mine operator to his Representative in Congress. The best sentiment of the Far West, as I was able to gather it, favored the idea that the last hope of the small Western mine owner had been shattered. During the short period of B. H. Scheftels & Company's activity in New York it raised directly nearly $2,000,000 for Western mining properties and indirectly influenced in that direction at least $10,000,000 more.
The raid was a body-blow to the small Western mine owner who needs capital to develop his properties and has no affiliations with capitalists. Since the raid I do not know of a mine owner of any of the great Far Western States who has successfully financed a mining proposition in the East except by delivering his property in its entirety into the hands of some big interest, which has taken it over for a sum insignificant by comparison with what the public may ultimately be expected to pay for it when the stock is finally marketed on the curbs and exchanges.
After I had conducted the big camp publicity campaign of Rawhide, which I had done with a view to centering the attention of the American investing public on the speculative possibilities of the stock of the Rawhide Coalition Mines Company, and in that way endeavored to finance the proposition—after I had failed by this method, in the teeth of the bankers' panic of 1907-8, to dispose of enough stock to finance the company for deep mine development, mill equipment and the payment to the original owners of the price for the control agreed upon, I came to New York, late in October, 1908, bent on trying to succeed in the encompassment of my original purpose both by direct appeal to the public through display advertisements in the newspapers and by making a deal for part of the enterprise with the "big" fellows.
I found Rawhide Coalition stock listed on the Curb, and the market quiescent. Public interest in the East had been aroused to some degree, but the market was not absorbing stock. An effort to induce leading stock brokers to mention the issue favorably in their market letters failed. Those who were willing to give the stock some publicity exacted either a "call" on stock at a low price or an out-and-out reduction below the market quotation for such stock as they disposed of.
Such concessions were not to be thought of. It was the intention of Nat. C. Goodwin & Company to support a rising market for Rawhide Coalition. My Goldfield experience with mining-stock brokers convinced me that few might be expected to protect the shareholders' interest in such an enterprise. Commission mining-stock brokers of that period, who put their customers into a stock at, say, 30, were tempted to advise profit-taking when the price advanced to, say, 50, because by the operation they made another commission and often earned an additional, or third, commission by getting their customers out of the stock at a profit and into another one, levying a commission on each transaction.
Nat. C. Goodwin & Company decided to "try it on" direct with mining-stock speculators by appealing to them through the advertising columns of the newspapers, asking them to purchase the stock on the New York Curb through their own brokers. Also, Hayden, Stone & Company, the Boston and New York banking firm, were induced to agree to raise $1,000,000 for the company for railroad and mill purposes, if their engineer would report favorably.
Provided with money with which to buy advertising space and furnished with stock certificates to supply the market, Nat. C. Goodwin & Company inaugurated an active campaign on the New York Curb.
What happened will be found instructive to the reader in several particulars; among them these:
(1) The free-lance mining promoter does not always "get the money" when he succeeds in creating a buoyant market for his stock.
(2) Some stock brokers of seemingly high standing would just as soon "skin" a mining promoter of this order as they would an ordinary speculator. They play no favorites.
(3) Be a mine promoter ever so honest, without New York Stock Exchange affiliations his motives are bound to be misconstrued if he makes an error. The "big" fellows will sick on to him the newspapers or newspaper men whom they control or influence. Dust will be thrown into the eyes of the public so they'll buy the big fellow's wares, principally for sale on the New York Stock Exchange, and may forever be prejudiced against the little fellow's.
The campaign in Rawhide Coalition made good progress. It was early in November, 1908. For six weeks I had been supporting the market for the stock on the New York Curb for Nat. C. Goodwin & Company of Reno. My office was an apartment in a Fifth Avenue hotel; our brokers were members of the New York Stock Exchange. For a month we had used, every day, display advertisements in the financial columns of New York City daily newspapers, signed by Nat. C. Goodwin, to boom the stock. About 600,000 shares of the stock were in the hands of the public. The market, which was on the New York Curb, was "real." Speculative buying had carried the price from 40 cents up to $1 a share. Mine reports were rosy. Wide distribution of the stock was taking place.
The public evinced deep interest. The Nat. C. Goodwin advertisements set forth that $2 ought to look reasonable for the stock by Christmas day. There were reasons. Several very promising mines had been opened up. An engineer of high rank was examining the property. If his report should be favorable, a deal was practically assured that would involve the expenditure of $1,000,000 for deep mine development, a railroad, and adequate milling facilities. This, in turn, would mean early dividends for stockholders. Experienced, conservative mining men had expressed the opinion that the property bore the unmistakable earmarks of a big producer.
The stock became the feature of the Curb market. It easily occupied the center of the stage. Not less than 20 brokers could be counted in the crowd executing orders at almost any hour during the daily session. The fact that a New York Stock Exchange house was executing the supporting orders from the "inside" impressed the "talent." Public buying through other New York Stock Exchange houses further convinced Curb veterans that the stock was "the goods." Up went the price under the impulse of public buying. Curb brokers themselves caught the infection. By December 7th the price soared to $1.40 per share. This was an advance of 500 per cent. over the "low" for the stock of half a year prior.
At the close of the day's business on December 7th, our brokers, a single firm, members of the New York Stock Exchange, reported the purchase of 17,100 shares in the open market at an average price of about $1.39, and the sale of 1,800 shares at a little above this average. For the first time in the campaign there appeared to be selling pressure. We had quit "long" 15,300 shares. The sum of $21,000 in cash was required to pay for the "long" stock.
On December 8th, the day following, the same firm of brokers reported that they had purchased 17,800 shares at an average price of $1.37½, and the sale of 12,800 shares at an average price of $1.40—"long" on the day 5,000 shares.
On December 9th our purchases through this firm aggregated 16,800 shares at an average price of $1.40, while our sales totalled only 6,400 shares at a slight advance.
Nat. C. Goodwin & Company were now "long" on the three days' transactions 30,700 shares and had been called upon to throw $43,000 behind the market to hold it. This was a comparatively small load to carry and did not alarm us. We considered the stock worth the money. We were curious, however, to learn the reason for the selling.
Nat. C. Goodwin & Company had placed most of the outstanding stock direct from Reno with the investing public at from 25 cents to $1 per share, and early buyers were reaping a harvest. But this did not appear to be the explanation for all of the selling. Interest in the stock was now widespread. There was free public buying and for every actual profit-taker there appeared to be a new purchaser. Apparently, somebody was selling the stock "short."
Late that night a member of our brokerage firm which had been executing our supporting orders, called on me at my apartment. I inquired of him what protective orders he thought the stock would need the next morning to guard against professional attack. He replied:
"I think if you will give us a buying order for 5,000 shares at $1.35 there will be no difficulty."
My understanding was that he wanted to handle the market for me the next morning and that he would, of course, give me quick notice if further supporting orders were needed.
The order was given. It was a very ordinary precaution, for there is hardly a stock on the list that would not be raided by professionals if supporting orders were not known to be in the market. As Saturday is only a short two hours' session, I really fell in with the idea.
Retiring late that night, I left a call for 11A.M.Next morning at about 10:45 I was awakened by my valet. He said Nat. C. Goodwin wanted me on the long distance. Mr. Goodwin was in Cincinnati, where he was playing a week's engagement.
"Hello," said Mr. Goodwin. "Did they get you? Shall I wire the Knickerbocker Trust Company to pay you $25,000 to support the market? Reported here they have you in a hole."
"What's up?" I inquired.
"Why, brokers here say the stock broke to 60 cents on the Curb soon after the opening," he said. This was news to me.
"I do not need more money," I answered. "I have been asleep. Our brokers have been on the job. I will see what is doing and let you know in a little while. Don't worry." And I rang off.
I 'phoned our brokers and they reported that they had bought 5,000 shares of stock at $1.35 at the opening and had withdrawn support. "Too much stock was pressing for sale," they said.
"This is hell. You should not have permitted the market to break that way. Support the stock!" I said. "Buy 7,500 shares at the market!"
In a few moments this firm of brokers reported that they had rallied the market to $1.16. The recovery was only temporary, however. Another drive broke the stock to 60 cents.
Our brokers had bought 7,000 shares at from $1 to $1.16 and then stopped. The member of their firm who had been handling our orders throughout this campaign said the purchase of this fresh block of stock exhausted our cash balance on deposit with his firm. They had a number of drafts out for collection, attached to stocks sold to Western brokers, that had not yet been credited to us. There was also a big block of Coalition stock due us from them. This was the stock they had bought on our supporting orders. They refused, however, to consider either the drafts or the stocks as a credit.
We had cash on deposit and credit with a number of other brokers. I promptly telephoned several of them to buy large blocks of the stock at a limit of 95 cents. This was 35 points above the quotation that was given me. Not a single share was reported bought on these orders.
I jumped into a taxi and rode to the office of the brokers who had been handling our orders.
The situation was critical. I realized fully that a sharp break of this character in the market price of a stock that had been so widely exploited must prove shocking to investors. I feared that public confidence would be shattered completely.
"This is an outrage!" I protested. "Buy 5,000 shares at 95!" I tendered five $1,000-bills as payment in advance.
It was five minutes to twelve when I gave the order. At noon they reported that they had purchased 2,000 shares, for which I gave them the money. The market closed 95 bid for a "wagon load."
On the face of things it appeared that the market had rallied from 60 to 95 on the purchase of 2,000 shares. This was another convincer that there must somewhere be much that was rotten about the play.
Investigation satisfied me that I had been "double crossed."
The one firm of brokers, members of the New York Stock Exchange, who had been handling our orders, had acted as our clearing-house, holding our stocks and our money. They had an advantage, which stock brokers understand well. Having executed most of our supporting orders, their agents on the Curb were also in a position accurately to judge the professional and lay speculation pulse. It was easy for somebody to "put one over" on us.
Shortly after noon I learned that Hayden, Stone & Company's engineer had turned down the proposition of advancing $1,000,000 for railroad and mill construction. A sufficient tonnage of ore had not been blocked out in the mine. Beyond a question this information was in the possession of brokers early in the day.
While I slept damage had been done to the market that was irreparable. By the time the price hit $1 on the way down trading had reached huge proportions. One clique of Curb brokers were reported to have been persistent sellers throughout. Their identity made it very plain that the double-crossing process had been employed to a fare-you-well.
I accused our broker of not protecting our interests—the interests of stockholders. I raised a howl. He telegraphed another member of his firm who was away on a hunting-trip, to come back to town. Next night both of these men, Nat. C. Goodwin and myself met in my apartments behind closed doors. Their firm agreed to charge to their own account 3,000 of the 5,000 shares reported purchased for us at $1.35. Some other minor concessions were made.
On the day after the "break" New York newspapers reeked with sensational flubdub about the causes of the smash in the price of the stock. In the preceding few months not less than a dozen other securities had "busted" wide open at various times on the New York Curb and New York Stock Exchange, but Stock Exchange houses were sponsors for these and the newspaper kept mum. Never on these occasions was there a hint in the newspapers that possibly somebody had separated the public from its money.
Nat. C. Goodwin and I were wrongfully accused of willfully smashing the market to shake the public out. The New YorkSunprinted an account of the "break" on the front page, top of last column. It began in a strain that indicated to confiding readers that chorus girls had lost their savings through the recommendations of Mr. Goodwin.
TheSunprinted the list of officers of the Rawhide Coalition Mines Company and emphasized the fact that I "of Sullivan Trust Company fame" was second vice-president.
TheSunmade no mention of the "double cross." Nor did any of the other newspapers, with the exception of one.
The New YorkTribunesaid: